GOVERNMENT and parastatals needed to make it easier for small enterprises to conduct business with them to encourage entrepreneurship and job creation, Royal Fields Finance chief executive Mncedisi Xego said yesterday.
Commenting on President Jacob Zuma’s State of the Nation address, Xego said he was pleased to see that government would prioritise infrastructure development to stimulate economic activity.
"We believe this will result in several new business opportunities for small and medium businesses across the country.”
He added, however, that doing business with government and large parastatals remained a daunting task for small and medium enterprises (SMMEs).
While government had done a lot to improve SMME access to government contracts, many of these SMMEs were unable to exploit these opportunities as they were unable to raise funding.
The main stumbling block, according to Xego, was the blanket prohibition by government and parastatals against cession, the practice of essentially selling-on a contract to another party to execute.
While it was commendable for government to act against the cession of contracts in order to avoid fronting, it was not clear why such a prohibition should also be applied in a manner that consequently denied the SMMEs their economic right to utilise their payment from the state or parastatals to raise funding.
Xego said there were many areas where government, in particular, could cooperate with financiers to minimise the risk- rating of SMMEs when they sought short-term funding to execute a fixed-term project.
Xego said Royal Fields Finance, a bridging and project finance company funding SMMEs, had encountered a number of issues that, if dealt with swiftly, could significantly reduce the burden of funding small business operators that supply goods and services to government and parastatals.
He said there was documented evidence that SMMEs were key players in the creation of jobs. However, there seemed to be general unwillingness from the public sector to assist SMMEs to access funding. "There is a misconception that financiers want government to offer them guarantees with respect to SMME contracts,” Xego said.
The simple act of confirming the existence of a contract, as an example, with a service provider went a long way in enabling an SMME to secure funding, he said.
Having financed small businesses that on occasion did not have a track record, Xego said Royal Fields Finance had taken a big gamble to assist these companies, and while the rewards of seeing such projects come to fruition were tremendous, the inability or unwillingness by government to come to the party put an unnecessary burden on the company seeking finance.
"We understand that it is not government’s role to incubate small businesses, but once an entrepreneur has been given an opportunity to do business with the state, it seems quite harsh not to provide them the necessary framework that helps the business to succeed,” Xego said. – I-Net Bridge