At leadership level, particularly on boards and executive management teams, this problem is even more pronounced. Talented executives opt to build their careers in the private sector rather than take a risk with the public sector, which many have come to realise is a graveyard for their careers due to a toxic political environment often laced with factional battles driven by the governing elite.
This shortage of skills has blighted the performance of SOEs, with many suffering enormous financial losses and relying on government bailouts to stay afloat. Public enterprises minister Pravin Gordhan acknowledged this problem when he wrote in August to trade union Solidarity asking it to provide a list of people with technical skills to help the government deal with the skills shortage at state-owned electricity supplier Eskom, which is unable to meet SA’s power demand.
Gordhan needs artisans, power station engineers and plant operators for coal and nuclear power stations to help turn Eskom around and bring an end to the regular load-shedding that continues to damage the domestic economy. In the wake of the damning evidence and findings of the Zondo state capture commission there is a growing realisation that SA’s economic recovery cannot happen if there is no turnaround in the performance of SOEs, especially improved governance.
For this to happen the public sector needs to attract managers and executives with the skills not only to improve the financial performance of SOEs but to regain the confidence of South Africans, investors and seasoned nonexecutive directors with corporate leadership expertise. Fortunately, a precedent has been set — at least one public enterprise, the Small Enterprise Finance Agency (Sefa), appears to be moving in the right direction.
The Sefa board was recently strengthened with the appointment of Simthandile Siwisa as chair. Siwisa, a banker and economist who is Absa head of public policy, has extensive experience in both the public and private sectors, having worked for the World Bank, the Treasury and Stratvest, a research and advisory firm focusing on sovereign debt advisory, economic policy development, research, strategy and investment services.
Before Siwisa occupied Sefa’s chair the small business financier appointed Mxolisi Matshamba as CEO in November 2020. Matshamba is a seasoned executive with private and public-sector experience, having started his career as an external and internal auditor in the oil & gas, retail, hotel, legal and fishing industries.
He had a stint at the then department of trade & industry, where he was involved in economic and industrial policy formulation, trade and investment facilitation, commercialisation of research and technology (the Council for Scientific & Industrial Research), and development of special economic and industrial development zones.
Based on their CVs and experience, Siwisa and Matshamba are a formidable duo capable of infusing much-needed energy into Sefa, which plays a pivotal role in the small, medium-sized and micro-enterprise (SMME) ecosystem in SA. Government has identified the SMME sector as a potential growth engine. According to a report by the World Bank Group’s International Finance Corporation, “The Unseen Sector”, SMMEs employ between 50% and 60% of SA’s workforce and contributes between 34% and 39% to GDP, with most operating in agriculture and manufacturing, followed by education, technology and real estate.
The government’s National Development Plan (NDP) envisions SMMEs generating 90% of new jobs by 2030, helping to slash the unemployment rate to about 6%. The NDP also sees SMMEs playing a leading role in driving economic growth to at least 5.4% annually up to 2030. However, the sector’s contribution to the economy is unlikely to grow if the obstacles preventing this are not removed. Small business owners and start-ups must navigate several hurdles, ranging from a skills shortage to restrictive regulations, lack of access to markets, slow economic growth, poor infrastructure and a lack of access to funding.
These challenges have devastating consequences for the sector, to the point where only 9% of SMMEs survive beyond five years. About 90% of funding goes to companies that are older than five years, so it is critical for an entity such as Sefa to collaborate with like-minded ones in the public and private sectors to build a conducive ecosystem that allows SMMEs to get around these obstacles.
SA’s SMME ecosystem requires strong partnerships between commercial lenders, government development agencies and corporates looking to implement enterprise and supplier development strategies to integrate SMMEs into their supply chains, and commercial banks to extend credit to SMMEs on the back of Sefa’s Khula credit guarantee scheme. These collaborations can ensure that SMMEs receive mentoring and training as well as access to funding and markets.
Under the stewardship of Matshamba Sefa appears to be taking SMME development seriously. But does he have the balance sheet to deliver on his mandate given the huge demand for capital by thousands of capital-starved SMMEs? This question was highlighted by the development financier’s response to the Covid-19 pandemic, when its R513m SMME relief scheme was heavily oversubscribed. The scheme was only accessed by a little more than 4% of the 35,865 SMMEs that applied for assistance. In a close-out report for the scheme Sefa concluded that if it were opened to all applicants a budget of R12.3bn would have been required.
As of March 31 Sefa had a loan book totalling R3.4bn, up 36% compared with R2.5bn at the end of the 2021 financial year. Direct lending comprised 59% of the portfolio, while wholesale lending accounted for the remaining 41%. With the large corporates no longer the primary drivers of employment generation, Sefa will have to play a bigger role in developing SMMEs and driving job creation.