ECONOMIC and transformation experts have called for a weightier allocation of black economic empowerment (BEE) points for the development of small enterprises.

They say this would dramatically enhance development of the small and medium enterprise (SME) sector.

There is a widely held view that the creation of a vibrant small, medium and micro enterprise sector in SA is essential to faster economic growth, job creation and poverty alleviation. Government has put SME development as a core pillar of its economic growth strategy.

The BEE Codes of Good Practice, in many respects still in draft form, could be crafted to encourage companies throughout the economy to contribute far more towards development of SMEs, says Azar Jammine, chief economist at Econometrix.

The code targets devote a weighting of 10% to enterprise development and 10% to social investment and industry specific objectives. Ownership, skills development and preferential procurement are each given 20% while management control and employment equity have 10% each.

Jammine welcomes the broadening of the narrowly applied definition of BEE as the transfer of assets from white owners to black investors. He says a greater focus on preferential procurement is “a step in the right direction”.

However, procurement procedures were a serious concern and could become time-consuming, both for companies trying to win state tenders and officials bent on regulatory compliance. Fronting could also once again raise its head.

The biggest constraint in the implementation of BEE for SME development, cautions Jammine, remains a widespread lack of business skills needed to start and grow small businesses successfully.

Jammine’s view is backed by findings of the nationwide SME Survey 2006. Principal researcher Arthur Goldstuck says the survey has shown “conclusively” that SME decision makers rate access to expertise as the most important requirement for starting and running a small business. Yet among those polled this aspect has the lowest satisfaction rating of all.

“This tells us that to make the SME sector more competitive and therefore the national economy more competitive, it’s critical that we find a way to provide greater access to skills and expertise.

“Doing it through a structure like the BEE scorecard would give SME competitiveness a major boost.” In addition to using the scorecard to help existing SMEs, companies could take advantage of the BEE framework to help create many new small businesses.

Apart from earning points through procurement from BEE suppliers, says Jammine, large companies should be encouraged to earn points for a range of SME support initiatives. These could include such things as help with business plans, financing, recruitment, professional, management and marketing issues.

A BEE guide published by economic empowerment rating agency Empowerdex quotes President Thabo Mbeki as saying last October: “The government is very firmly of the view that when we talk about BEE we should talk about such empowerment as helps the economy to grow.”

It says government has singled out small enterprises as vital in the fight against poverty and unemployment. Statistics indicate that small, medium and micro enterprises (SMMEs) contribute 35% of gross domestic product and provide 70% of all jobs. “But the structural and regulatory burdens placed on SMEs prevent them from participating fully in the mainstream economy,” the guide says.

Annual regulatory compliance costs are at 8,3% of annual turnover for companies making R1m or less a year while they are only 0,2% for companies with a turnover of R1bn or more.

Compliance costs per employee are also exceptionally steep for the small business owner. A company employing fewer than five people will pay about R13000 per employee compared with only R2450 per employee for one with more than 500 employees.

The guide says that of more than 1,5-million estimated SMMEs, about one third are formal, registered businesses, of which 70% have turnover of less than R5m a year.

By contrast two thirds are believed to be informal enterprises “almost exclusively owned and operated by black South Africans” and taking home less than R700 a month.

Because of the high risk associated with SME suppliers and linkages, large corporations often bypass smaller businesses. Empowerdex says the codes “intend to get big business to play a big brother role” by nurturing and helping to develop these enterprises.

Yet, note critics, a mere 10 scorecard points are allocated for enterprise development, plus one possible bonus point, out of 100 total points.

These 10 points consist of six points for a company’s “cumulative non-recoverable contribution” and four points for its “cumulative recoverable contribution”.

In both instances the contribution is calculated as a percentage of profit before interest, tax, depreciation and amortisation.

Such a minor allocation, they say, is not consistent with the significant role that SMEs are expected to play in helping government achieve its growth, employment and poverty reduction goals.