The Legal Commercial Landscape vs SMMEs

Small businesses are of indelible importance to the growth and prosperity of any economy. The South African government and entrepreneurs alike recognise this and are thus constantly looking for ways and means to support small businesses in order to maximise their potential and growth.  However, there are various challenges that small businesses face on a daily basis that threaten their potential, if not their very existence.  Not least of these challenges is the legal commercial landscape within which they operate and how small businesses understand and interact with it.

Some of the biggest and most successful companies in the world hire top law firms and in-house legal advisors to assist them with navigating and understanding the legal commercial landscape within which they operate. This is indicative of the fact that understanding the law and navigating the legal landscape with nous gives one a competitive advantage. Big businesses continue to have this competitive advantage because they have the means to afford it, but what of small businesses?

For many small, micro and medium sized enterprises (SMMEs), the law is a far off concept that they try to avoid, for lack of understanding or a meaningful ability to properly engage with it… until they run into trouble. The law generally isn’t something that is pursued let alone utilised by small businesses as a tool to get them ahead.

In addition to the challenges of accessing high quality legal services in order to navigate their respective industries, small businesses also have to confront a legal commercial landscape that largely caters for and speaks to the interests of big business. This further compounds the competitive disadvantage in which small businesses find themselves, because not only do they lack the means to properly engage with and understand the legal commercial landscape within which they operate, but they also often have to operate in a landscape that speaks very little to their needs and business interests.

For example, with due respect for and taking cognisance of the past from which South Africa hails, legislation such as the Labour Relations Act and the Basic Conditions of Employment Act are key pieces of legislation that regulate labour aspects of the commercial space. The provisions of these and other related pieces of legislation are vigorous in their aims to level the playing field between employer and employee, and one might even say rightly so when considered through the prism of the power dynamics between “big business versus employees”.  And one can indeed say rightly so ,when understanding that these pieces of legislation were enacted to do just that, speak to the interests of workers provide labour for big and powerful businesses, but in achieving this aim, could these pieces of legislation have been drafted with exceptions that could better cater for less powerful, and often powerless, small businesses? The answer has to be a resounding yes because to a large extent small businesses never had a seat at the table when discussions around these pieces of legislation ensued and continue to rise up now and again.

Another example of the law leaving small business behind in a big way is the issue and concept of access to justice. When viewed from the perspective of the individual, government and civil society alike have taken great pains to make access to legal assistance and courts attainable for natural persons who lack the means to otherwise access the largely inaccessible yet highly important legal landscape. Individuals can mostly access legal assistance through legal aid, law clinics, small claims courts and the like. But what of SMMEs? Small businesses are largely left unable to access these avenues to legal assistance and ultimately, justice. 

Case in point, the small claims courts were established to give those who cannot afford costly litigation for small claims access to legal recourse through these freely accessible forums for claims up to R15 000. However, juristic persons, and by implication almost all small businesses are excluded from accessing these forums, despite the fact that many small businesses often find themselves in need to pursue small claims well within this threshold in their day to day business activities.

These and other examples reveal the fact that more often than not, cash strapped small businesses, which have enough challenges to face as it is, often find themselves vulnerable and exposed when it comes to the law.

But why is this untenable? And is there an urgent need to address this state of affairs?

For a long time SMMEs have been recognised as critical players and productive drivers of inclusive economic growth and development by many nations and governments.

The National Development Plan – 2030 (“NDP 2030”) acknowledges that between 1998 and 2005, 90% of the jobs created in South Africa were created by small businesses.  The NDP likewise envisages that once again, by 2030 small businesses will create 90% of jobs available to the workforce – that is 12 years from now.  With an unemployment rate of around 26.7%, and an even more shocking youth unemployment rate nationwide, small businesses are pegged to be the most pertinent answer to the issue of unemployment, and especially youth unemployment, in the country.

Small businesses also have the power to redress skewed ownership patterns in South Africa, reduce levels of economic concentration and increase opportunities for black economic empowerment.

In addition to this potential, in the face of concerningly slow growth rates in respect of South Africa’s Gross Domestic Product (GDP), small businesses have the potential to make a significant contribution to an increase in GDP, as they do in some of the world’s largest economies. For example, it has been recorded in recent years that small businesses have contributed between 50.7% and 55% to the respective GDPs of economies such as Germany, the United States of America and Japan.  This is most notable because all three of the aforementioned economies are amongst the five largest in the world with GDP figures running into the trillions of dollars. This confirms the fact that small business plays a big role in a growing and thriving economy.

With all of the above in mind, is it perhaps time to consider whether law makers should do more to democratise the law for small businesses as a means to support them in their growth? Our view is that they certainly should as small businesses are clearly the big idea when it comes to economic and social regeneration. The current situation is indeed untenable and small businesses are in desperate need for this state of affairs to be addressed. The only question that remains then is, given the importance of small businesses, what’s the big idea with law makers?

-Deborah Mutemwa-Tumbo