Why Government Tenders Below One Million Rand Should Be Given to Small Business Owners

Small businesses are the backbone of any thriving economy. In South Africa, small businesses are imp0rtant for innovation, creation of jobs and inclusive growth. Ironically, small businesses do not have the capacity to take advantage of tendering opportunities from the government. One of the most effecting and transformative strategies policies would be to set aside or prioritise government tenders from small businesses. Such a threshold is low enough to not expose the state to high risk, and high enough to make a difference for small businesses. Many such entrepreneurs would economically uplift marginalised members of the society. Such a strategy would enhance economic participation, job creation, and equitable economy.

Strengthening Local Economies Through Inclusive Participation

When small businesses do government work, the small businesses use local entrepreneurs, which retains the economic benefits of the work within the community. Most of these small businesses are community entrepreneurs, which would allow the government to marginalise economically to benefit from work. Subcontracting tenders less than R1 million to small businesses would allow the government to economically uplift small entrepreneurs which large businesses are not able to do.

In addition, small businesses tend to reinvest earnings more directly into the operation when they are attempting to expand capacity, and that leads to more stock being purchased which leads to suppliers being engaged, and employees being hired, resulting in a grassroots economic stimulation, uplifting entire communities.

Fostering Economic Inclusiveness

There are still considerable inequities in the South African economy. Obstacles for many would-be entrepreneurs, particularly Black, women, and youth-owned businesses, are entry into markets controlled by powerful incumbents. Allowing small business owners to only target sub million-rand tenders can alter the dynamics.

This would help to diversify the supplier pool and promote a more equitable distribution of the economic benefits. The intent of policies like Broad-Based Black Economic Empowerment (B-BBEE) and Preferential Procurement is to open opportunities for the disadvantaged. Unfortunately, however, these policies tend to become irrelevant when big players continue to control government procurement.

Allocating a coherent flow of low-value tenders to small businesses would be a more straightforward and effective system of empowerment. It would help ensure that new entrepreneurs receive the invaluable experience and opportunities needed for sustainable long-term competitiveness.3. Less Risk for the Government, More Impact for the Entrepreneurs

Because of the perceived risk regarding small businesses’ capacities, experiences, or finances, government departments and municipalities do not easily award those businesses contracts. While these things can be true, there is also a way to start small. For example, tenders below one million rand is a “safe” tender. The government does not risk much money, but there is much to be gained by small businesses.

By awarding small businesses these types of contracts, the government is able to gradually create a track record for each small business. These small business owners can then be trained to be able to tackle bigger and more complex contracts. In this scenario, the government can try to eliminate risk while still creating a bigger economy and new business champions.

Encouraging Increased Responsiveness and Customization

In comparison to larger firms, small businesses are much more flexible. As a result, they can make quick decisions and tailor their offerings right down to the specific applications within a community. When government departments work with small businesses, they report quicker turnaround times, better communication, and improved responsiveness.

While it is not uncommon for large companies to have more available resources, their bureaucratic structure often hinders their ability to deliver services quickly. In contrast, smaller companies have the ability to nimbly accommodate changes in the scope of work that may occur. The government may receive more effective and efficient services by allocating smaller value tenders to small businesses.

Lessening Corruption and Increasing Accountability

Corruption has become a hallmark of public procurement and is one of the most significant challenges. Large tenders will often draw significant lobbying, political interference and, in extreme and malicious systems, corruption. Smaller tenders, especially less than what is of interest to corrupt systems, and those that are earmarked for small businesses, become less appealing.

Lesser complexity of larger projects to smaller tenders, is likely to improve visibility and avoid centralization of procurement. The more smaller businesses there are, the more challenging it is for a single business or consortium to take control of the system. Smaller businesses are less likely to find it necessary to engage in corrupt practices or bribery to obtain work if they know they will not be blocked from obtaining bids on a tender.6. Fostering Employment Opportunities at a Grassroots Level

Globally, small enterprises account for a considerable portion of the total employment. Unemployment is a pressing crisis in South Africa, needing urgent, innovative, and tailored approaches. When small business owners win government contracts, they are able to and often need to hire locals quickly and even rush to start the process. Every small government tender translates to several potential jobs, and even opportunities for contracts, apprenticeships, internships, or temporary jobs.

From the government’s perspective, prioritising these small businesses for sub-million-rand tenders would enable direct job creation. Smaller companies, in contrast to larger ones, are not as likely to sub out their work to other companies and, out of loyalty to, and necessity for, their local community, will employ local people.

Fostering an Innovative and Enduring Sector of Small and Medium Enterprises

The Small and medium-sized enterprise (SME) sector in South Africa is an essential component for continued, sustainable advancement of the economy. It is unfortunate that a higher percentage of small businesses close down within their first few years, primarily attributed to a lack of steady cash flow. SME’s, due to the tenders provided by the government, would be able to gain cash flow that is predictable and would aid in the stabilization of the enterprise and provide an opportunity for the business to expand.

With each opportunity, small businesses have the chance to work with the government to gain:

• Experience
• Credibility
• Access to improved, additional funding
• More sophisticated operational systems
• Enhanced confidence

This cycle results in a stronger, more developed small business community and more sustainable SME sector that is able to support the economy’s growth as a whole.

Ensuring Fair Access and Levelling the Playing Field

As the system stands, established players appear to hold the advantage, and, as a result, most small business owners feel disheartened and discouraged from participating in the government procurement system. When larger companies consistently succeed and win tenders, it becomes a vicious cycle as smaller companies lose hope and become more disillusioned and entrepreneurial apathy and disillusionment grow.

If the government set aside tenders below one million rand for small businesses only, it would send a clear message to the public. The government would be demonstrating the principles of fairness, inclusivity, and support for the young, emerging entrepreneurial class. It would encourage more people to develop business ideas, and come up with innovations, and engage in constructive processes for the development of the nation.

Prioritising small business owners for government tenders to the value of one million rand and below is not just a sound policy decision in the practical sense; it is a radical one. It stands to transform the landscape by strengthening local economies, inclusive growth, improved relations, innovative growth, grassroots job creation, and, most importantly, it addresses the systemic need for a more responsive public procurement system. Where the most vulnerable and marginalised citizens within the economy, the small business owners, experience the value and benefit of public procurement in a system that is designed and operates to be exploitive, the system is preserved.

The future of the economy of the Republic of South Africa is positively correlated with the small business sector. The country stands to benefit from thousands of small businesses. The government stands to benefit, and more importantly, the citizens of RSA will benefit from the equity and the economic prosperity of the small businesses. The government and the public sector need to strategically and purposefully opened up public sector procurement to small businesses. It would give small businesses the opportunity to work with the public sector and the entrepreneurs to work towards a more equitable and prosperous RSA. The need to work towards a more equitable and prosperous South Africa for thousands of small businesses will unlock the economic potential of South Africa.