What does set asides for South African small businesses tells us about economic policy making?

The Minister of Small Business, Lindiwe Zulu is championing the introduction of set-asides for small business in government procurement by September this year.The proposal is to set aside 30% of all government procurement for small enterprises. However, it is worth remembering that Cabinet on the 7 November 2007 announced a decision to do exactly that – create set asides for small businesses. How than do we explain the inaction on this decision for eight years?
The answer to this question cannot be answered by simply arguing that government is inefficient. Rather its the way economic policy is developed in South Africa. Three factors working together in a complex power play shed light on the delay.
First, after the Cabinet decision, the National Treasury blocked attempts to introduce set asides. The Treasury’s argument seemed to be based on two different arguments. On the one hand, they argued that the process of set asides was unconstitutional in that they preferred one supplier over another. On the other hand, they argued that the cost of services and products being supplied by the private sector to government would increase.
Second, is the broader tussle over economic policy. This policy process firmly pitted the Department of Trade and Industry against National Treasury during President Thabo Mbeki‘s administration. The tussle continued into the President Jacob Zuma administration, with the Department of Trade and Industry, Economic Development Department and now the Department of Small Business all arguing for the introduction of set asides. Zuma reaffirmed governments commitment to the policy of introducing set asides in the 2015 State of the Nation, and that potentially settles the issue.
Third, small business advocacy organisations in South Africa have a collective action problem. To impact on economic policy requires consistent lobbying and advocacy over a period of time and building support across wider groups in society. In the case of set asides being placed back on the agenda this collective action problem was solved not by better coordination of small business interest groups, but through activism within the government.
Eight years later, an agreement has been reached within government for the introduction of set asides. Treasury officials are apparently more comfortable with set asides, now that work on an online procurement system will make monitoring of contracts simpler and more transparent. Moreover, having a department focussed on small business — for which the introduction of set asides is one of its main priorities — influences internal discussions in Cabinet, as there is now a consistent champion for the idea.
Whilst, this agreement might be described as fragile, it is an important one. The agreement however took eight years to reach a point where it could be implemented and therein lies the core problem.
The 2007 plan was neither ideologically polarising nor posed a high risk of increased corruption. The green light should have been given to pilot the idea in some government departments, which would mean eight years down the line we would know whether set asides were a good policy or not, and not, as we are now, still waiting for the relevant regulations to be promulgated.
Instead we have lost years of experience in understanding how state procurement can support smaller players in the economy. It is an incredibly large lost opportunity.
But in other areas action has been speedy.
Notably, the Jobs Fund and Youth Employment Subsidy programmes run by Treasury have been fast tracked, suggesting that there are ways and means to ensure policy is implemented. Similarly, interventions in the infrastructure sector through the Presidential Infrastructure Investment Commission seem to suggest a concerted focus on resolving differences.
In other words, government might be better at solving macro-type problems, and not micro-type problems. However, it is in solving the micro problems — like selling services or products to a school or clinic, which set asides would support — that helps small businesses gain a foothold in the economy.
The eight year delay in implementing a Cabinet decision is cause for concern. If bureaucratic disagreements can stop Cabinet level decisions from being implemented then citizens have only a slim chance of impacting on government‘s agenda. This surely is not the democracy we hope to live in.
This article first appeared in the Sunday Times: Business Times (14 June 2015)