Johannesburg — A DEBATE in Parliament's trade and industry committee needs to be expanded to the broader public. Several government institutions provide assistance to small, medium and micro enterprises (SMMEs) that do not qualify for conventional bank funding.

The committee was told in today's global recession, 50% of SMMEs are expected to fail, against which entities such as the National Empowerment Fund (NEF) have made allowance for 25% of the value of their loan book for bad debt. The Industrial Development Corporation (IDC) has a similar projected bad-debt ratio.

After their initial or most recent capitalisation, most of these state funding entities have been self-funding, but if the default rate is as projected for this year and stays the same or rises next year, the National Treasury will end up paying the difference. This will be while the Treasury needs to borrow a projected R80bn this year and R180bn next year to make up the shortfall in revenue collection.

As highlighted in the committee, more than one entity provides the same market segment of SMMEs with substantially the same services. While the IDC deals with larger projects, the NEF, Khula Enterprise Finance, the Small Enterprise Development Agency and the South African Microfinance Apex Fund provide financial, logistical and business assistance to the same SMME target segment.

This leads to a massive duplication of resources to the point that these institutions must meet often to avoid stepping on each others' toes.

In the committee, I have argued these entities must merge to reduce their huge operating costs. This would place into a different framework Khula's intention to "go direct". Khula's plan, which would cost the Treasury at least R1,7bn, is to open offices nationwide and hire additional staff to provide business assistance and financing directly to SMMEs without intermediary financial institutions.

Khula promised the committee this operation would eventually be self- funded and self-sustained. Yet it failed to abide by the committee's request to provide alternative options for the required funding to spare taxpayers this cost in times of economic crisis. If it is as viable as promised, the option should also exist for a joint venture with a commercial bank and/or international organisations such as the International Finance Co-operation. Yet such options were not explored.

Moreover, Khula is presenting Parliament with the impossible proposition of wanting approval first and producing a business plan afterwards.

In the meantime, the bureaucracy and salaries of SMME-funding entities grow, in spite of economic crisis. The NEF justified to Parliament its huge executive pay and bonuses on the basis of its running an investment management component that has to attract the highest-paid experts. The other entities are trying to emulate it.

The NEF already retails financial services to SMMEs. It has a broader range of services beyond financial assistance to SMMEs and, by many accounts, is a first-class operation, better run, better staffed and better equipped than Khula and the others. They have cherry-picked the SMMEs to fund and want to keep it that way, without having to take over problems not of their making. So they responded unenthusiastically to questions in the committee about merging with the other entities.

Khula was hostile to a merger that would probably result into its being absorbed into an enlarged NEF. While the funding entities defend their turf and high salaries, the government needs to provide leadership and force a merger. The economic crisis and the foreseeable demands on the Treasury make this both ripe and necessary.

Oriani-Ambrosini is an Inkatha Freedom Party MP.