Public procurement has long been sold as South Africa’s ultimate lifeline for small and medium enterprises (SMEs). On paper, it offers a predictable pipeline of work and a pathway to growth, innovation and more jobs. In reality, though, the system meant to support SMEs is sabotaging the very businesses it was designed to uplift.
Every year, our government pours more than R1-trillion into goods and services, much of it meant for SMEs, particularly black-owned ones. Yet for many, their real barrier is not ambition and capability but a procurement system that is built to cater for the needs of large corporations and not the everyday realities of small enterprises.
The most immediate and destructive barrier for any business is cash flow. Despite regulations requiring payment within 30 days, late payment has become routine for many businesses. According to the auditor-general, in financial 2024, 117 municipalities (47%) failed to pay suppliers within 30 days, instead taking an average of 286 days to settle invoices. Even more alarmingly, since financial 2022, municipalities have incurred R14.58bn in interest and penalties due to late payments.
National and provincial departments fare no better. Government departments paid 362,068 invoices late, amounting to R35.1bn, directly undermining the state’s own developmental objectives.
A government contract should provide relief and stability, but instead it offers delayed payments, shifting requirements and governance failures that turn financial relief into a nightmare.
Larger corporations can absorb a payment delay better than small businesses can. For SMEs, late payments are not just a mere cash-flow inconvenience but an existential threat. Rent, wages, tax obligations and payments to suppliers do not pause simply because an invoice is stuck in a bureaucratic queue.
The contradiction is glaring. We encourage SMEs to participate in public procurement, but in reality, we ask them to finance the state’s operations. Many are forced into expensive short-term borrowing just to survive contract delivery. Others walk away entirely, choosing to remain small or service only the private sector because doing business with the state is simply too unreliable and risky.
Compliance presents a second, equally damaging hurdle. Tax clearance certificates, broad-based BEE affidavits, central supplier database registration, audited financials and sector-specific accreditations are necessary safeguards, but together they create a compliance burden that often exceeds the administrative capacity of smaller businesses. In too many cases, SMEs deliver on time, only to have payments withheld due to tax compliance issues that arise after delivery. This practice alone has contributed to business closures and reinforces the reality that the cost of compliance in South Africa is prohibitively high.
Then there is scale. Tenders are frequently bundled into contracts so big that only large, established firms can realistically compete. Subcontracting is offered as a solution, but it usually relegates SMEs to high-risk, low-margin roles with little control and even less upside.
All of this is happening in an economy that is expected to grow less than 1.5%. SMEs have access to markets but not funding. A government contract should provide relief and stability, but instead it offers delayed payments, shifting requirements and governance failures that turn financial relief into a nightmare.
Then there is corruption, which compounds the problem. Ethical entrepreneurs increasingly shy away from public procurement because they are either not “connected” enough or unwilling to pay a bribe to fast-track payments. As well as being a moral failure, this is a huge economic loss that drives capable suppliers out of the system and rewards those who undermine service delivery and public trust.
This failure is not about policy design. South Africa has no shortage of progressive instruments such as localisation regulations, preferential procurement frameworks and BEE codes that are all clear and inclusive on paper. The real problem lies in implementation, capability and the complete lack of consequence management.
Public procurement sits at the intersection of growth, transformation and service delivery. Done right, it could stabilise thousands of SMEs, protect jobs and build local capacity. We don’t need to reinvent the wheel, we just need better discipline.
If economic growth is ever to move beyond a stagnant 1.5%, late payments must stop being tolerated and start being treated as the economic crisis it actually is.
Payment timelines must be enforced without exception, and procurement processes must be simplified for SMEs, with tiered compliance requirements aligned to contract size. Automated payment systems, public reporting of late payers and personal accountability for senior officials would go a long way too.
• Mtwentwe is MD of Vantage Advisory and host of the SAICABIZ Impact podcast
Business Times
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