JOHANNESBURG – According to the Enabling Environment for Sustainable Enterprises in South Africa (EESE Report 2016) commissioned by the ILO on behalf of Business Unity South Africa (BUSA), “globally, over 95% of enterprises are classified as SMEs and account for 60-70% of the working population. In Europe, 91% of enterprises are classified as micro businesses, and employ between one and nine people and only 1% are large enterprises with more than 250 employees”.
South Africa is facing two-pronged challenge: low national growth rate (less than 2%); rising, high unemployment. “More than a third of South Africans are unemployed or not seeking employment, with an unemployment rate of 34.4% of which 62% are young adults” (EESE Report). According to Stats SA over 55% of the working population is either unemployed or not economically active.
The National Development Plan (NDP) places Small & Medium Enterprises (SMEs) at the epicentre of economic growth in South Africa. The NDP projects that by 2030 more than 90% of new employment opportunities, at least 11 million of them would be employed by SMEs. It therefore stand to reason and behoves of all of us to channel all our efforts as government, private sector as well as civil society should be inspired to take the SME sector serious as our centre for accelerated economic growth.
Of course, after intense lobby for many key stakeholders, including black business lobby group, the Black Business Council, for the establishment of the Ministry of Small Business Development, government indeed established the Ministry which was enacted in 2014 and stopped right there.
Then came the new rhetoric under the banner of Radical Economic Transformation (RET) which was supposed to be the new Agenda aimed at accentuating the notion of Black Economic Empowerment (BEE). One problem with RET is the acute absent of context and philosophical precept. There is no concept or notion that could succeed without a clear Master Plan with concise objectives, action plans, milestones and timeframes and driven by a dedicated champion, it becomes political speak.
There is clearly no visible, integrated strategy within all three spheres of government that gives testimony to government’s seriousness in introducing change management principles that enable buy-in and clear manifestation of these ideals within government, private sector as well as the broader populace. It seems to be left in the hands of those “who seem to like the sound of it”.
The President, in his State of the Nation Address (SONA), opens his focus SMMEs on “stimulating economic activity and employment” on a much muted tone: “Given the key role the small business businesses play in stimulating economic activity and employment-and in advancing broad based empowerment –we are focusing this year on significantly expanding our small business incubation programme”. An incubation programme is not just a by the way programme, it is a clearly articulated programme that emanates from a clear strategy as a sub set of a particular Master Plan that is well thought of, canvassed as well as well articulated. It should be part of an enterprise development ecosystem which unfortunately is non-existent, if anything peripheral.
Whilst the President’s intent may be noble, it lacks substance in terms of a strategic perspective and purpose. Not a single reference was made of the Department of Small Business Development (DSBD), the custodian department charged with the responsibility to drive SMME development as articulated in the NDP. Those of us who operate within the enterprise development ecosystem would have expected the President to pronounce on the future of the DSBD given the pending restructuring or merging of various department which the President articulated during his maiden SONA in 2017.
The government need to demonstrate its seriousness and bold intentions in focusing on the SMME sector as the major driver of future economic growth in South Africa. Its pedestrian approach on this matter is very worrisome and lack honesty. There is a plethora of initiatives aimed at economic transformation that do not speak to each other and are scattered across many departments outside of a clear National Strategy or SMME Policy Master Plan.
Government speaks of:
- Black industrialist Scheme
- Revitalisation of rural and township economies
- Small Town and Small Villages revitalisation
- Small Scale farming
- Tourism, etc.
These are all crucial and important interventions whose success is centre around SMME, however, there is no over aching lever that brings everything together. That is the role of the DSBD. Unfortunately, the DSBD is treated like a step child of government fed through some welfare programme. It need to be well resourced and expanded and to ensure that it employs a good mixture of public and private sector employees with in depth understanding, and with practical understanding of the enterprise development design and practice. More importantly, if the DSBD is to succeed in its role to drive and accomplish the role of SMEs as articulated in the NDP targets, significantly more financial resources should be placed at its disposal and to ensure that it carries through its mammoth task of building a vibrant and robust SME sector and to drive employment creation and propel inclusive growth.
The President is very clear and articulate when it comes to its strategies on attracting investments and creating a reassuring climate for foreign direct investment. However, he is failing the nation by not building sincerity in his belief in building a viable domestic led growth oriented market, and in building a strong and viable manufacturing sector in key sectors of the economy. Of course the SONA speech, “we will pursue measures to increase local demand through, among other things, increasing local proportion of local goods and services procured both by government and the private sector”.
We know the private sector is largely profit driven with highly integrated major value chains that depend on international OEMs’ supply chains and “old boys clubs”. What we require is a bold policy environment that enforces the development of local content in all major sectors of the economy in a much more vigorous manner, and to inspire an unprecedented manufacturing activity with targeted milestones and timeframes linked to a monitoring and measurement process manged under the DSBD.
The President should use his influence and affinity to the private sector by ensuring that the private sector, and large companies in particular, are able sing the same tune in driving what he terms “increasing local demand, and reducing the consumption of imports”. Large companies should become patriots and must visibly invest in developing local supply chains as their first choice within their major value chains. Of course in many areas these do not exist, and it is therefore incumbent of them to invest in their development on a long term basis, and to ensure over a specified time local content of manufactured goods in particular can increase significantly. Government should provide significantly more incentives through grant and tax incentives, furthermore, it should introduce regulatory measures that ensures compliance to contributing towards increased localisation of goods and services, and ensure that South Africa’s manufacturing sector is globally competitive. Of course in the beginning there will be strains in the process given the investments required to switch from global to local manufactured goods, and hence the need for government to increase tax incentives in this regard.
For significant change to occur, it cannot be business as usual, something significant must break.
The role of the Department of Small Business Development is to drive that change and to put game changing measures in place that can significantly change the South African economic architecture forever, and to meet the NDP goals. For this to happen the DSBD should consider developing a National SMME Policy Master Plan, and to urgently constitute a Task Team or Commission drawn from the public and private sectors, academia, labour as well as from key SMME practitioners.
The time is now.
Xolani Qubeka is chairperson of the Small Business Development Institute (SBDI) and executive chairperson and managing director of Malvilox. The views expressed here are his own.