To create jobs, start at the bottom of the economy not the top
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By Miguel Da Silva
Statistics South Africa confirmed recently that the unemployment rate in South Africa is at an all-time high.
As we struggle through the 14th month of this pandemic, the unemployment rate isn’t surprising and represents one of the biggest risks to the country, alongside poverty and inequality, which, in turn, are fuelled by joblessness.
The solution doesn’t lie in grand plans and promises of large scale infrastructure rollout, though those certainly help. The surest route to creating jobs is to start at the bottom, not the top.
This isn’t something new. Government itself knows this and developed a document that spells out the potential of small and medium enterprises (SMEs) in making significant inroads into the country’s unemployment rate. The national development plan (NDP) boldly aspires towards 90% of jobs being created by SMEs by 2030. Great vision, but we are woefully off track in achieving this goal.
But why SMEs? We’ve all encountered various statistics from different sources that tell a story along the lines of 98% of registered businesses in South Africa are SMMEs, yet they produce less than 60% of all jobs. If this is the case, why bother flogging the small business horse?
To answer that question, let’s look at what the International Labour Organisation wrote in 2019: “Micro, small and medium-sized enterprises (SMEs) are responsible for more than two-thirds of all jobs worldwide. They also account for the majority of new job creation.”
The ILO writes further: “In many countries, more than 90% of all enterprises can be classed as SMEs, and a large share of those can be classed as micro firms, with fewer than ten employees. While they may be small individually, new ILO data show that micro and small enterprises, together with own account workers, account for a staggering 70% of employment worldwide.”
The ILO also says that globally, SMEs are the engine of economic growth and social development. Of high relevance to South Africa, ILO writes: “SMEs are also more likely to hire from groups with lower chances of finding employment such as young people, older workers and less-skilled workers.”
It is abundantly clear that SMEs are vital to the prospects of the whole world, not just South Africa. If we can get it right, we, too, can speak about statistics like that – where SMEs in this country drive economic growth and social development, and that they produce upwards of 70% of jobs.
When Retail Capital was launched a decade ago it started with a simple premise on a napkin at a dinner table: support SMEs so that they can grow. It really is that simple. One should not confuse simple with easy. No one said solving one of the biggest challenges in this country would be easy.
The stakeholder that everyone turns to first for direction is the government. As we’ve already ascertained, at a national level, there are high aspirations and grand plans. Time and again, this is supported with special initiatives and funds, but frankly, they miss the mark because they are either ineffectively administered or they complicate something that should be simple.
The Covid-19 pandemic provides a good case study for how the SME sector in South Africa is constantly left hanging. At the outset, bold proclamations of support packages were met with broad approval. In reality, however, the government, and the banks powering their initiatives, excluded the vast majority of sub-R10m businesses because the requirements were too onerous. Instead, larger, or medium enterprises, received the bulk of the small portion of support that was eventually disbursed.
That the green shoots, the new businesses so desperately needed by the country, remain invisible to the mainstream is a tragedy, but equally provides enough impetus for the private sector to take the bulls by the horns.
Providing cost-effective finance at acceptable terms that are cognisant of fluctuations in micro enterprises’ turnover is just one, and possibly the first, in a series of interventions that are, and should be, driven by the private sector.
Digitising the economy is another. Partnerships, where payment vendors, lenders, insurers and more, can service the so-called informal economy and digitise it, are vital. Fintech is known for its ability to financially include the unbanked and underserved.
The simple process of allowing for digital payments and simple bookkeeping builds a digital footprint that forms the basis for funders to measure risk and lend responsibly. This is something the mainstream banks just can’t do yet.
If a small business owner has a business that’s younger than a year, it may as well not exist in the eyes of traditional lenders. It’s time that those who can, back the jockey.
The availability of working capital to invest in machinery or equipment, or procure stock at a preferential rate, will quite literally lift micro-organisations out of their monthly survival rut. Once they grow, they hire.
It is similar for more established SMEs. By having the option to fund things such as setting up e-commerce platforms and investing in digital marketing, they can supercharge their competitiveness and growth. Once again, when they grow, they hire.
This isn’t pie in the sky idealism, we see it monthly, where smart digital investments during the pandemic have seen enterprises grow impressively.
This is what we mean when we say the solution to supporting the SME sector and its potential to drive economic growth and provide jobs is simple. Remove the shackles and provide what SMEs need to grow. One SMME with five staff hardly makes a dent. 100,000 SMMEs with five staff hire half a million people. When they grow, this number grows with them.
Our appeal to the government is clear and precise: find more money in the fiscus to support one of the most important segments of almost every sector in the economy – small businesses. Reduce red tape, drive progressive regulation, continue to push the buy-local appeal, and become a government that incentivises entrepreneurship.
Our appeal to our colleagues in the private sector is equally clear and precise: wherever we can, let’s continue to find innovative ways to support SMEs to grow. It’s 2021; the time for posturing is long gone. Our collective future is largely tied to the prospects of small businesses in South Africa.
Miguel Da Silva is the MD at Retail Capital.
BUSINESS REPORT ONLINE