Importance of SMMEs is big business for country
THE PRESIDENT established the Ministry for Small Business Development as part of the government’s commitment to place the economy and job creation at centre stage.
The government is convinced that through this intervention, we will be able to unlock economic opportunities and thus achieve inclusive economic growth and sustainable employment, particularly for women, youth and people with disabilities.
The government is aware that to address problems confronting our economy and to reverse the unemployment rate requires a radical policy shift that recognises the urgent need to invest in small, medium and micro enterprises (SMMEs) as they are key drivers of economic growth and job creation.
We are convinced that if we are to make an impact on the job creation front, the following common problems faced by SMMEs must be addressed. Indeed, the much-needed economic growth and employment opportunities will come from a practical policy that enables small businesses to thrive and grow into profitable enterprises.
SMMEs can be the backbones of any economy and the main driver of economic growth. Research by Global Entrepreneurship Monitor shows that small businesses are significant contributors to job creation, creating more than 50 percent of all employment opportunities in South Africa. Currently, the SMME sector contributes more than 45 percent of the country’s gross domestic product. SMMEs have the potential to create and expand employment opportunities, develop entrepreneurial skills and enhance market opportunities.
Compared to the rest of Africa and the world, South Africa is said to have the lowest enterpreneurship activity. This means our country is yet to see the true value and benefits of SMMEs.
It is important to note that because of the different needs of the small business sector, the government’s policy intervention will have to take into account this diversity. It is for this reason that government has designed a policy that addresses the specific challenges faced by informal businesses, through the National Informal Business Upliftment Strategy.
Over the last 20 years, the government has provided many forms of support to SMMEs ranging from policies, strategies and programmes. I have consistently argued that there is no need for new policies. As we reflect on and assess these interventions, I can assert without fear of contradiction that what we need is effective and practical implementation of existing policies and strategies. After 20 years, we are now able to identify what is possible for SMMEs development.
Statistics tell us that small businesses have only 37 percent chance of surviving four years and a 9 percent chance of surviving 10 years; 70 percent to 80 percent of small businesses fail in their first year, and only about half of those remain in business for the next five years.
As a department, we recognise the need for enhanced support to small businesses and co-operatives. Since 1994 a range of policies – including broad-based black economic empowerment (B-BBEE) and employment equity – have allowed black South Africans to participate meaningfully in the economy – but more needs to be done to accelerate black enterprises into the main economy.
We have also noted the importance of providing training, mentoring, counselling and advice to SMMEs. Apart from having professional and business-minded mentors, we want to see retired astute business owners providing assistance to new owners.
Sustainable small business development can only be achieved if the three spheres of government, the private sector and civil society work together. I would like to commend the leadership of the Gauteng provincial government, under the leadership of Premier David Makhura, for prioritising township economic development as part of a call for radical economic transformation. In tandem with our national efforts which include the upliftment of the informal township businesses, we think these initiatives will go a long way towards realising the economic potential of our townships and peri-urban areas.
Innovation, entrepreneurship and small business development are areas where we need to focus with every ounce of our collective energy.
The mandate of the department recognises enhanced support to SMMEs and co-operatives, which are critical in job creation and economic growth. Growing the small business sector will give our nation the ammunition to defeat the triple challenges of poverty, unemployment and inequality.
The country’s high rate of unemployment and inequality call for bold and far-sighted interventions. The National Development Plan (NDP) is the vehicle which will address poverty, unemployment and inequality. It sets an ambitious aim to treble the size of the economy by 2030, a daunting challenge that will require our collective contribution.
Meeting the NDP’s growth target of 5.4 percent for the next 16 years would not only guarantee South Africa’s material prosperity, but would be an elevating and inspiring narrative for the country – “an optimistic new story”, as the NDP phrases it.
As the NDP makes clear, getting South Africa onto a high-growth trajectory demands that we fundamentally change our game plan and place small businesses and co-operatives at the centre of our war against poverty, inequality and unemployment. Developing a strong and growing SMME community is a cornerstone of the NDP’s vision. SMEs are expected to be central to job creation efforts, in line with international trends.
We are of the firm view that supporting the development of SMMEs offers an important vehicle for sustainable social development. This is largely because they:
n Require limited financing to get started, since they cater mainly for the needs of poor households.
n Can be important incubators for emerging businesses and seedbeds for indigenous entrepreneurship.
n Are typically labour intensive and use domestically engineered/re-engineered technologies, implying that they can adapt easily to customer requirements, and
n Could, in the value chain, act as intermediaries between customers and larger corporations.
The government, with its regulatory and economic policies, including provision of infrastructure, notably energy, is going to be the greatest role player and facilitator for innovation and entrepreneurship in South Africa. Easing the regulatory burden is key if we want to unlock the economic and job creation potential of SMMEs.
Although developing and supporting the private sector is a key policy imperative, there has been limited progress in the areas of innovation, entrepreneurship and small business development. Part of the reason has been red tape and the regulatory environment. The slow business registration process, licensing procedures and small business taxation are some of the issues.
With regard to access to credit and finance, I am of the view that much can be done to ameliorate the situation for entrepreneurs, including support to micro-finance institutions, saving clubs, and formulating policy instruments to regulate credit access to avoid small business being trapped in a vicious cycle.
To promote a robust credit culture we require the well-crafted financing instruments targeting the lowest segments of the market. Poor access to credit has been identified as among the most important obstacles towards the small enterprise’ ability to graduate into medium and large companies.
Poor infrastructure – notably transport, energy and ICT – are key impediments to business growth. These add enormously to the cost of doing business. The 2014-2015 budget commits R847 billion over the next three years for infrastructure investment as part of the National Infrastructure Plan, the bulk of which will be for power generation and freight logistics. This will have an enormous impact on small business development with regard to market access and ease of doing business in the country and abroad. Our strategic intervention in this regard must be accelerate market access for small businesses and co-operatives.
While advanced countries invest significantly in research and development functions, South Africa, by contrast contribute relatively small sums to research and development in the field of small business development. We need to aggressively invest in this area and address the paucity of relevant information on SMMEs. I am positive that such investments can yield enormous benefits in the long term.
Our role as government will focus on the following areas:
n We believe that building adequate infrastructure will be very important. At the lower end of the market, assistance could be provided to entrepreneurs in marketing, understanding new legislation, and preparing bankable business proposals.
n We want to enhance awareness of entrepreneurship as a viable career path and build a nation of entrepreneurs. Enterprise education curricular reform at various levels of training, including Further Education and Training (FET) and university is needed to inculcate the spirit of entrepreneurship within the education system.
n We have begun a strong relationship with FET colleges. We want to accelerate this because we believe that the reforms should have strong industry linkages.
n We are rethinking the small business development practice by increasing non-financial support by establishing programmes for rolling out more incubators; and incentivise involvement of other actors in incubation programmes.
n We will be working hard to increase financial support through tax incentives, informal sector funding tools, and other funding networks in partnership with financial institutions and private sector partners. Small enterprises can only thrive in a context where there is market access for their products and services. We want to increase this demand and create market access opportunities for small businesses.
n We will continue to reduce regulatory constraints through red-tape reduction roll-out programmes. We will continue regulatory impact assessment and simplification, targeting relevant personnel and departments, in all three spheres of government.
n As government we believe that partnerships should be created with the private sector to encourage apprenticeships, B-BBEE-based procurement opportunities and business support services. The private sector could voluntarily support the nurturing of young and emerging businesses and share expertise through existing company-level enterprise development programmes.
n Synergy will be needed across different areas for small businesses to thrive, grow, and create jobs in South Africa. We want to improve institutional framework for SMME development by ensuring a cohesive and integrated approach across all three spheres of government and stakeholders and role players across various institutions.
Lindiwe Zulu is Minister of Small Business Development. This is an extract from her speech at The SMME Coloquium held in Sandton yesterday.