5 WAYS TO SEX UP SMALL BUSI­NESS

South Africa’s small and medium en­ter­prises (SMEs) are ar­guably the lifeblood of our econ­omy. Largely ig­nored by the me­dia and the gen­eral pub­lic, and re­ceiv­ing scant at­ten­tion from the Government, th­ese ‘lit­tle guys’ keep SA’s frag­ile econ­omy tick­ing ove

Finweek English Edition - - FRONT PAGE - BY JES­SICA HUB­BARD AND MARC ASH­TON

Ac­cord­ing to sev­eral stud­ies, SMEs in South Africa con­trib­ute be­tween 52% and 57% to GDP and pro­vide about 61% of the coun­try’s em­ploy­ment. In 2008, the De­part­ment of Trade and In­dus­try (dti) pro­vided a de­tailed break­down, stat­ing that mi­cro-en­ter­prises (one to five em­ploy­ees) pro­vide em­ploy­ment for 17% of the work­force, small en­ter­prises (21-50 em­ploy­ees) for 21%, and medi­um­sized en­ter­prises for 18% of em­ploy­ment, for a to­tal of 56%. The dti has since re­vised that fig­ure to 61% for over­all SME em­ploy­ment in SA.

“That the health of the SME sec­tor is in­creas­ingly cru­cial to our col­lec­tive success as a na­tion is no se­cret,” says An­ton Res­sel, Se­nior Busi­ness Con­sul­tant on the Old Mu­tual Leg­ends Pro­gramme. Ac­cord­ing to a Fins­cope 2010 sur­vey (con­ducted by Fin­mark Trust), be­tween 1985 and 2005, small, mi­cro and medium firms cre­ated 90% of all new jobs in SA. Pro­fes­sor Neil Rankin from Wits Univer­sity’s School of Eco­nom­ics and Busi­ness Sci­ence goes fur­ther to state that 73% of em­ployed peo­ple in SA work for firms with fewer than 50 em­ploy­ees.

For a coun­try with a soar­ing un­em­ploy­ment rate (24.9% of the labour force in the fourth quar­ter of 2012), th­ese num­bers can­not be ig­nored. Res­sel adds: “If we are to com­bat un­em­ploy­ment as a na­tion, the SME sec­tor sim­ply has to be given all the re­sources nec­es­sary for it to f lour­ish.” Yet the ben­e­fits of SMEs go far be­yond em­ploy­ment and job cre­ation. “Small busi­nesses are the great­est cre­ators of eco­nomic in­clu­siv­ity,” ex­plains Pavlo Phi­tidis, CEO and co-founder of Aurik Busi­ness In­cu­ba­tor. “By na­ture, they en­cour­age in­no­va­tion and pro­mote a more vi­brant – and in­clu­sive – busi­ness en­vi­ron­ment.”

Far from be­ing a threat to big busi­ness, a f lour­ish­ing SME sec­tor will en­hance the per­for­mance of SA’s large cor­po­rates. “If we in­crease the num­ber of SMEs, we will in­crease the op­por­tu­ni­ties for big busi­nesses to grow more ag­gres­sively as part of their growth strat­egy is through se­lec­tive ac­qui­si­tions,” adds Phi­tidis. “The wider the choice they have, the more op­por­tu­ni­ties there are for both in­no­va­tion and growth.”

Clearly, the ques­tion is no longer whether SMEs are crit­i­cal to the eco­nomic well­be­ing of SA, but how as a na­tion, we can help – rather than hin­der – the devel­op­ment of this sec­tor. De­spite the on­go­ing ef­forts of var­i­ous pri­vate and pub­lic role play­ers, most are quick to ad­mit that the out­look for lo­cal SMEs is bleak. “SA re­mains a very chal­leng­ing place to start and run a small busi­ness,” says Res­sel. “While Government and the pri­vate sec­tor do of­fer a lot of gen­er­ous as­sis­tance to small­busi­ness lead­ers and emerg­ing en­trepreneurs in terms of skills devel­op­ment and ac­cess to op­por­tu­ni­ties, our reg­u­la­tory red tape and oner­ous labour leg­is­la­tion, cou­pled with some of the high­est bank­ing, trans­port and com­mu­ni­ca­tions costs in the world, make it a chal­lenge for our SMEs to sim­ply re­main in busi­ness, and al­most im­pos­si­ble for them to com­pete glob­ally.”

Ac­cord­ing to the SME Growth In­dex 2013, pro­duced by busi­ness en­vi­ron­ment spe­cial­ists SBP, things are only go­ing to get worse if the coun­try keeps on its

cur­rent tra­jec­tory. “It is be­com­ing in­creas­ingly dif­fi­cult to op­er­ate a small busi­ness in SA, and the SME com­mu­nity ex­pects that this will be­come ever more so in the fu­ture,” the ac­com­pa­ny­ing report stated. Al­most three quar­ters of the firms sur­veyed in­di­cated that it had be­come more dif­fi­cult to op­er­ate a busi­ness in the year pre­ced­ing the sur­vey.

Ac­cord­ing to the in­dex, man­u­fac­tur­ers are the most neg­a­tive about the busi­ness en­vi­ron­ment, with around 81% feel­ing that things have be­come harder. Sur­vey re­spon­dents gave a range of ex­pla­na­tions for their pes­simistic out­look, which in­cluded the de­clin­ing state of the econ­omy, poor gov­er­nance, ac­cess to fi­nance, red tape, skills short­ages and the ris­ing cost of util­i­ties. “All in all, the pic­ture that emerges is one of an SME com­mu­nity strug­gling with the pre­vail­ing condi- tions, and in a very real sense, bat­tling to stay afloat,” SBP stated. “It would not be an ex­ag­ger­a­tion to say that a wide­spread busi­ness ob­jec­tive and lived ex­pe­ri­ence is one of sim­ple sur­vival, rather than ex­pan­sion – although not yet one of de­cline.”

De­cline is cer­tainly on the cards, how­ever, and while Government makes the right noises about SMEs, it is prov­ing to be in­ef­fec­tive. The Na­tional Devel­op­ment Plan placed sig­nif­i­cant em­pha­sis on the SME sec­tor in its roadmap for SA’s eco­nomic growth:

“A large per­cent­age of the jobs will be cre­ated in domestic-ori­ented ac­tiv­i­ties and in the ser­vices sec­tor. Some 90% of jobs will be cre­ated in small and ex­pand­ing firms... By 2030, the share of small- and medium-sized firms in out­put will grow sub­stan­tially. Reg­u­la­tory re­form and sup­port will boost mass en­trepreneur­ship. Ex­port growth, with ap­pro­pri­ate link­ages to the domestic econ­omy will be crit­i­cal in boost­ing growth and em­ploy­ment, with small- and medium-sized firms the main em­ploy­ment cre­ators.”

While th­ese com­ments dis­play recog­ni­tion of the fun­da­men­tal role of SMEs in the na­tion’s devel­op­ment, many small-busi­ness ad­vo­cates be­lieve they are just more empty prom­ises.

At Fin­week, we be­lieve that it’s time to think big – and bold – when it comes to small busi­ness. With a com­bi­na­tion of Government ac­tion, pri­vate-sec­tor sup­port, and in­di­vid­ual pas­sion, the SME sec­tor can un­dergo noth­ing short of a trans­for­ma­tion. And we have pre­cisely five sug­ges­tions as to how to make this hap­pen…

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