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
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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