SA needs frank evaluation of SME environment

AS LONG ago as 1995, the White Paper on the National Strategy for the Development and Promotion of Small Business in SA recognised small and medium-sized businesses (SMEs) as “an important vehicle to address challenges of job creation, economic growth and equity in our country”.

Nearly 20 years later, the high expectations on the sector remain, with as many as 90% of new jobs expected to come from it in the next 20 years.

If we are to avoid being “exhibit A” in the definition of insanity, we need a candid valuation of the environment in which SMEs operate. SA has one of the lowest SME survival rates in the world. This in a country in which, according to the Global Entrepreneurship Monitor Global Report for 2013, the entrepreneurial intention rate (people planning to start a business within three years) is 13%, well below the sub-Sahara African average of 46.8%.

We also have the lowest established business ownership rates, according to the report (2012). South Africans do not want to start businesses — with good reason. Yet we expect that the few who are crazy enough to start businesses will employ others without fully sympathising with the depth of responsibility that comes with sustaining another person’s livelihood.

A few months ago, our youngest employee posted a picture of herself beaming next to her brand-new but second-hand white Volkswagen Polo. My heart immediately skipped a few beats — a combination of exhilaration and panic. By committing herself to a medium financial commitment in her personal life, this person I had met in January had faith that I and the other directors would keep her place of employment a going concern for an indeterminate future.

At a small and medium-sized company level, employees are not hired by institutions; they are hired by everyday people who have to make a daunting commitment to a relationship that — should things go sour — can sink both employer and employee. This marriage is risky enough in a growing economy, but is especially irrational when the governor of the Reserve Bank revises annual growth projections downwards again to 1.5%.

Nevertheless, for income levels to rise, and for SA greatly to reduce levels of inequality, people need to earn incomes either through ownership or through employment.

If we are to stick to the expectation that small and medium-sized companies are where new jobs and equity will come from, then we must ask how things will be different in the next 20 years.

More South Africans cannot be expected to take on this responsibility of starting a business and employing in an economy plagued by the heavy dependency that small entities have on the meagre number of large firms that dominate the economy.

They cannot be expected to take the risk of trying to survive with one or a few large contracts, forcing them to orientate their service-delivery models to these few clients, consequently stifling their ability to innovate and develop the kind of products and services they could export.

How will we cure uncompetitive markets, and support the kind of diversification and innovation required for our companies to produce goods and services good enough for other markets?

Certainly, there are no easy answers, but we can start by deepening our understanding of the microeconomics of running a business in SA. The sustainability of small and medium-sized businesses in SA is crucial if we are to achieve our long-term growth and employment objectives, yet their voices are strangely absent from the major debates on the economy.

Expectations of the sector are high, with as many as 90% of new jobs expected to come from it in the next 20 years

The one in three South Africans between the ages of 15 and 24 who — according to Statistics SA — are not in employment, education or training need us to think more carefully about what needs to change to raise the success rates of small and medium-sized businesses in SA — for their futures as employees and employers.

If small and medium-sized businesses are not adequately represented in decisions about the economy, we might find ourselves here again in 20 years’ time with more high expectations and no real answers.

Ndlovu is the MD (and employer) at Youth Lab. She also works at the National Planning Commission.