Listing smaller businesses a sure way to tackle SA’s jobs crisis
Government could learn from Finland to set up task force to make fundraising easier for SMEs
Up to 80% of all new jobs created can be attributed to companies that have fewer than 50 employees. However, there is a catch: to extract these exceptional results from small and medium-sized enterprises (SMEs), they need to become listed public companies.
In SA job creation is a necessity to solve the broad spectrum of social and economic problems that flow from unemployment. We are facing an alarming rate of unemployment that jeopardises economic growth and development. The best way to remedy this is through economic growth that will produce jobs and SMEs and start-ups are the most effective for this.
In the past few years we have seen an emphasis being placed on the importance of entrepreneurship in SA. However, this focus needs to be narrowed down to an emphasis on scaling existing businesses and startups, particularly by using the opportunities presented by the JSE. The economic effect of scaling SMEs through listings can drive down unemployment and help economic growth.
A 2004 Nasdaq report, “Economic Growth Through IPOs (initial public offerings)”, states that companies with fewer than 50 employees created between 73% and 80% (depending on the country) of all new jobs after becoming listed.
A study in Sweden, focusing on the correlation between job creation and listings, showed that new listings of SMEs and start-ups generated more than 20,000 jobs. With this in mind, given our current economic circumstances, a narrow focus on scaling SMEs and start-ups is justified as a critical driver to achieve economic growth and reduce unemployment.
Direct correlations have been made between IPOs and economic growth. For example, in 2014 Nasdaq identified Finland as having low economic growth, correlated with low IPOs. Subsequently, a task team was formed to rectify this problem by making IPOs more viable for SMEs so that they could achieve scale. Listing a company benefits both the company and the economy in which the firm is listed.
The obvious and direct benefit of going public for a company is that it raises capital that provides the business with the necessary finance to scale up. From this flows further positive consequences for the economy.
Nasdaq has reported case studies of listed firms growing at an average annual rate of 21%, which supersedes the rate in the private sector. These results bring direct and indirect benefits to the economy.
The first benefit, and perhaps the one we in SA are most concerned with, is job creation. As mentioned above, a link can be drawn between listings and job creation. The regulatory environment in which listed companies operate enforces a level of corporate governance that assures commercial integrity and transparency.
For this reason, listed companies may be considered a more attractive investment for many investors, and this can lead to more investments and commerce being secured in SA, which can lead to subsequent economic growth.
In the context of economic transformation as a policy framework for the government, it is important to mention that listings on the JSE complement the concept of economic transformation. This is because the JSE has requirements that are in alignment with legislation, such as the Broad-Based BEE Act’s objectives. The JSE has even recently increased the requirements of BEE disclosures as a means to safeguard and complement BEE objectives.
Furthermore, with the introduction of four more exchanges to SA, the opportunity for SMEs to become listed companies and BEE objectives to be achieved has widened.
Of all the exchanges in SA, the JSE has the best track record, not only in the country but also on the continent, for being an effective tool to scale companies. PwC has reported that the JSE is the leading African exchange for raising capital through IPOs. Between 2014 and 2017 the JSE raised $4.8bn.
It is clear SA has the necessary tools to fast-track economic growth. What is now needed is a narrow focus to be placed on using these existing vehicles for economic growth.
I believe the best way to achieve this is by creating a task force similar to that in Finland. In SA we need one that is designed to scale SMEs and start-ups through IPOs via exchanges such as the JSE, to maximise the impact of SMEs on employment and the economy.
PA 2004 NASDAQ REPORT SAYS FIRMS WITH FEWER THAN 50 EMPLOYEES CREATED 73% TO 80% OF NEW JOBS AFTER LISTING