Conversations with leaders
Small Business Development Minister Lindiwe Zulu outlines how government is providing support to small businesses
The informal sector accounts for the majority of employment in the townships and rural areas of South Africa. But the country has barely scratched the surface in terms of the potential the sector has to uplift people from poverty and contribute to reducing the high unemployment rate.
Small businesses in the informal sector face many obstacles. They often lack the training, knowledge, funds or equipment needed to become sustainable. The sector is experiencing lower growth than in other developing countries, with many small businesses remaining low-income, unstable enterprises. Minister Zulu explained that, after the oppression of apartheid, democratic
South Africa started with a smaller base of small-, medium- and micro-sized enterprises (SMMEs) than its developing country peers.
“Under apartheid, black people were restricted from running businesses and owning land. In other developing countries, the informal sector is thriving. We need to catch up and turn the situation around,” said Minister Zulu.
Less than five years ago, the Department of Small Business Development was established to find solutions to these problems and start implementing them on the ground. Minister Zulu is currently on a journey across the country, to carry out the department's Informal and Micro Enterprise Development Programme's (IMEDP) purpose of providing support to small businesses.
Uplifting the informal sector
A partnership between the department and the Small Enterprises Development Agency (SEDA), the IMEDP offers grants of up to R80 000 to informal and micro enterprises.The goals are to improve their competitiveness and sustainability, and to transform them into formal businesses that are part of the mainstream economy.
“Even people in the poorest areas must begin to do things for themselves. But people cannot be expected to do this when the environment is not conducive,” noted Minister Zulu.“We are working together with provinces and local structures to look at what needs to be done to change the economic situation of people in townships, beyond people waking up in the morning and looking for a job. It is all about transformation of the economy.”
Minister Zulu acknowledged that the process is long overdue, because of budgetary constraints and the identification of partners. The initial implementing agent, the Wholesale and Retail Sector Education and Training Authority, experienced problems which resulted in the organisation being placed under administration.
“We saw that SEDA has better capacity and reach, as it has 50 offices around the country. Since enlisting SEDA, we are seeing the increased speed at which this process is working,” she said.
Training programme
The IMEDP provides informal entrepreneurs with the training and essential equipment they need to run their businesses.
“They go through a training programme and once they are finished we certify them.After they finish the course we provide them with the necessary implements they need for their business. For example, there are many people making and selling in the townships, and they need tools such as industrial stoves, freezers and tables and chairs,” pointed out the Minister.
While the department and implementing agents such as SEDA are overseeing the process,
small business development is part of a government-wide approach, whereby all departments are working towards a common purpose.
“SMME issues cannot depend entirely on the Department of Small Business Development. Improvement of the environment in the townships is also about areas such as infrastructure development and many others. All government departments need to ensure that they are working towards the National Informal Business Upliftment Strategy,” explained Minister Zulu.
Government has committed to setting aside 30 percent of its procurement budget for SMMEs. But the Minister stressed that this can only be achieved if these businesses produce high-quality products.
“If, for example, a hospital needs to buy linen, then it will not spend money on inferior products. Unfortunately, this results in the problem of returning to big business for products and services and that is a monopoly that we need to break through initiatives such as the IMEDP.”
Minister Zulu urged SMMEs to not rely entirely on government for assistance and to show some initiative.
“SMMEs must seek to understand their business and the environment in which they operate.They need to show some initiative and work hard at building their businesses.These are the types of businesses that we want to support. If an informal business can show that it can make the money work, then we will be able to provide that extra push it needs to sustain itself,” Minister Zulu said.
Policies and legislation
The Department of Small Business Development is one of government's youngest departments, only established in 2014 as a result of the urgent need to develop the small business sector.The department's work focuses on both the economic and legislative drivers that will contribute to radical economic transformation, increased employment, poverty reduction and reduced inequality.
This work is guided by a legislative framework that includes the National Small Business Act (1996) and various amendments, as well as the Cooperatives Act (2005) and the Cooperatives Amendment Act (2013). Meanwhile, legislation in the majority of government departments makes mention of the need to support the SMME sector.
Minister Zulu said that there needs to be increased focus on altering this legislation, in order to make it more conducive to supporting small businesses.
“Many SMMEs feel that they are over-regulated and therefore limited in terms of operating their businesses,” she added.“We have had consultations around the country, and some of the requests we received were based around making changes to the legislation.”
Despite amendments, the legislation relating to small businesses is currently outdated.
“The economic environment has changed drastically from 1996.
For example, the entire definition of SMMEs needs to be changed. We are therefore in the process of overhauling the legislation.This is why we have established our own internal research unit that will help us to gather the facts and enable the development of interventions that make an impact,” said the Minister.
A number of agencies and organisations have been established to support small businesses, and an equally high number of small business development programmes are in place.
“We are now speeding up the process of ensuring that all of these programmes, policies and implementing agents can function effectively,” said Minister Zulu.
Job Summit's focus on small business
The vitally important Jobs Summit, which was held recently, focused strongly on the small business sector.As part of the Framework Agreement stemming from the summit, special emphasis was placed on providing holistic support to SMMEs and in particular
township and rural enterprises. One of the six main workstreams in the agreement is “SMME Interventions”, which seeks to address many of the issues mentioned by Minister Zulu, such as the failure of small businesses due to inexperience and limited access to funding.
Interventions identified include: • Expansion of the existing hubs and incubators in the public and private sectors.
• Upscaling the implementation and monitoring of the 30 percent that has been set aside for government spend for SMMEs and cooperatives. • Revitalisation of the township economy.
• Largescale youth entrepreneurship programmes.
Among various other actions, government will provide R1.5 billion for a new Smallholder Support Fund and a further R1.5 billion for the Township Enterprise Fund by March 2020.
Minister Zulu said that the agreement contained many positive interventions that, if implemented, effectively address many of the issues facing SMMEs.
“The Jobs Summit was preceded by three months of work. We are happy to say that the issue of SMMEs is high on the agenda. We are also pleased that the issue of a trust deficit between government and the private sector is being addressed.All partners are agreeing to the fact that the only way to increase jobs is by working together,” she said.
Minister Zulu added that the monitoring and evaluation of the agreement will be crucial.
“It is important that there will be monitoring of the progress made on this agreement, as this has not been done at previous summits.
It is up to us to monitor, evaluate and ensure that we solve the issue of joblessness,” she said.