Assist SMEs to create jobs
SUPPORT: GOVERNMENT HAS TO ENCOURAGE MORE START-UPS THROUGH POLICIES
Survey findings indicate that companies who do more than 50% of their business with government employs significantly higher numbers of people than businesses in the total sample.
By focussing on the right SMEs in the right industries, and paying attention to the BBBEE conundrum, government has the potential to spark quick wins in their employment sweet spot.
According to the Endeavour jobs calculator – a tool developed by the International Labour Organisation (ILO), National Statistics Agencies and Endeavour Insights – South Africa needs more than 49 000 SMEs to grow at a rate of 20% per annum to create 11 million jobs by 2030 .
To achieve this, focus has to fall on existing SMEs and the ways in which they can be supported. That is not to say that it isn’t critically important to support would-be SMEs from entering the market. However, research indicates that SMEs only meaningfully contribute to job creation once they achieve R2 million or more in turnover. It stands to reason that the larger the SME, the more people it is likely to employ.
It’s encouraging that government has done much in aid of SMEs by outlining critical interventions aimed at helping SMEs do business:
A single portal to do business with government; A reduced tax rate; Plans to cut the red tape that constrain so many SMEs;
KPIs for all financial officers around payment in 30 days.
The NDP expects that by 2030, 90% of new jobs will be created by the SME sector.
With the current unemployment rate at 25%, now is the time to realise SMEs’ employment potential. The question is, how best to do that.
A way in which employment can be stimulated is for government policy to adopt a two-pronged approach to SME support to encourage more SME start-ups and to provide them with strong financial access and technical support, and to actively encourage those SMEs who have survived the first few years to grow.
The reasoning behind this is that because of the high failure rate of new SMEs, supporting existing ones with promising growth margins will unlock employment potential almost immediately.
Survey findings indicate that companies who do more than 50% of their business with government employ significantly higher numbers of people than businesses in the total sample.
This sub-sample is weighted towards agriculture, construction, ICT and transportation and logistics industries, which are highemployment sectors. Government should concentrate its procurement efforts to SMEs into these and other industries who employ higher than normal numbers of employees or have a bigger turnover if it is to leverage its procurement spend toward the objective of job creation.
While 73% of SMEs did no business with government, 40% of these businesses also either didn’t have a B-BBEE rating or didn’t know what it is.
When asked about the new codes, SMEs seem to be even less informed. In all, 59% said they didn’t know what their new rating would be, while a further 15% said they were non-compliant and 67% are simply not engaged. Only 3% had plans to score at level 3 or higher, even though 75% are Exempt Micro Enterprises (EMEs) and thus qualify as at least a level 4.
B-BBEE compliance attracts business from government and while SMEs may believe that the red tape associated with this is significant, so are the rewards.
Perhaps increasing awareness and knowledge about the fact that EMEs under R10 million only require an affidavit for a level 4 rating might relieve some of the perceived red tape around these ratings, unlocking a greater movement towards transformation, enabling employment and freeing up more SMEs to engage with government.
Alternatively, policymakers could consider using an incentivebased system, where SMEs are rewarded through tax deductions for growth, employment and a BBBEE score that indicates a commitment to transformation.