By Abram Molelemane and Anton Ressel
“With millions of South Africans unemployed and underemployed, the government has no option but to give its full attention to the task of job creation, and generating sustainable and equitable growth.”
“We (the government) believe that the real engine of sustainable and equitable growth in this country is the private sector. We are committed to doing all we can to help create an environment in which businesses can get on with their job. We believe in the principle of working together with our partners in the private sector – big and small businesses – in realizing our hopes and aspirations for this economy.”
These words were uttered in 1995 by then Minister of Trade and Industry, Trevor Manuel. Nearly two decades later, his words still resonate but differ very much with our current economic reality. In the last 12 years, South Africa’s unemployment remains stubbornly high around the 25% mark, much higher when using the expanded definition which includes discouraged work unemployed masses. This is suggesting that the plans and promises of 1995 are still a bridge too far. In fact, all indications are that our economy is backpedalling under a seemingly endless burden of industrial action, low productivity and most worryingly, a government that is simply unable to create an enabling environment to allow the SMME sector to thrive. This being so, what can be done to improve things?
Business development, and especially SMME sector development, is the gospel that economists, researchers and experts have long been preaching for a sustainable South African economy. It is acknowledged globally that small businesses play an important role in not just the sustainability but also the growth of an economy. According to Adcorp’s labour economist, Loane Sharp, a typical small business employs 12 people (aside from the owner-manager); a reinforcement of this sector could potentially create millions of jobs. Furthermore, it is recognized around the world that small businesses do not just help drive economic growth and create employment, but are bases of innovation and new ideas.
SMME Sector Under Strain
As much as this point is true, the 2012 Adcorp Employment Index recently released data showing that in the last five years, around 440000 small businesses closed down in SA. The release also showed that the number of people involved in starting their own business has shrunk – from around 250 000 in 2001 to only 58000 people in 2011, a decline of 76%. While many factors have undoubtedly contributed to this, the net result is that our economy’s job creation potential has been reduced by around 2.3-million jobs.
There were several reasons noted behind the high reduction, a core one being a lack of access to finance. There is a high demand for financial backing from Micro and Small Businesses. Research conducted by The South African Led Network suggest that an overwhelming majority of the country’s small businesses reported a need for external funding to start or develop their business.
These reduced numbers are only exacerbated by the generally below-par performance of our small business sector , much of which can be attributed to poor education levels, lack of management and work skills, lack of access to working capital, and low spending for research and development. In light of all these challenges, Mr Manuel’s words take on an increasingly hollow ring. Government has thrown millions at the SMME sector, but from a legislative, tax and employer rights perspective, SA remains one of the most difficult countries in the world to start a new business – just ask any entrepreneur.
Light at the end of the Tunnel?
Fortunately, the vacuum left by the dearth of a truly enabling climate in which SMME’s can thrive, has seen a large number of organisations created to help small businesses, train entrepreneurs and provide technical experience. Such organisations have realised the importance of developing small businesses and how they can contribute to the embattled South African economy, and while the quality of such offerings differs markedly it is apparent that some of these business incubators are having a major impact.
“We measure our success by the success of the businesses we help and support. If they are growing and thriving in these tough times, we are doing our job,” says Catherine Wijnberg of Cape-based enterprise development agency Fetola. “South Africa does not have a culture of entrepreneurship when compared with India for example, but we do have a lot of talented and creative individuals and a government that is at least trying to create the right climate for entrepreneurship and small business development, so there is certainly some hope for the future,” she adds.
Economists are constantly debating about small business as the main engine for economic growth, and the evidence is still being questioned. However, small business unarguably remains an unambiguously positive and ‘optimistic’ force for job creation and employment, both in developed and developing economies.
With the growing civil unrest in major industries like mining and transport, it could very well be the SMME sector that ends up being our economy’s saviour – but only if we develop a climate that truly supports the SMME sector by making it far easier to start, run and grow a business than is currently the case.
About the authors:
Anton Ressel is the Senior Business Consultant at Fetola. A co-founder of Streetwires, one of SA’s largest and most successful social enterprises, Anton has worked in enterprise development for the Norwegian Development Aid Organisation (NORAD), the Embassy of Finland, Old Mutual Foundation and many others. His articles have appeared in publications such as Business Day, Sawubona, Financial Mail and Entrepreneur magazine.
Abram Molelemane is a third year Journalism student at the Tshwane University of Technology. He has written for various publications such as Wealthwise magazine and Rekord newspaper. In 2011 he was nominated for the Rekord print journalist of the year award. He is currently a junior media officer at Fetola.