Perhaps the most startling fact presented in the NISED Masterplan is that the number of SMMEs operating in our economy has not grown from the 800 000 estimated in 1995. From 1995 to 2022 we still have the same number of SMMEs in our economy, with only 330 000 of those able to provide formal employment.
The above lies at the centre of our economic troubles. Recognised for their strategic importance in addressing our socio-economic challenges; inclusive economic growth, job creation and transformation, yet the number of SMMEs in our economy has not grown at all in 27 years. This isn’t to say that our people have not gone out into the market and sold goods and services, they have. Survivalists and informal type businesses are estimated to amount to between 1,2 to 1,5 million in our economy. While the informal economy puts food on the table for most of our people, it isn’t where growth is. These businesses would certainly rather have access to larger markets and to grow their businesses. It is in our interests that they do so. They can then employ some of the 66,5% of our youth who are unemployed.
The picture painted above reveals two key issues facing SMMEs in South Africa, and therefore their ability to contribute to economic growth, job creation and transformation. Firstly, SMMEs are hampered by a general decline in South Africa’s “enabling environment for ease of entry, trade and exit”. It is difficult, costly and time consuming to start and grow a business in South Africa. Secondly, it’s difficult to run a business successfully in South Africa when the economy favours large corporations and there is declining investment in growth oriented SMMEs. It was my expectation, that the masterplan would deal decisively with these challenges having acknowledged these in quite some detail in its introduction and background sections of the draft.
Where the strategy falls short is in being deliberate in developing entrepreneurial infrastructure and associated ecosystems. SMMEs are not positioned as important to our competitive position clearly enough. To do so, government must be setting directions, marshalling resources, and coordinating the overall strategies of the different players in the economy toward nurturing SMMEs as the central pillars of our “new economy”.
I am not convinced the NISED Masterplan goes far enough to do so. While it clearly outlines all the issues we have around SME development, the Masterplan reads more like yet another statement of intent, and of intent only.
The issues facing SMMEs in our economy are not simple to overcome, but we do have some examples from around the world on how they can be approached. The Singaporean government was deliberate in developing entrepreneurial infrastructure in Singapore and supporting entrepreneurs. Entrepreneurs have long been able to tap into a range of grants and related programmes to help with early development activities. As a result, political commitment to transformation (in Singaporean terms) has delivered remarkable returns in terms of the economic well-being of the people of Singapore. Following the recession in Singapore of 1985, the role of SMEs became central to the strategy for the island-state’s future.
The government’s vision for a “New Economy” was clearly defined. Including its approach and importance to the island-state’s competitive position. The “New Economy”, being a knowledge-based economy, informed policy and directed investment to gear the skills and infrastructure to drive fundamental change. Tech-based start-ups were identified as the enterprises the government was intent on nurturing for the 21st century. Today, SMEs in Singapore account for 92 per cent of the overall economy, 72 per cent of employment and contribute 58 per cent of the value-added. In comparison, South African SMEs account for about 39 per cent of our economy and 26 per cent of our workforce, while making up about 98 per cent of the number of businesses in South Africa.
While we may have many initiatives purported to support the creation of the entrepreneurial infrastructure we need in South Africa, building small businesses that contribute to the economy and create jobs remains one of our biggest development challenges. Our transformation is intimately tied to our support of small businesses and how deliberate we are in addressing barriers to growth and SME financing availability.
ABOUT THE AUTHOR
Cuma Velile Dube is the chairperson of Instika Investment Managers (Intsika Impact Fund – A BMF Initiative).