The net effect of all the time and money we have spent on enterprise and supplier development since 1995 is zero. According to the National Integrated Small Enterprise Development (NISED) Masterplan, the number of SMMEs operating in our economy has not grown since 1995. In 1995 we had 800 000 SMMEs in our economy, and in 2022 that number has not changed, with only 330 000 of those able to provide formal employment.
While recognised for their strategic importance in addressing our socio-economic challenges, like inclusive economic growth, unemployment, and transformation, our approach to enterprise and supplier development seems to not have done much to drive business development of any kind, let alone black business development. 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 most significant development challenges. So far, we have achieved nothing.
The basis for Enterprise and Supplier Development programmes at large corporate entities is compliance with the B-BBEE Act and the Codes of Good Practice (SME South Africa, ND). Its purpose is to address the legacy of apartheid in our economy and to improve the economic participation of black people in the economy. According to the B-BBEE Commission, it is meant “to promote a conducive environment for [the] creation of sustainable business partnerships between Corporate South Africa and black entrepreneurs to enable access and transformation of the value chains”.
SME South Africa describes a good ESD programme as one that is designed to facilitate access to, and improvement of” a small business through:
- Mentorship, specialist support and networking opportunities that seek to build the capacity of the SME to deliver:
- Access to capital that allows for further investment into the SME; and, most importantly,
- Procurement of goods or services by the corporate from participating SMEs that provides sustainable revenue streams.
But to be compliant, all we measure is procurement spending, without a requirement to report on the outcomes of the many ESD programmes in relation to the overarching aims of the policy and its contribution to overcoming the legacy of apartheid and improving black participation in the economy. While we have many very good programmes that focus on outcomes rather than just the inputs, these are not enough for the kind of entrepreneurial infrastructure we need to support the development of black businesses. The SMMEs participating in these programmes must also contend with an economy that favours large corporations and declining investment in growth-orientated SMMEs.
Enterprise and supplier development programmes can indeed play a crucial role in driving the development of black business, but they can only do so when all participants – led by our government – are intentional about developing the entrepreneurial infrastructure they need to be successful once established as new entrants or those selected as participating suppliers.
The implementation of ESD Programmes, however, seems to have been hampered by what is an inevitable tension in policy that combines market-oriented economic policy with redistributive social policy. Do large corporates invest in ESD programmes to “create a new mass of black entrepreneurs” or to maintain their social license to operate and ability to bid on state contracts by complying with B-BBEE laws?
The extent to which ESD programmes can play a meaningful role in driving black business development is dependent on the commitment to the intended outcomes of the policy these programmes stem from and an alignment in philosophical views on the imperatives of B-BBEE.
To comply with the B-BBEE scorecard’s priority elements, corporates must achieve a 40% subminimum of each of the categories on the enterprise development and supplier development scorecard. Supplier development refers to a diversification of a corporates supply chain through preferential procurement. Enterprise development focuses on new entrants and start-ups that may participate in the corporates’ value chain.
The entrepreneurial infrastructure required includes easier/quicker access to grants and related programmes to help with early development activities, informed, outcomes-based, policy and directed investment to gear the skills to drive fundamental change. Where this has been achieved in Singapore, where today, SMMEs account for 92 percent of the overall economy, 72 percent of employment and contribute 58 percent of the value-added. Whereas, in South Africa, SMMEs account for about 39 percent of our economy, and 26 percent of our workforce while making up about 98 percent of the number of businesses in our economy.
How you measure success will determine your outcomes. If all we measure in terms of enterprise and supplier development is how much money we spend, we may very well spend the money and not realise the policy potential enterprise and supplier development. The potential to create the mass of new black entrepreneurs we need to achieve an inclusive, growing, and job-creating economy. Our transformation and growth are intimately tied to how we go about enterprise and supplier development. While spending more on transformation is a great start, procurement spending alone cannot overcome the structural barriers to SMME growth and entrepreneurship that plague our economy.
About The Author
Cuma Velile Dube is the chairperson of Instika Investment Managers (Intsika Impact Fund – A BMF Initiative).