SMME fund shows real commitment to the entrepreneurs of SA
In years to come the SMME sector is expected to play an even greater role in propelling the SA economy onto a higher growth trajectory
The launch of the SA SME Fund, a collaboration between government, labour and business, comes at an opportune time in the democratic era. Black business, especially black-owned small, micro and medium enterprises (SMMEs), still play largely outside the mainstream economy. They face many structural hurdles, such as the lack of access to funding, lack of access to markets and an uncompetitive regulatory framework.
A more conducive environment for black-owned businesses and SMMEs to thrive must be created to amplify the role these businesses play in the economy of the country.
The SA SME Fund aims to invest in SMMEs with turnovers of between R20m and R500m. While I applaud this initiative, we must be mindful of the many early-stage businesses that turn over between R500,000 and R10m a year, which have a large impact in terms of jobs created. Expanding the mandate of the fund to be more inclusive will be a commitment of the highest order given that for decades, entrepreneurs who run SMMEs of all forms have been key to driving growth, development and innovation, particularly in the country’s most marginalised communities.
In years to come the SMME sector is expected to play an even greater role in propelling the SA economy onto a higher growth trajectory. The national development plan (NDP), SA’s long-term blueprint for growth and development, identifies the SMME sector as central to the attainment of an annual GDP growth rate of above 5%. The NDP further ambitiously envisages that 90% of all employment opportunities in SA will be created by SMMEs during this period.
The key question is: how does South Africa create and sustain a vibrant SMME sector that is able to rise above the challenges of our society?
Despite the plan having received broad buy-in, the SMME-related targets in the NDP were met with scepticism by the broader business and analyst community, many of whom questioned the rigour applied in crafting these targets. In fact, some are even advocating for a review of the NDP.
While the ambitions set for SMMEs by the NDP may seem daunting and unrealistic at first glance, they are by no means far-fetched, particularly when considering the contributions of small businesses in other developing countries. In countries such as Brazil and India, small businesses are the backbone of the economy and have been instrumental in driving inclusive growth. What makes the SA case peculiar, however, is that despite numerous strategies aimed at supporting small businesses since the dawn of democracy, the SMME sector has remained stagnant over the years and much of SA’s economy is still driven by large businesses.
The potential of SMMEs to contribute meaningfully to alleviating SA’s high levels of unemployment, poverty and income inequality is undeniable. Small business development minister Lindiwe Zulu stressed during the national SMME policy colloquium in 2014 that, "as the NDP makes clear, getting SA onto a high-growth trajectory demands that we fundamentally change our game plan and place small businesses and co-operatives at the centre of our war against poverty, inequality and unemployment".
The key question however is: how does the country create and sustain a vibrant SMME sector that is able to rise above the challenges of our society?
One of the government’s primary responses to this question has been the creation of the small-business development department in 2014. While this has been hailed as a bold step in the right direction, one cannot help but wonder whether it enjoys the political support it requires, and if it has the capacity to solve the most critical constraints to the survival of small businesses.
By many accounts, the department's performance has been lacklustre since its inception. But it would be unfair to lay all the challenges faced by the small business environment at the door of the department. There must be a recognition of the macro factors that have given rise to SA’s challenges, many of which are well outside the control of the department.
It is widely recognised that five out of seven early-stage businesses fail in their first year of existence in SA. We need to channel more financial support towards early stage-businesses as most have financial needs that cannot be met by traditional banks. More often than not banks will require collateral before offering credit facilities, and this is where the early-stage businesses usually struggle given their pitiable balance sheets and lack of borrowing capacity.
This is the environment in which the SMME sector is currently operating. While ripe with opportunity, SA's dim growth outlook makes it very unattractive for potential entrants to start and run a business in the country.
Lessons on running a successful SMME sector could be learnt from Brazil. In an effort to stimulate SMME growth Brazil passed legislation in 1999 that made it easier for businesses to pay taxes, access capital and export their goods. The government has continued its SMME-friendly attitude by recently announcing a reduction in the interest rate on public loans for small business owners from 8% to 5%, making it easier for SMMEs to access capital for business expansion.
• Wonci is the MD of the Black Management Forum.