JENNY CARGILL: Give the M in SME a voice

Rely on Jacob Zuma to jolt us from lethargy. Amid the many mundane manifestos his newbie party, uMkhonto weSizwe (MK), pulls a rabbit out the hat and promises to force SA’s corporations to list on the JSE. Who would have thought?

And there is probably no-one more surprised than the JSE itself to find such an ally to improve its listings.

From the rest of the electoral catwalk there are few surprises or new ideas about what will resolve our biggest problems — lack of growth and jobs amid a glaring chasm of inequality. We hear often that there are no silver bullets — let alone new ones. We all know what has to be done, the issue is the doing.

Given that getting the public service to deliver better is my business, I can’t argue with that. But before “doing”, it’s really important to get strategic clarity and focus on what matters most. Zuma’s legacy has left us with a long list. The key is to pare it down to what is achievable and what will have catalytic impact.

Just revitalising our public infrastructure would certainly be catalytic — and few parties have missed out on this. What else could be a golden thread that we can weave through our flawed economic fabric and achieve the glow we are all seeking? There is one thing that is a favourite but invariably off the mark. That is SMEs. In reality, the M — medium-sized business — is silent. Yet it is just this that is so critical to transforming our economy. 

A key reason our economy is structurally distorted lies in the prevalence of the extremes — the large corporations that dominate our growth numbers, and the sea of small and micro enterprises that survive so precariously. Our structural problem is that the middle is missing.

The hardest thing for a small company is to reach maturity and transition to the middle rung. The most robust economies have a well-sized middle. So, could we not catalyse our economy by benchmarking our economic strategy to suit the requirements of medium-sized companies?

Too many of our policies are designed with the large corporate in mind, and with the small enterprise treated as a sidebar. A growing and enthusiastic middle class is an important corollary. Here is the primary feeding ground for entrepreneurs, another area of poor performance in SA.

Why not make the medium enterprise the golden thread of economic policy? Leading global entrepreneurship researcher Scott Shane argues that “to get more economic growth by having more start-ups, new companies would need to be more productive than existing companies. But they are not... The results show that productivity increases with firm age... and, “as whole, new firms have net job destruction after their first year” and “jobs in new firms pay less, offer worse fringe benefits, and provide less job security than jobs in existing firms”.

His thesis is that policy should focus on high growth firms. On the whole, these are the medium-sized firms that have matured enough to be sustainable, but not enough to have lost their youthful energy for high growth. It’s in the middle that our greatest chance of resolving the jobs crisis can be found, and yet it’s here that the least attention is paid.

As such, it would be worthwhile to establish what economic and labour policies are helping or hindering the growth and performance of medium-sized firms, and then on that basis pursue a few priority policy changes.

The power sector provides a worthwhile example of just how one critical reform created an avalanche of activity, even before the necessary subsequent reforms had come into play. This was the removal of the licence requirement for any private sector renewable energy developments. Now, more than 100 projects, for about 10,000MW, have been registered with energy regulator Nersa, since the first phase of the reform in 2021.

Since this reform, the National Energy Crisis Committee has been chipping away at blockages and other reform measures that will allow a fully fledged energy market. This experience can be applied to create the right space for a business structure that has a strong middle — the girth of a gogo — and a well-supported through-flow of small enterprises.

• Cargill is CEO of Strategy Execution Advisers, and author of ‘Trick or Treat, Rethinking Black Economic Empowerment’.