Like seeds need water to grow - so, too, do small businesses need support in order to flourish

President Jacob Zuma focused on job creation in his State of the Nation Address in February, and promised R9 billion over the next three years for this purpose. In addition, he announced special plans to boost support to small businesses.

Yet, more than six months after his encouraging speech, small business leaders have reacted with dismay about the inability of the government to implement these promising ideas at grassroots level.

Some leaders in the small business sector in South Africa warn that job losses of close to half a million in 2011 are a real possibility.

However, there are not only storm clouds and cold economic fronts threatening small business in South Africa.

The franchise market segment increased by 40% from 2009 to 2010, according to Standard Bank: the franchising concept is currently growing exponentially in South Africa.

The domestic sector for cleaning companies has been booming since the implementation of the new labour legislation by the government – more and more households are switching to cleaning companies.

Zuma’s promises in February 2011

To boost support to small businesses, the president announced in February 2011 that the government would look at merging three of its funds that targeted small businesses – Khula, the South African Micro-Finance Apex Fund, and the Industrial Development Corporation (IDC) small business funding activities – into a single unit.

This would enable the government to avoid duplication of financial support, cut administrative costs and bolster the available funds for small
enterprises, he said.

President Zuma added that the government campaign to pay small businesses on time – within 30 days – was proceeding well, saying that in the last financial year, the SMME Hotline had received 20 000 calls and facilitated about R210 million in payments.

He noted that other departments had their own initiatives, such as the Department of Public Works’ Operation Re Ya Patala (We Pay).

The government would continue with legislative reforms to make it easier to register businesses, and would strengthen the Competition Act to open the market to new participants.

President Zuma said in his address in Parliament that 2011 was South Africa’s “year of job creation”.

“Our goal is clear,” he stated further. “We want to have a country where millions more South Africans have decent employment opportunities, which has a modern infrastructure and a vibrant economy, and where the quality of life is high. We all have a responsibility to work hard to make this a reality.”

The initiatives that the president detailed helped to flesh out the government’s New Growth Path, released in 2010, which aims to create five million jobs by 2020 and bring South Africa’s unemployment rate down to 15%.

The country’s unemployment rate dropped slightly in the final quarter of 2010 – from 25.3% in last year’s third quarter to 24%.

SACCI

Neren Rau, chief executive officer of the South African Chamber of Commerce and Industry (SACCI), says that since the State of the Nation Address, the small business industry has not seen any progress of substantial note.

“We are operating against the backdrop of low levels of economic activity. It ties in with the low levels of economic activity globally,” he notes.

The CEO says that SACCI has welcomed the government’s support in addressing the plight of small businesses in this country.

“Much enthusiasm and effort has been seen at a high level, but little has happened on the ground in terms of implementation – time is running out on the implementation side,” he adds.

“There is certainly government intent at policy level, but action has been lacking at ground level. It has been three years since the start of the Zuma administration, but time is running out on the implementation and delivery.”

He further feels that the challenges of small, medium and micro enterprises (SMMEs) in South Africa are relatively poorly understood: “It seems as if it is a conundrum for our policy-makers. We (at SACCI) have advocated a radical paradigm shift in dealing with SMMEs, as conventional strategies have lost momentum.

“What is needed is a radical, out-of-the-box thinking to revive SMMEs.

“During the crisis, the SMME sector has suffered severe damages, with an indication of liquidation numbers increasing recently – there has been a loss of SACCI membership numbers.

“We are not talking about hard evidence and research, but of anecdotal evidence,” he adds.

Rau is concerned that South Africa may have to shed 500 000 jobs in 2011, which will require enormous input and strategising to reach the goal of five million additional jobs created by 2020 as envisioned by the government.

He believes the IDC umbrella for developmental financial institutions seems to be a step in the right direction.

“In South Africa, there is an acknowledgement by the government that the SMME sector is the key to creating jobs. The question is how we operationalise these policies,” says Rau. “In India, for example, the SMME sector provides 90% of the gross domestic product; and in the United States of America, there is an increasing move in connecting with the SMME sector in a meaningful way.”

SACCI has highlighted the major obstacles to SMME growth as being the regulatory burden and bureaucracy that makes it difficult to set up a business, and costly and administratively complex to maintain – as well as the challenges faced in moving from the informal to the formal sector.

Another factor is the lack of understanding and/or trust in the banks and insurance companies, thereby causing SMMEs to prefer to self-finance, when start-up funding and business insurance would have been helpful.

Rau says failure to receive payments timeously still threatens cash flow and sustainability of enterprises.

The market for financing micro enterprises is almost non-existent, while that for SMME finance is not as competitive as it could be, he adds.

Finmark Trust

In a recent survey by Finmark Trust, 39% of small business owners cited money and money-related matters as an obstacle when starting a business; 34% cited business strategy; and 17% cited infrastructure and equipment.

In terms of growing businesses, 16% cited space to operate as the challenge, 14% cited access or cost of finance, and 13% cited competition.

Privatisation and mentorship needed

Dr Mike Herrington, director of the Centre for Innovation & Entrepreneurship at the University of Cape Town Graduate School of Business (UCT GSB), says the burdensome regulatory environment and “over-regulation” is still a major obstacle to the formation and sustainability of small businesses in the country.

SMMEs are still not paid within 30 days.

What is happening at national level is one thing, but the implementation process at ground level is another.

Worldwide, the major creators of jobs are the small companies younger than three or four years; but in South Africa, this sector is still battling.

“Let us make it easy for SMMEs to exist. Let us privatise certain government organisations that are supposed to support SMMEs,” says Dr Herrington.

Mentorship to small entrepreneurs and emerging businesses is pivotal. Years ago, the UCT GSB – with the support of retired volunteers – offered a system of mentorship for graduates who started their own business. “We hardly lost a loan,” he says.

“Because of the legacies of the past, where some members of society were not allowed to go into businesses, you don’t have a pool of experienced and successful entrepreneurs in all race groups.

“It is hard to get mentors, who are an essential building block to the success of business,” Dr Herrington adds.

National strikes could result in job losses

Ulrich Joubert, economist at Kruger International, says he visited a few business chambers in rural areas over the past few months, and found small entrepreneurs are struggling to survive.

There are continual increases in municipal tariffs, as well as the cost implications of national strikes.

If there are general wage increases in the steel and engineering sector, the small business owner must follow suit in acknowledging wage increases.

“I can almost guarantee you that the national impact of the strike season on the small business owner is that we will see a loss of jobs within the next six to nine months,” Joubert warns.

Fanie Heyns