The future looks promising for SMME entrepreneurs

South Africa’s socio-economic goals are to reduce poverty, decrease income inequalities, minimise wealth and asset gaps between rich and poor, and to halve unemployment by 2014. One way in which to address these issues is to encourage entrepreneurship, thereby creating more employment opportunities and penetrating new markets – which would have a positive impact on gross domestic product growth.

Another way is to persuade foreign companies to inject investments into various sectors of the South African economy.

According to the Global Entrepreneurship Monitor survey, South Africa has a low entrepreneurial activity rate of 7.8%, which is significantly lower than the 11.4% average for all efficiency-driven economies, and 13.2% for all middle- to low-income countries.

This could be due to the many challenges faced by the country’s small, medium and micro enterprise (SMME) entrepreneurs, with various issues impacting on their successes, such as community structures, strategic and entrepreneurial capabilities, human capital available, and the macro environment. Thus, entrepreneurs need support and a variety of resources such as capital investors, operational support systems, skilled employees, a regulative supply chain, and international financiers.

Over the past years, Africa has attracted a good amount of foreign direct investment (FDI), even though not as much as other promising economies such as Brazil, Russia, India and China (collectively known as BRIC), which are among the fastest growing markets in the world.

Since South Africa was added to the list on 13 April 2011 – thereby forming BRICS – FDI for South African SMMEs could increase substantially.

Within the BRICS framework, China and India could become the world’s dominant suppliers of manufactured goods and services, while Brazil and Russia remain leading suppliers of raw materials.

South Africa has massive economic development benefits, and the government has put certain policies in place to ensure an enabling environment for investments.

The country is a very good transshipment point between the emerging markets of Central and South America, and the newly industrialised nations of south and far east Asia.

Furthermore, South Africa is ideally placed for access to countries in the Southern African Customs Union, and the Southern African Development Community – an alliance of 15 countries with a combined population of more than 180 million.

China is the largest BRICS member by both population and GDP; and with foreign reserves that approached $2 trillion in 2009, the country is well positioned to fund all its business capital costs.

On its current growth path, China’s economy is estimated to overtake that of both Germany and Britain by 2015, and is seen to become the major investor in South Africa and the rest of Africa.

It is important to note that these countries are not a political alliance (such as the European Union) or a formal trading association, but they have the potential to form a powerful economic bloc – believed to become wealthier than most of the current major economic powers by 2050.

Much of the continued success of BRICS, however, would be tied to prospects of the more established markets of Europe, North America and Japan, where a significant portion of the demand for BRICS products and services resides.

SMMEs would be wise to look into supplying the demands of some of these markets as a strategy to attract foreign investments; however, there are a number of risks investors should look into before investing.

Since, collectively, BRICS markets are underdeveloped, this could mean problems with transparency and reporting in general, a less than mature regulatory system, unskilled managing bodies, government intervention, discrimination, and unpredictable economic and political consequences.

If South Africa tends to target more foreign small and medium enterprises (SMEs) rather than big businesses, it would yield more positive results, as foreign SMEs are more capable at attracting efficient and marketing-seeking FDI. Smaller firms are better at creating radical innovations and jobs, and improving local market competitiveness and technological skills. Therefore, foreign SMEs may be an ideal solution to many of South Africa’s SMME entrepreneur problems.

Various entities deem the country’s business as becoming increasingly integrated into the international community, with great opportunities for SMME entrepreneurs.

Yet, current levels of investments in SMMEs are inadequate to achieve the goals of sustained annual real GDP growth. The problem is more prevalent in previously disadvantaged areas. However, the following bodies are addressing these concerns:

The Corporate Council on Africa (CCA) is at the forefront of strengthening and facilitating the commercial relationship between the United States and the entire African continent, working closely with governments, multilateral groups and business to improve the continent’s trade and investment climate, and to raise the profile of Africa in the US business community.

It believes that Africa’s future success depends on the ability of its entrepreneurs and businesspeople to create and retain wealth through private enterprises.

Through the CCA, American corporations and private individuals contribute most effectively by building partnerships and reaching out to the African private sector in the areas America knows best, such as private enterprise, investment capital, technology transfer and management.

CCA programmes are designed to join potential business partners, developing critical contacts and business relationships, and providing a forum for the exchange of information and ideas.

The South African International Business Linkages empowers business through establishing trade and investment partnerships between historically disadvantaged South African SMMEs and US companies, and with other huge South African corporations and multinationals.

It supports the country’s SMEs to access local and international markets, also providing training, business support services and funding to meet international standards of management, quality and competitiveness.

Colela Group Investments is an investment and management consulting company with the main focuses including: the development and promotion of investment from international SMEs, the promotion of inter-African continent investments between African countries, and the promotion of cross-border jointventure partnerships.

In addition, it raises finance to fund these partnerships and individual SMEs, seeking long-term capital appreciation through equity investments.

With a tenfold increase in global trade, South Africa is one of the most promising markets in the world. And through the aforementioned support, the new alliance with BRICS, the leniency in which international entities can establish businesses within the country, and its favoured location, the future of SMME entrepreneurs looks very promising indeed.

Rizel Delano