The current state of small business development in both the public and private sector

Small business development has been a perennial issue for South Africa’s economic growth since the advent of democracy in 1994. Due to its struggle to sustain growth and a persistent urgency to create an alternative route to job creation, measures to develop entrepreneurs, and keep them sustained have remained a priority.

According to research, small, medium and micro enterprises (SMMEs) in South Africa account for about 40% of the gross domestic product and employ about 80% of the private sector. This can only be a clarion call for keeping the sector alive, particularly given the unsettling track record of a high number of small businesses closing down within the first two years of establishment.

The business development fraternity has, over the years, tried to address this regrettable trend through initiatives designed to bolster small business performance in a sustainable way. It has used media and other communication channels as a platform to disseminate information with creative measures in radio and television as well as in print media.

On the government’s side, the Small Enterprise Development Agency (Seda), the mandate of which is specifically to support small businesses, has periodically implemented interventions since its establishment in 2002. However, the general scarcity of skills in the country has not made this an easy task.

In 2011 alone, the agency launched a number of support initiatives that have been well received by the market.

Recently, Seda introduced a business plan competition as a step toward encouraging South Africans to establish or grow their own businesses in a more structured way.

In the private sector, most big companies have structured their corporate social investment department so that funding of entrepreneurial projects is part of their portfolio. Mining conglomerate, Anglo American, is one of few with a fully fledged division dedicated to small business development in South Africa.

Challenges that SMMEs still face

Accessing funding is one of the recurring problems facing SMMEs, as most of them have no collateral due to their inherent low-income background.

Other growth hindrances for SMMEs are policy and legal frameworks in certain business sectors. According to research specialist, SBP, manufacturers are often subjected to sector-wide agreements and mandatory wage increases, which makes it difficult to expand staff numbers, so they simply prefer to stay small, says SBP chief executive officer, Chris Darroll.

The South African Institute for Entrepreneurship (SAIE) suggests that for SMMEs to thrive, a culture of entrepreneurship has to be inculcated in society in general – particularly in the historically disadvantaged sector.

In an article she recently wrote, Margaret Worthington-Smith of SAIE states: “Taking a long-term view, we believe that the creation of an entrepreneurial mindset is a prerequisite to the development of successful enterprises. Without the qualities of thinking and innovation together with business knowledge – small businesses will fail.”

SAIE has devised business development tools that target youth at school level “to grow their entrepreneurial thinking and confidence to start a business.” South Africa’s youth sector constitutes the highest percentage of unemployment in the country – about 70%. This poses a threat not only to economic growth, but also to the already escalating crime rate, despite government entities such as the Youth Development Agency.

With regard to people in rural areas where poverty levels are prevalent and industrialisation is virtually lacking, there is a consensus that agriculture is the only viable option. The Department of Rural Development and Land Reform is dedicated to assisting with entrepreneurial initiatives in this regard.

In order to keep tabs on the small business environment, performance monitoring and evaluation of SMMEs should play a critical role in small business development, as it helps determine if targets are being met and improves the efficiency of SMMEs in delivering their services.

At the beginning of December 2011, a performance monitoring and evaluation conference was held in Johannesburg, Gauteng. The outcomes thereof are available from the Intelligence Transfer Centre on www.intelligencetransferc.co.za or telephone (011) 326 2501.

Siza Mtimkulu