Small business development key to economic growth

© Antonioguillem – za.fotolia.com

Small, medium and micro enterprises (SMMEs) have a high labour-absorptive capacity and hold the key to unlocking local economic development.

According to data from the World Bank, many of the countries in sub-Saharan Africa report a high number of SMME's in the economy who make a significant contribution as providers of employment.

Malawi ranks first with 39% whilst South Africa is ranked sixth at 21%. Beyond the continent, the Organisation for Economic Co-operation and Development (OECD) indicates that SMME's account for over 60%-70% of employment, generating a sizeable share of new jobs in the European Union and United States economies.

It stands to reason that the SMME sector could well become the building block we need to spur economic growth, reduce unemployment, increase average household incomes, reduce the poverty gap and increase the tax base.

Growth rate too slow

A recent study by the United Nations Development Programme indicates that the current growth rate is too slow to reduce the high unemployment rate, which continues to exacerbate economic and social inequalities. The study emphasises that not only does growth need to accelerate; it needs to be inclusive, sustainable and equitable. SMME development can and must be at the centre of this transformation, because its impact can be massive.

The potential for SMME development as the impetus for economic growth is acknowledged and has been deliberated at length, but despite the fact that this remains a critical component for alleviating poverty, there are still numerous challenges facing entrepreneurs.

Some of the key barriers to promoting entrepreneurship include employment legislation and policy, technology and business infrastructure, absence of vehicles for skills development and capacity building, socio-economic factors, HIV/AIDS, poverty, poor access to financial assistance, credit and unavailability of collateral, lack of access to information and a shortage of effective supportive institutions.

Furthermore, poor access to the wider market implies that prospects for sustainable growth of micro-enterprises are severely limited and the lack of management training and sales and marketing skills are concerns that continue to plague growing enterprises.

Support structures

Government and business institutions, have established support structures for SMME development, through key players such as the Independent Development Trust, Industrial Development Corporation, Ithala Development Finance Corporation, the Small Enterprise Development Agency, municipal Local Economic Development (LED) offices, business chamber SMME support desks, and more recently, the Department of Small Business Development.

Government's policy on transformation and gender equality, and its focus on fostering entrepreneurship among women, has also made opportunities available for female entrepreneurs.

Big business, it seems, is also willing to support SMME's through supply chain processes but has found that in many instances, suppliers are unable to provide goods and services that meet their specifications. Despite all these initiatives, SMME development is slow off the mark and the challenge remains; how do we get basic business skills and access to finance to our potential entrepreneurs?

The SMME sector, which has had major LED successes internationally, is, according to Johnston, McCarthy, Schlemmer and Bernstein, performing poorly in South Africa. When compared with countries in the same income category, namely Chile, Thailand and Mexico, South Africa establishes, sustains and grows fewer SMMEs. For example, there is a focus on township revival yet SMME's across townships are classified as survivalist in nature and are exposed to severe challenges that hamper their growth potential.

Lack of skills

It is an unfortunate reality that many entrepreneurs have promising business plans but fail simply due to a lack of the core business skills necessary, notably in the areas of business management, finance and marketing.

A 2013 Stats SA survey revealed that the main reason given for starting a non-VAT business was unemployment (69,2%) and that 75,7% of people running non-VAT businesses do not keep accounts. This clearly indicates that small and micro enterprises can create jobs but it also implies that the management skills needed for sustainability are just not there yet.

This is not an insurmountable barrier and Ithala is doing much to facilitate the provision of mentorship and business skills development programmes aimed at improving the long-term sustainability of SMME's in KwaZulu-Natal.