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Small business is the panacea to SA’s jobless

Published on July 8, 2019

But to achieve this goal, a united enterprise and supplier development sector and government commitment will be needed, writes Shawn Theunissen.

Enterprise and supplier development holds the key to economic growth and jobs, but four issues lie at the centre of improving business development in South Africa.

When it comes to growing small businesses in the country, we need solutions and we need them fast in order to inject fresh hope into the market.

Unsurprisingly, President Cyril Ramaphosa’s state of the nation address did not quite displace the negative sentiment in a market desperate for inspiration. Ramaphosa in his address highlighted the priority of job creation and economic transformation.

The good news is that small businesses can be that next frontier necessary in turning the sustainable job creation curve up. Government is aware of this potential – the National Development Plan projects that by 2030 some 90% of new employment opportunities, at least 11 million of them, would be employed by small and medium enterprises (SMEs).

But to achieve this goal, it is imperative that enterprise and supplier development (ESD) programmes in the public and private sector partner to make this happen.

With an economy that is sluggish at best, Ramaphosa’s new government would be well advised to take action by loosening the restrictions that tie entrepreneurs down.

Over the past 10 years of developing business in the property sector, we have seen first-hand the tremendous potential that exists in entrepreneurship – job creation and economic transformation.

A more coordinated and integrated approach by public and private sectors could harness the power of small businesses that in turn could boost economic growth and create the jobs.

To deliver on this SME potential, Ramaphosa and his team have to focus on the following key issues:

. Develop coherent policy: Each piece of policy, every law and all government agencies must be aligned to transitioning the entrepreneur from start-up to mature business.

This cannot be placed in the hands of a single government department but should become part of the mandate of all state institutions.

Government departments or business units must have a clear role to play at different stages of the development of a small business, whether it be the national department of health or chapter 9 institutions such as the Commission for Gender Equality.

Processes, policies and institutions should be built around the needs of the entrepreneur and not around the bureaucracy of government.

Government has done well in many areas – the implementation of the central supplier database, a digital vetting portal and the allocation of 30% of all government business being earmarked for SMEs are commendable.

The change in the broad-based black economic empowerment (BBBEE) codes to focus on giving more points to enterprise and supplier development has had a multiplier effect.

However, the policy has had unintended consequences of disincentivising big companies that utilise compliant small businesses, from helping to further grow their businesses, but rather to maintain their BBBEE scorecard compliance.

It is simply cheaper and easier to keep that business at the SME level rather than carry the cost and risk of constantly having to develop new SMEs.

. Consolidation of government departments: The realignment of the departments in the economic cluster, combining the ministry of trade and industry and economics, is a step forward. The case for consolidation is based on cutting costs, lack of duplication and increased efficiency.

Alignment of the sector without putting the needs of the entrepreneur at the centre of policy, however, could mean that we could be cutting without improving service.

In theory, if all the business support services were better aligned, there could be better coordination to support businesses to grow during the various lifecycle phases.

It would have helped if there was a one-stop shop for entrepreneurs.

. Need for a standardised incubation and development framework: In Gauteng alone, an entrepreneur can have access to dozens of different enterprise and supplier development programmes run by government and the private sector.

Yet there is no coordination between any of these programmes. Some are aimed at established entrepreneurs others at start-ups and many providing duplicate services.

This has resulted in entrepreneurs often “hopping” from one programme to the next but not getting the needed development to grow their businesses.

All too often the different programmes view each other as competitors and not as partners in building the entrepreneurship ecosystem.

The enterprise and supplier development community is fractured and has no clear standards on what constitutes success or failure.

It would be incumbent on government to establish the terms of reference and best practice framework for enterprise and supplier development programmes.

The enterprise development programmes need a standard monitoring and evaluation set of metrics.

The good work is negated by the fact we as the enterprise development community are not working together on a single plan towards a collective goal. A more coordinated approach could have a multiplier effect on enterprise and supplier development.

. Revise the enterprise funding model: The Small Enterprise Finance Agency (Sefa) model is not as effective as it could be. Ironically, Sefa is one of the more expensive funders in the market, and therefore not fulfilling its mandate of enabling growth for small businesses.

Government funding is meant to be an enabler – be cheaper and easier to access with flexible terms and lower lending rates than commercial banks.

What you find, however, is that government institutions are pressured to show commercial returns in order to lessen reliance on state funding, which subsequently creates a competitive environment with commercial lenders.

Sadly, government funding has now become a last resort because its due diligence process is more stringent, repayment terms are less flexible and it’s more expensive, resulting in fewer businesses being able to access the funding.

To quote Martin Luther King Jr, the “fierce urgency of now cannot be exaggerated”.

SME development is neither a government problem, nor a box-ticking exercise for big business.

We all have to be committed to growing entrepreneurs and building a sustainable core of successful businesses, which is key to turning around South Africa’s economic woes.

We can only do this if we do it together.

Theunissen is an executive at Growthpoint Properties, responsible for corporate social responsibility. He is also founder and head of Property Point

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