THE SUCCESS RATE FOR SMEs IN THE SBU INCUBATION PROGRAMME STANDS AT 70%.
Across the world, entrepreneurship and the small and medium enterprise (SME) sector are considered key drivers of sustainable economic growth. If South Africa is to experience such growth, there is a need to focus on the development of SMEs, as well as their integration into the formal economy. This is versus the current status quo where SMEs are a peripheral sector that tends to only be engaged with in order to fulfil compliance requirements.
As an organisation that works in the SME development space, we as Shanduka Black Umbrellas (SBU) are aware, however, that gaining supply chain access and economic integration is a tough task. Both the public and private sector tend to view SMEs as too risky to do business with. Where they do contract SMEs, the level of red tape and delays that exist within big business and government (the worst being how long they take to pay SMEs) not only frustrate SMEs, but at times risk their survival too. So if we are to get enterprise development right (in a way that makes small businesses profitable, sustainable and able to make a growth impact on the economy), we need to work to ease such burdens.
Another reason compelling the integration of SMEs into big supply chains is that not doing so represents economic loss, the kind which South Africa cannot afford. According to the World Bank’s Economics of South African Townships (2014)*, the township economy in South Africa, (which is almost entirely made up of SMEs) is estimated at more than R100 billion. This speaks to the economic potential that lies within our country’s SMEs and the loss that not tapping into them represents both from an economic and sustainable national growth perspective. Tapping into such potential is also critical if we are to finally address the millennium development goals of eradicating poverty, hunger and inequality.
Encouragingly, our public and private sector counterparts are illustrating growing awareness and appetite to do just this as evidenced by the establishment of the Ministry of Small Business Development. In the 2014 Gauteng State of the Province address, Gauteng Premier David Makhura made a commitment to formalising and promoting entrepreneurship in South Africa’s townships, starting in his own province. The private sector has similarly shown growing commitment, with programmes such as the Industrial Development Corporation (IDC), Transnet’s Godisa Supplier Development Fund and the Sanlam-ASISA Enterprise Development Programme.
The work of such initiatives is crucial for entrepreneurial development and success, as experience has proven to us at SBU. Currently, there is only a 20% success rate for new, small businesses in South Africa (within the first two years of operating) and the number is even lower for 100% black-owned businesses. For SMEs in the SBU incubation programme, however, the success rate stands at 70% – three and a half times the national average. This is because our business incubation programme allows SMEs to tap into the resources and expertise required to ensure that their businesses succeed, are able to function in the future and do not fail in the risk phase during the first two to three years.
However, no matter how much work the likes of us at SBU put in that alone will not be enough; there needs to be a concerted effort across the board. South Africa needs a cross-cutting strategy for enterprise and supplier development that is fully supported by sound macroeconomic policy, private and public stakeholders, as well as an enabling regulatory framework.
Some global economies, like that of China and the UK, comprise of more than 90% SMEs, who employ up to 70% of their populations. The impact of South Africa emulating such SME-driven economic structures would mean less pressure on large corporates and the government, as SMEs already create more than 50% of all employment opportunities in South Africa (2014 GEM South Africa Report) . In other words: making small businesses a part of big supply chains is not merely about B-BBEE compliance and the greater social and national good; it also makes good financial sense.
By Seapei Mafoyane