Lingering barriers and challenges yet to be resolved are hampering the ability of South Africa’s struggling small business sector to meet its full potential and bolster much-needed growth and job creation in the country.
Amid stalled economic growth, securing finance, maintaining profitability, increasing revenue, attracting customers or accessing markets, besides others, remain among the top battles faced by emerging entrepreneurs, says Gauteng Economic Development, Agriculture and Environment MEC Morakane Mosupyoe.
“As a result of these challenges, most enterprises remain microenterprises with no prospects of growing or contributing to [South Africa’s] economic growth and job creation in a significant way,” she told delegates at the inaugural Gauteng Small, Medium-sized and Microenterprises (SMME) Summit on Thursday.
The summit was jointly hosted by the Gauteng Department of Economic Development (GDED) and the United Nations Development Programme (UNDP) in an effort to identify and deal with blockages hampering small enterprise expansion.
The two-day event also doubled up as a platform to revitalise programmes and interventions that can propel the growth of the identified sectors, including manufacturing, transport and logistics, construction, the services sector and information and communication technology.
“It has been a challenging year for the South Africa economy,” Mosupyoe explained, pointing out that the economy contracted 0.6% during the third quarter of the year and global ratings agencies’ downward revision of South Africa’s sovereign ratings had dampened investor appetite.
Exacerbating the situation is the country’s increased unemployment rate during the third quarter to 29.1%. In Gauteng, the unemployment rate is 31%.
This means there is an urgent need to position SMMEs as a catalyst for economic growth and job creation.
Global experience shows that the SMME sector plays a dominant role in economies and is a sizable contributor to gross domestic product, an area in which South Africa falls short.
South Africa’s SMMEs, while constituting a small sector by global standards, continues to make up a sizable fraction of all the businesses and business activity in the economy.
While 98.5% of all registered businesses in the country were SMMEs, they create only 28% of jobs.
Internationally, SMMEs contribute between 60% to 70% of all jobs created, she explained.
“So we have a lot of work to do,” she said, noting the National Development Plan’s vision of 90% of jobs coming from the SMME sector by 2030.
Despite these ambitious targets, more than 70% of South African businesses fail in the first two years.
UNDP programme manager: inclusive growth Letsholo Mojanaga noted that, while there are about 1.7-million SMMEs in South Africa, their survival rate is low.
Developing SMMEs to their full potential, integrated into existing local and global value chains, is critical to South Africa’s sustainable growth.
“For small businesses to serve as the backbone of a thriving society, they need to be versatile, entrepreneurial and innovative in order to survive,” Mosupyoe said.
In line with this, the SMME Summit aims to highlight gaps in policy and the urgent need for government to address the development of the SMME economy.
“SMMEs are important drivers of job creation and an engine of inclusive growth in Africa. However, they need sound policy and an operational environment to thrive to generate decent jobs, create wealth and sustain livelihoods, and to transform to large enterprises,” said UNDP resident representative Dr Ayodele Odusola.
“This summit offers an opportunity to capacitate participating enterprises to contribute to economic transformation that helps address poverty, income inequality and unemployment.”
Through the GDED enterprise development programme and the UNDP supplier development programme, selected and qualifying SMMEs will be trained and taken through relevant and customised programmes that will help them grow.
“Based on tangible outcomes, the department will monitor, evaluate and track progress of these SMMEs over the next 12 months,” Mosupyoe said, adding that the provincial government will spearhead integrated and diversified industry-based opportunities across Gauteng for local business already involved in economic activity.
“The summit will position working solutions and review the regulatory framework for township enterprises. As it relates to licensing, permits and registration, the regulatory framework will be simplified to ensure that it is efficient and cost-effective,” she concluded.