GROWING SOUTH AFRICALeveraging Small, Medium Enterprises to create jobs and grow the economy

South Africa’s Current Context

South Africa’s peaceful political transition was one of the most remarkable political feats of the past century. The government has had a pro-poor view on public spending that has largely contributed to improved social indicators on many fronts, with notable improvements in primary education, gender, several health indicators and environmental sustainability. That being said, South Africa finds itself today facing many development challenges. • South Africa remains a dual economy with one of the highest

inequality rates in the world, perpetuating inequality and exclusion.• South Africa has high HIV/AIDS infection rates and TB, which has

severely strained the health system, contributing to the poor health indicators. The life expectancy in 2014 was 62 years.

• Real GDP growth for South Africa is estimated at 2.0% and the same for 2016 due to a combination of domestic constraints and weakening demand for the country’s resources. Poor economic growth performance is exacerbated by high unemployment and lack of jobs for the majority of its people.

Critical for South Africa’s development is the need for real GDP growth and the creation and sustaining of better quality jobs

Source: www.africaneconomicoutlook.org

The Case for Small and Medium Enterprise (SME)

One of South Africa’s most wicked problems is its high levels of unemployment. A sad statistic is that youth unemployment in South Africa sits at 65% - a situation often described as a “time bomb.”Entrepreneurship is widely considered to be a driver for sustainable economic growth through job creation, innovation and welfare impacts. It can be appreciated then that enterprise development in South Africa is considered a key lever to unlock growth potential and address the concerns of poverty and inequality. Whilst the public sector has made concerted efforts to increase its levels of staffing over the past decade, the emphasis for South Africa needs to shift to small and medium enterprises (SME’s) for sustainable job creation. Whilst SME’s are not the panacea for all of South Africa’s development needs, they are a significant contributor with immense potential.

Only 7% of adult population of South African are engaged in entrepreneurship. South Africans must move away from seeking employment to creating employment

The SME State of Affairs

According to the Global Entrepreneurship Monitor (GEM), South Africa’s performance in enterprise development has been poor. The GEM’s most recent report shows that by most measures South Africa is outperformed by all of its African peers taking part in the study and indeed by most other countries too. For example, only around 7% of South Africa’s adult population (18-64 years old) is involved in early-stage entrepreneurship – in other words, with start-ups and young firms – while another 2% were operating firms that had been in operation for more than 3 and a half years. But despite this, a survey done by Business Partners shows a relatively positive Q3 2015 outlook for SME’s, with key challenges for the short term being uncertain market conditions, cash flow and funding.SME activities in South Africa can be clustered in 3 key areas, viz. business services, manufacturing and tourism. The sector is also skewed to white males, who tap into their own savings. Source: sbp report, “Who are the small firm entrepreneurs in South Africa, May 2013

Stark Realities and Considerations

• Unemployment in South Africa is in excess of 40%, yet only 7% of the adult population are engaged in entrepreneurship. Despite the need, what’s stopping us?

• It would seem that whilst South Africans see good opportunities to start a business, there is a very prevailing fear of failure and many businesses don’t see the light of day within 2 years of starting up. Can this lack of sustainability be mitigated?

• The GEM’s report quotes that 71% of entrepreneurs start businesses to pursue an opportunity and to increase their income or independence, and 28% do so because they have no other option for work. With the high levels of unemployment in South Africa one would expect an even stronger entrepreneurial drive.

• There are various government driven initiatives to support SME’s in South Africa but their effectiveness and impact is questionable.

The SME sector in South Africa requires focused attention to unlock the potential goldmine that it could be. It needs a radical relook at how government initiatives are structured, managed and governed so as to stimulate growth of the sector. It needs innovative funding models and business support (training and business acumen) to mitigate against the risk of failure.

References

• http://www.worldbank.org/en/country/southafrica/overview

• http://www.africaneconomicoutlook.org/en/country-notes/southern-africa/south-africa/

• Prof. Neil Rankin et al. Business environment specialists sbp, Who are the small firm entrepreneurs in South Africa?, SME Growth Index Thematic Paper, May 2013

• Mike Harrington, Jacqui Kew, Penny Kew, 2014 GEM South Africa Report, South Africa: The crossroads – a goldmine or a time bomb?,