
AROUND the world, in every economy, whether emerging or advanced,
SMEs (small and medium enterprises ) are widely accepted as a
significant driver of GDP and the primary job creator. In South Africa
SMEs account for around 40% of GDP and, according to the Finscope (2006)
survey, 90% of jobs created between 1998 and 2005 were in small, medium
and micro enterprises.
Interestingly Brazil’s SMEs are estimated
to produce 96% of jobs. Based off this the South African Institute of
Chartered Accountants suggests that according to the National
Development Plan, SMEs are expected to provide a staggering 90% of new
jobs by 2030. Given South Africa’s divided past and our current
population demographics, the importance of stimulating black owned SMEs
must therefore take centre stage.
To misquote Shakespeare (Hamlet Act III, Scene 1) with some South African enhancements:
To BEE, or not to BEE-that is the question:
Whether ’tis nobler in the mind to suffer
The slings and arrows of outrageous fortune
Or to take arms against a sea of troubles,
And by opposing end them.
Given
the current unemployment rate in South Africa, and the expectation for
SMEs to create significant jobs by 2030, it is important to understand
the stumbling blocks for SMEs in South Africa. We as a country need to
understand the crucial role that SMEs will play in creating employment
and driving growth in our economy.
As Shakespeare suggests we
cannot passively sit; we must rather actively engage and thereby ensure
that every effort is made to encourage and promote SMEs.
A number
of South African studies including the National Development Plan have
identified factors which undermine a strong SME growth vector including:
1. Excessive red tape,
2. Rigid labour regulations
3. Inability to access finance
4. Skills development and business support
5. Access to markets (procurement).
Contrasting
South Africa with other economies which have vibrant SME participation
provides us with some potential suggestions as to what participants in
the South African economy could do, to stimulate the SME sector.
An
interesting policy study undertaken in 2004 by the OECD (Organisation
for Economic Co-operation and Development) found "SMEs play a key role
in transition and developing economies. These firms typically account
for more than 90% of all firms outside the agricultural sector,
constituting a major source of employment and generate significant
domestic and export earnings. As such SME development emerges as a key
instrument in poverty reduction efforts."
Furthermore the OECD study made the following key recommendations:
1.
Embed strategies toward the private sector and SMEs in countries’
broader national development and poverty reduction programmes
2. Strengthen SME capacity to improve their competitiveness in domestic, regional and global markets,
3. Promote policy coherence at regional, national and international level, and
4. Maximise the spill over of management skills and knowledge from multinational enterprises to local SMEs.
Not
surprisingly these two pictures (South Africa and OECD), from vastly
differing sources, enjoy significant overlap. This confirms the
overwhelming finding that South Africa’s SME perspective has
similarities to those found around the globe.
How then do we
collectively address the stumbling blocks facing South African SMEs?
Looking at the list of shortcomings identified in the South African
studies which SMEs face, the following high level perspective is worth
noting:
1. Excessive red tape and rigid labour regulations are
firmly within the regulatory framework. It is important that government
takes note of these issues and addresses them. These remain firmly
within government policy. Realistically, apart from consistently raising
the issue for debate and challenging our elected officials in this
regard, private enterprise will have limited ability to change these two
issues in the absence of policy change. However, with regards the three
remaining issues there is much that the private sector can do.
2.
The inability for SMEs to access finance, the need for skills
development and business support and access to markets are all
significant stumbling blocks. In addition, due to South Africa’s skewed
economic development under apartheid, it is realistic that policy
intervention is necessary to remedy the imbalance. Capitalism, in the
absence of this policy intervention, would most likely see the strong
becoming stronger and the weak becoming weaker.
The drafters of
the Broad-Based Black Economic Empowerment Act and Codes of Good
Practice appear to have taken these factors into account in the
following way:
• The Amended Codes of Good Practice have made
Skills Development a mandatory aspect of the codes which required a
sub-minimum of 40% compliance,
• Supplier Development, a component
of the mandatory element of Enterprise and Supplier Development, has
been added to improve the opportunity for black SMEs to secure
procurement opportunity from companies (access to markets),
• The definition of an empowering supplier includes an element of skills transfer, and
• Enterprise and Supplier Development encourage the provision of finance by companies to black SMEs.
Notwithstanding
a number of shortcomings within the Amended Codes of Good Practice,
most notably around the 51% black owned measure which, by almost any
global measure of control, should have been 50% plus 1, the codes give
voice to the reality that SMEs are a vital sector of the market. If we
are to genuinely address job creation all stakeholders need to embrace
the pivotal role SMEs will play in that regard.
Ultimately CEs
will play the most important role in implementing the BEE Codes within
their companies. If implemented well the codes will bolster the growth
of black SMEs in our economy, and in so doing we will start to make
inroads into South Africa’s massive unemployment burden.
To CEs
then the challenge offered is to "take arms against a sea of troubles,
and by opposing end them". The Amended Codes are difficult and
imperfect. However they include tangible elements which will support the
growth of black SMEs; and by extension job creation. There is no better
time for action than now.
• Jones is CEO of Inyosi Empowerment.
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