SMMEs need to be nurtured

2012-06-02 08:55

There is general consensus that, to the extent this will contribute to job creation and economic emancipation, the growth and support of small businesses is the cornerstone of every successful economy.

Although official records show that small businesses and the informal sector employ at least to 60% of South Africa’s working population, the recently released Stats SA figures of the first quarter show that the unemployment rate has grown.

The New Growth Path – which is now South Africa’s flagship economic development policy – begins by identifying areas where employment creation is possible and immediately achievable.

As a result, the macroeconomic package, which identifies the importance of enterprise development and the promotion of small businesses and entrepreneurship, has since been identified and endorsed.

The launch of a one-stop funding agency to support small emerging businesses was conceived in light of this approach.

Following Cabinet’s announcement as early as October 2011, it is against this background that the minister of economic development announced the launch of the Small Enterprise Finance Agency (Sefa) a few weeks ago.

The new agency is to be located within the Industrial Development Corporation (IDC) and is the amalgamation of Samaf, Khula Enterprises and certain IDC funding portfolios.

Although the news of the launch has been widely welcomed as a positive move, those who work in enterprise development agree that the success of start-up and emerging – especially black-owned – small businesses requires more than the existence of a finance agency such as the newborn Sefa.

A revised, multipronged approach to small business development is required in South Africa if we are to dent the effect of the “tripartite challenges” of democracy – namely poverty, unemployment and inequality.

Although the primary mandate of the agency will be the disbursement of financial support of up to R10 million per project, it is the preparedness of the small businesses, which are the intended beneficiaries of this funding, that will differentiate the new agencies from their predecessors.

To date, funding agencies such as the National Empowerment Fund (NEF) and provincial economic development agencies have, despite having the cutting-edge mandate to do so, not been able to deepen the effect of their intervention despite being in existence for many years.

This is partly because the adjudication committees of these funding agencies are predominantly made up of officials whose credentials are from commercial institutions. They are preoccupied with the commercial imperative to the detriment of the developmental approach.

Many small businesses in South Africa are unable to obtain funding, not because they do not have relevant and profitable business ideas and concepts that are often required but because they are unable to present these ideas in the manner that demonstrates the required commercial viability to align their economic priorities with our flagship economic guidelines.

Although institutions such as the NEF have attempted to showcase samples and templates of what successful business plans should look like, the rejection rate of applications for funding coming out of these agencies is discouraging.

This means that more efforts need to be invested in the training and orientation of emerging entrepreneurs to understand the requirements and priorities of these funding agencies.

It also means that someone must prepare the applicants to be able to locate national policy imperatives that talk to job creation, infrastructure, taking advantage of new opportunities in the know, and green economies as articulated in the country’s national development plan.

My experience of working with motivated and ambitious entrepreneurs in rural areas shows that most people have ideas about the kind of business initiatives they want to undertake, but they lack the relevant basic competencies to run a business.

Those with basic competencies often lack the sufficient knowledge and whereabouts of the relevant support structures made available to provide financial assistance.

As recently observed by Parliament’s portfolio committee on trade and industry, not much is done to communicate the existence of these agencies.

Emerging business owners look upon the nearest government authorities for tenders and procurement as this becomes the only available source of support for their businesses.

Although this is often the case, many have had to close down as there are no consequences for public officials who fail to implement government’s long-standing commitment to pay its suppliers and service providers within 30 days.

Once operational and supported, small businesses require mentorship on an ongoing basis.

The importance of business mentorship for the emerging entrepreneur ensures that the financial support that has been injected into the business is not only put to good use but helps businesses’ growth and sustainability.

As soon as emerging businesses have been sufficiently mentored and developed into successful operational entities, it becomes easier for them to access markets on their own and expand their footprint instead of looking to government for business.

It is at this stage that these businesses are able to absorb labour and create decent jobs in the communities in which they operate.

» Masombuka is an independent empowerment practitioner advising on BBBEE and enterprise development

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