Building sustainable micro businesses going forward depends on instilling an entrepreneurship culture amongst the youth to break the structural unemployment cycle in South Africa.
This was a finding at the Nedbank Small Business Index (NSBI) survey announcement on Monday.
Tebogo Nkosi, managing director at Boffin & Fundi said that an entrepreneurship culture was lacking amongst the youth in the country with graduates opting to look for work rather than starting their own businesses.
“Price and competition are very important for young businesses. It is important for entrepreneurs to choose business with high profit margins and economies of scale that would enable them to charge a premium (for the product or service),” said Nazeem Martin, managing director of Business Partners Limited.
The survey uses four datasets to track the state of the micro-business sector and provide that sector with insights to make more informed decisions. The survey was compiled and presented by Nedbank chief economist Dennis Dykes.
Small businesses in the last quarter of 2013 perceived their trading environment as “marginally better” than the previous quarter, with the NSBI improving by 1.5 percentage points to 48.1 index points.
Financing constraints to start up and grow small-to-medium enterprises (SMEs) stood out as one of the main concerns for entrepreneurs and business-owners.Young and smaller companies perceived it to be more difficult to obtain finance than older or established companies.
“Applications for financing new businesses were slightly down in the previous quarter, influenced mainly by the current slowed global and domestic economic growth as well as the uncertainty of political environment with elections coming up,” said Martin.
“Access to finance and global markets remains key in growing SMEs into viable and sustainable businesses,” said Gordon Malebo, business development manager for National African Federated Chamber of Commerce and Industry (Nafcoc).
Nkosi, a successful entrepreneur herself, highlighted that small businesses in South Africa have a largely reactionary response to markets and should instead seek out potential clients directly and not wait for the opportunity to come to them.
The slowdown in applications for private funding is largely driven by perception that the application will be declined and business plans that are not well thought-out.
With regards to access to finance, Martin reckons that “there is more finance available to prospective business than there are good business plans.”
“Applicants need to consider how much equity and collateral they have before applying because ultimately the presents and absence of those things determines your risk to the bank. Banks are not willing to fund someone who cannot invest in their own businesses,” said Martin.
The survey also found that the level of support for small companies form the private sector rose in the last quarter from 5.2 out of 10 (from 4.9), while support from government fell to 2.2 out of 10 (from 2.5), said Dykes.
All the panels agreed that greater coordination and structure is needed in the SME sector, but differed on the degree of interference from private and government institutions.
“Helping entrepreneurs too much may be doing them a disservice. A sustainable businesses needs to be able to pay market-related costs of finance,” said Martin.
Lack of communication to entrepreneurs about financing requirements, and education and skills shortages were pointed out as a potential constraint to having more business-driven employment in the country.
“The education system has failed many people in this country; this is evident in our high unemployment rate. Some people need a ‘leg-up’ do build their skills and education levels in business,” said Dykes.
Malebo agreed, adding that there are many business people who started with nothing but have become built very successful companies.
Suggestions made for a more integrated and strategic approach to the SME sector included the establishment of a development bank to solely cater for the financial needs of the sector and a ministry to look out for the interests of SME legislature.l Business Index