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What we think we know about SMEs, we don’t

The SME landscape is poorly understood, anecdotal or simply non-existent.

JOHANNESBURG – Entrepreneurship in South Africa is synonymous with words such as red tape, constraining labour regulations, a lack of skills and a lack of funding. These factors consistently rear their heads as obstructions to entrepreneurship and contribute to creating an unfavourable culture of entrepreneurship.

The SBP Small Business Growth Index Alert (a follow up from the SME Index) states that South Africans have a favourable view of entrepreneurs but [there are] “intangible cultural factors” such as fear of failure and a lack of role models that make entrepreneurship seem like an undesirable career choice.

The SBP alert further states that South Africa is underperforming when it comes to meeting “the twin objectives of employment creation and competitiveness”. The country acknowledges that it requires more entrepreneurs, “but has not yet realised fully that small businesses have needs”.

For example, our chronic unemployment problem is seen as a serious threat to economic development, yet regulation that is better designed, more efficient in its application and less demanding on entrepreneurs is yet to be considered.

It is acknowledged that SMEs could offer a solution and the SBP alert indicates that SMEs are more likely to hire older, younger and less skilled individuals. However, at the same time, the report highlights that since 2007 (see graph below) small firms that hire between 10 and 49 people have been on the decline.

These, it states, are the very SMEs that would be expected to drive employment growth but are precisely the ones that have lost the greatest traction over recent years.

Figure 1: The graph indicates that firms hiring ten or fewer individuals have been increasing, to the detriment of those hiring ten or more.

Source: Stats SA and the SBP SME Growth Index alert.

The SBP alert states that more effort needs to be poured into understanding why this trend has developed. Part of the challenge lies in a lack of skills, little demand and regulation which hinder employment.

The alert highlights that broader social issues are also a hindrance to the encouragement of entrepreneurs. A glittering modern consumer culture exists alongside a society in dire poverty – 16 million people rely on some form of social welfare to get by. South Africa’s unemployment rate stands at 25% with a youth unemployment spiking to 52.9%.

The alert also re-emphasises that a “capable state”, as highlighted in the NDP, needs to be created in order for SMEs to flourish but “non-business” factors as the quality of education, healthcare and policing are still stumbling blocks. The Business Licensing Bill or even the new Municipal Guidelines for reducing SME red tape will not be enough to address the lack of interest in understanding the challenges facing SMEs and how to turn the ship around.

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