Millions get income from small business
The recent National Planning Commission "jam" was dominated by suggestions from South Africans regarding what to do about unemployment.
The recent National Planning Commission “jam” was dominated by suggestions from South Africans regarding what to do about unemployment—and many of these referred to the need to develop and provide training for small businesses.
The question that arises is whether more assistance will enable small businesses to soak up more South Africans who are economically inactive.
FinMark Trust’s first FinScope South Africa Small Business Survey 2010 provides a good picture of how a small business is filling about half of the huge and growing gap between the number of adult people available for work and those in formal employment.
The survey indicated that there were 5.6-million people in South Africa who owned about six million small businesses. Most importantly, they provided an additional six million “employment opportunities”, which were not necessarily full-time jobs.
The survey was conducted earlier this year from a total of 5 676 interviews of people older than 16 who perceived themselves as owners of a business and employed fewer than 200 people.
Irma Grundling and Trevor Kaseke, implementers of the survey, said they were surprised by the high number of small businesses. But their survey might even have underestimated the number of small businesses in South Africa because it was based on self-perception of people as business owners.
Farmers and hawkers, for instance, often do not see themselves as business owners and were not included if they did not define themselves as business owners.
Of all 32-million adults, according to FinMark Trust’s more general FinScope annual survey, 31% derived most of their income from formal employment; 15% had informal work—piecework or self-employment, or a wage from an individual; 38% received money remittances from others; 24% received government grants; and 2% were living on employer pensions.
These categories overlapped, of course, because many people were involved in more than one category.
For instance, said Kaseke, a half-million people in small businesses in South Africa received government grants. “But what can be said is that most small business owners have relatively small and inconsistent income, so they diversify their income sources,” said Grundling.
Included in the above, according to the Small Business Survey, were the 5.6-million business owners and those they employed either part-time or full-time.
Foreigners made up 17% of the small business owners interviewed. On average they employed two people, compared with the average of about one person for South African small business owners.
Other salient findings of the survey were that large numbers of small businesses employed only one person—the owner. Another was that the vast majority of small business owners were self-taught, and few of them got any assistance from anywhere—least of all from the government and other agencies set up to assist them.
On the support measures needed there was no one solution for all, said Grundling.
“There is a need to segment the market according to needs. This could be done using our data, although it hasn’t been done yet and there is no indication that it will be done.
“It is well known that, most commonly, these business people suffer from a lack of business skills. Some business people need strategic skills; for instance, they may need to move away from what everyone else is selling.
“Or hawkers may need to identify their customers. For instance, banks generally channel their clients to ATMs, but that might not suit hawkers, who get lots of coins and want a means to deposit them.
“In many areas infrastructure is needed, which would normally be provided by government institutions. Or some business people may first need connectivity before they need financial services.”
Grundling and Kaseke did not have much faith in arrangements through which, for instance, big commercial farmers mentored emergent farmers, or similar altruistic arrangements in the banking sector, because larger operators generally simply did not have the time.
A big hindrance seemed to be that both big business and the government were not orientated towards being supplied by small businesses.
For instance, the government, which is the biggest spender by far in the economy, is injecting money into the emerging sector through tenders. But this is not necessarily being well spread because smaller businesses often cannot access tenders as they do not have the right documents. There may also be corrupt practices that channel the tenders to a limited number of suppliers.
“Even if a tender is landed, if payment is made in 90 days the small business may have to borrow at high rates, which cancels out the positive effect. The general effect may be that those who have get more,” said Grundling. “Likewise, the banks are applying traditional criteria for giving loans, which most emergent business people cannot meet.”
In the proposed segmentation, an objective would be to figure out which sectors or groups of small businesses are likely to grow and then ascertain which skills they need to do that. A matrix of suppliers would be needed in each segment to assist them.
“That is where support organisations are failing. They develop generic solutions and they try for one size to fit all to get everyone on board.
“They each have their own templates. The government is not thinking out of the box and neither are the financial services providers,” said Grundling.
Retailers and service providers: A comparison
The FinScope South Africa Small Business Survey 2010 drew a distinction between retailers and service providers.
Retail businesses are more numerous and younger, and people who lose their jobs or cannot find formal employment tend to go into retail businesses—and relinquish those businesses when they can.
Service providers are more skilled, better educated and longer lasting. Both, however, are basic businesses.
Grundling said it was sometimes assumed that South African small businesses were more sophisticated than those in other African countries, but this was not the case. Larger South African businesses were more sophisticated, though, she said.
FinMark Trust pioneered the small business survey methodology in 2006. Surveys have been done in Zambia and Tanzania and are being done in Malawi, Zimbabwe and Mozambique. In these countries, large proportions of households are involved in agriculture—more than 80%, but about 30% in Zambia. In South Africa only about 5% are involved in agriculture. And in those countries about 15% of people earn wages or salaries, compared to about double that in South Africa.