Support for small enterprises is a central feature of the government’s strategy to promote economic development, but it is expensive
Barry Streek
The South African economic sector has lost more than R68-million in the past four years as a result of the failure of 117 246 small business enterprises receiving government assistance.
Minister of Trade and Industry Alec Erwin disclosed the figure in Parliament last week during a reply to a question by Frik van Deventer of the Democratic Party.
Last year 40 251 small businesses involving capital of R39,5-million failed.
Erwin said many of the disappointing results in the enterprises could be attributed to factors that generally affect small businesses.
He said some of the reasons for failure of small businesses are:
l lack of market focus;
l inability to maintain a profitable position in the market;
l expansion into the domestic market by big business;
l unfamiliarity with established business practices;
l failure to conduct business in a professional manner;
l lack of financial and managerial expertise in business management;
l concentration of entrepreneurs in service and retail business; and
l high crime rates that forced entrepreneurs to reduce the number of trading hours.
”In South Africa, this is compounded by lack of entrepreneurial culture as well as lack of technical and management skills,” Erwin said.
Professor Anthony Black of the University of Cape Town’s department of economics commented: ”Everyone thinks small business is a good idea, but to support it effectively is very tricky. They find this all over the world.”
Support of small, medium and micro enterprises (SMMEs) is a central feature of the government’s strategy to promote economic development in South Africa, particularly in view of the decline in employment in the formal sector of the economy in 1994, but Erwin indicates that there are a number of problems in the sector.
The minister said Khula, one of the government’s funding agencies, had provided 234 090 loans to SMMEs and NGOs between 1997 and 2000, including 85 269 last year, and 152 237 credit guarantees had been supplied by banks and retail financial institutions.
For every R1 Khula grants, the banks provides R4 in loans to entrepreneurs.
Total capital employed to assist SMMEs is R1 142,3-million.
Erwin said most entrepreneurs get involved in business purely for survivalist purposes and there is a lack of research by retail finance institutions into appropriate products for the SMME market.