Proposals are in the pipeline to address the problems facing small businesses
Barry Streek
The government’s strategy to promote small business a key element of its economic policies is under review because of the failure of 117 246 small business enterprises, which cost the state R68-million.
A key element of the revised strategy is likely to be greater involvement of local structures, including business organisations, educational institutions and municipalities, in the provision of support and information to small businesses.
Although there are almost a million small-, medium- and micro-enterprises (SMMEs) in South Africa, and a further three million people making a living as hawkers, there is general consensus that national, provincial and local government programmes earmarked to promote these businesses have been ineffective.
Last year the Minister of Trade and Industry, Alec Erwin, admitted that the promotion of SMMEs was one of the government’s most difficult programmes.
“We have been wrong in our expectations of our ability to reach out to people and enterprises. We have also misjudged the abilities of the private sector financial institutions to support the SMME sector,” Erwin told a National Council of Provinces workshop.
Wolfgang Thomas, the chief economist at Wesgro, the Western Cape development agency, estimates that R1,1-billion R785-million in public funds and R312-million in private sector funds was spent on SMME support in the 1999/2000 financial year, and that this was a real increase of between 8% and 10% a year over the past seven years.
However, Thomas wrote in a recent paper that there is “widespread disillusionment about progress with the SMME support and even greater disillusionment with the rate of progress with economic development and job creation”.
But despite these trends, general awareness and interest in SMMEs as a source of income and the number of SMMEs in operation have increased.
Thomas believes that the pressing issue now is the acceleration of processes rather than the introduction of new approaches or strategies.
Access to funds, particularly for enterprises in predominately black areas, remains a problem.
In his speech last year Erwin said banks were cutting costs to survive and were reducing their retail exposure to small account areas, which means townships and rural areas.
Dudley Adolph, director of economic development and coordination in the Western Cape, agrees that the inability of entrepreneurs to access finance is a handicap to small business development. “One of the biggest problems is that banks don’t understand small business.”
Adolph says the definition of small business is a problem because small, micro and emergent enterprises have “totally different needs”.
The reviewed small business strategy could also explore other funding mechanisms and improve the access of small entrepreneurs to financial support. Erwin hinted last year at a system of community reinvestment obligations to improve financial accessibility and “correctly price long-range wealth creation”.
In the Western Cape the concept of a provincial, government-funded entrepreneurial capital fund to invest, through an intermediary, in small and medium businesses with sound profit histories is being considered. It is proposed that the new fund take equity stakes, freeing businesses from punitive loan repayments in the establishment phase.
The latest reassessment of the government’s small business strategies was also sparked by the need to review the 1996 National Small Business Act, which is based on the strategies outlined in government’s White Paper on small business promotion.
This law centralised many of the small business promotional activities in the trade and industry department and included provision for the establishment of the National Small Business Council, which was later dissolved because of management problems. The Act also established the Ntsika Enterprise Promotion Agency, the Khula Enterprise Finance Limited and the Centre for Small Business Promotion.
Thomas said in a paper last year that “unfortunately” a question mark had to be placed over the professionalism of these new institutions and implementation agencies, many of which had been marked by a rapid turnover of staff.
The White Paper on small business calls for a national network of local business service centres as “the most important vehicle for small business support”. About 50 to 60 such centres were established, but a number have already collapsed because of funding problems.
In retrospect, the provision of information, advice and support to local entrepreneurs a key goal of the 1995 national strategy has proved to be the most difficult to achieve, and the top-down, centralist approach, through Ntsika and the department, has had disappointing results.
The network of about 50 industrial hives and 30 information offices, which were established by the now-discredited Small Business Development Corporation, no longer exists and the corporation, now called Business Partners, only considers low-risk loans of R70 000 or more.
Business Partners has a considerably smaller network than the old corporation, as reflected in its recent decision to close down its Klerksdorp office in the North West province.
Thomas calls for a regulatory framework for SMMEs and for the improvement of facilities. As for training, he advocates a high-calibre programme for start-up entrepreneurs.
Thomas also calls for innovative ways of channeling funds to SMMEs: “Public sector funding for SMME this should primarily be via effective channels for well-proven needs like township infrastructure, training bursaries, mentoring, export assistance, technology transfer, specialised finance and information services.”