To say that the government pays lip service to small business development would not be entirely fair, for it implies deceit. There is some falsehood, but mostly it is a case of the top lip not knowing what the bottom lip is doing. And, from time to time, neither knows what it is supposed to do. The result is a garbled cacophony of outrageous promises, failed experiments and wild accusations.
The job is not made any easier by small business people themselves. To say that they are not always pleasant may be a bit harsh, but on the Hansie Cronje-Mother Theresa spectrum of altruism they tend to lean towards the former.
The fight to make their businesses work can make them aggressive, flashy and self-promoting. After a few years of repeating ”my product is the best” they tend to start believing it — despite the chaos back at the office. Some small business owners struggle to acknowledge faults, and constantly blame others.
Pity the Department of Trade and Industry, whose job it is to ”create a friendly environment for small businesses”. South Africa is not a friendly environment for small businesses for a number of reasons. The most important of these is the stubborn myth that small business equals informal business.
Everyone seems to have caught on that small business is the answer to our unemployment problems; everyone wants to contribute. But for civil servants, corporate buyers, politicians, teachers, unions, social workers and community activists the words ”small business” conjure up an image of somebody sitting on the pavement selling socks. This mistake has cost us millions of rands in failed projects over the past seven years.
The Small Business Enabling Act of 1995 defines small businesses as those with fewer than 50 employees. Imagine a factory with 45 workers turning over millions of rands a month — that is a small business.
The small business development community has painfully realised that the two groups — informal survivalists on the one hand and formal small businesses on the other — are vastly different.
Survivalists generally do not employ people. They jump at the first opportunity of formal employment — which is not surprising because survivalist trade is cruel. They very rarely grow and become formal businesses. It is crucial to help them, for informal trade saves people from starvation.
On the other side of the spectrum are formal small businesses, whose owners are highly skilled, experienced and employable. Nearly all of them have worked for someone else before. Research shows they regard their former work experience as their most important training ground.
Although one might not think so, they also need support. This is not so much because their businesses may fail and their families starve, but because they may become so frustrated that they pack up and go to work for someone else, leaving their workers and their families to starve. Therefore, support for small business owners needs to be just as much psychological as financial, regulatory and educational. These have not been easy things to grasp.
In 1994 almost the entire small business development strategy of the Department of Trade and Industry — and many other South African institutions — aimed at getting the unemployed to become employers.
Ntsika, the department’s agency for non-financial small business support, used NGOs to set up local business service centres. These mainly gave basic business skills-training courses to the unemployed. If, of 100 people trained, one succeeded in business that would be a good result — not that it was put this way to NGO funders.
In addition, there is Khula, the government’s small business finance agency. The results of its experiments in ”micro-finance” were much more visible. Micro-finance is the practice of giving loans as small as R300 to the unemployed to start survivalist businesses. After a few years of struggling with default rates of between 70% and 80%, two of the biggest micro-finance schemes crashed, causing huge losses for Khula.
Recent Department of Trade and Industry statements show a growing awareness of the myth. The talk now is of ”making a clear distinction between support for micro- and small businesses”.
But Minister of Trade and Industry Alec Erwin continues to stop short of acknowledging that support for survivalists is poverty relief that should fall under the departments of welfare, education and labour. Under these departments, there would be less pressure on micro-finance schemes to be self-sustaining or profitable. Training would be vocational, not managerial.
Erwin says too little is known about the graduation, or lack of graduation, of entrepreneurs from informal to formal businesses, but that movement from survivalism to formal business activity is common in certain industries, such as clothing.
Separating ”micro and small” is politically risky. Already, during the department’s recent nationwide ”roadshow” to review the effect of its small business strategy, it was criticised for being ”elitist”, focusing too much on formal businesses.
This is perhaps the most difficult part of the department’s job: how do you convince the poor that you have to support a bunch of ”haves”?
Barrie Terblanche is editor of BigNews — The Paper for Growing Business