Despite routine spending of millions of rands on training courses and other programmes to help the informal entrepreneur sector grow, municipalities, government agencies and corporate social investment (CSI) projects seem to be doing it all on blind faith.
No evidence of the effectiveness of such interventions seem to exist, not even a simple before-and-after measurement of the turnover of informal businesses that participate in such training.
The need for hard evidence is becoming increasingly urgent as surveys consistently prove that the jobs government is desperately pushing for come almost exclusively from a tiny subsection of the small business spectrum — higher-end, formal, sophisticated businesses.
The recent Finscope research by the Finmark Trust shows that two-thirds of all small businesses provide work for the owner only and create no other jobs. Only 1% of all small businesses provide work for more than 10 employees. (See “Supporting small business“)
Against this background, the question of whether the scarce public resources spent on trying to turn informal businesses into formal, job-creating, viable ones is urgent. But no one seems to know and most seem to ignore the ominous signs that maybe this spending does not work at all.
One such indication is that business training courses devised and offered to informal traders by the local economic development departments of municipalities routinely find it extremely difficult to persuade participants to sign up, even if the course is heavily subsidised with public money.
One example is a programme offered by the City of Cape Town in response to a study that showed large differences in the business skills and practices between spaza shops owned by local entrepreneurs and those of foreign refugees, especially Somali traders.
Local spaza shop owners were losing market share because they lacked the skills to manage their shops through formal business practices, such as bookkeeping and stock control. This was thought to be a contributing factor to the waves of xenophobic violence in recent years.
In surveys and interactions with municipal officials local spaza shop owners showed interest in skills training, but when the municipality made available 100 seats in a training course designed for informal businesses, called Micro MBA, few pitched up.
“In total 16 people attended and it is a little bit early to measure the impact,” says Mansoor Mohamed, executive director of economic, social development and tourism for the City of Cape Town.
Lavendra Naidoo, an experienced small business financier and now general manager of The Business Place, a small-business development NGO contracted by the city to run the course, agrees that the effectiveness of training courses on informal businesses needs to be questioned.
“In my time in the [small business finance] sector — and we’re talking close to two decades almost — I picked up the same challenge. When you look at all these certifications of people [for having attended training courses] and when you question ‘did you actually implement the learning?’ even at the most elementary level you’re finding a very small strike rate,” he says.
Naidoo says the Micro-MBA is too basic to “necessarily make somebody highly competent”, so he doubts whether research will show immediate improved business practice. The aim is rather to make informal businesses aware of their skills shortages so as to encourage them to invest further in business training.
He admits that the tracking of effectiveness is neglected by small-business development organisations, but that it is too soon to dismiss informal-business training completely without proper assessment.
Professor Andre Ligthelm of the University of South Africa’s Bureau of Market Research, which regularly studies small businesses, describes the lack of impact studies into informal-business training as “a huge void”. He is aware of one impact assessment of a European Union funded training course for informal traders in Swaziland.
“They went back a year later to see to what extent the business owners implemented the elements that were taught — cash-flow management, stock control and so on. It was a very small percentage [who practised what they learned]. “So I think there is a problem on the supply side and perhaps also the demand side. Inappropriate courses are offered and perhaps the educational levels of the informal businesses are such that it goes over their heads.”
A paper written by two researchers from the University of the Witwatersrand’s School of Economic and Business Sciences describes a 2009 study which found that traders in inner-city Johannesburg who had attended a training course earned about R1 600 more than those who did not.
It was a six-month training course called Grow Your Business offered by the school in partnership with the City of Johannesburg. But co-author Chris Callaghan says that when the study was replicated in 2010, the correlation was insignificant, as it was when the study was done in 2008.
Although the paper, which looks only at the 2009 research, argues that “that the effects of the state’s involvement in entrepreneurial upliftment projects are non-trivial”, Callaghan says that his research over all three years is too limited to draw any conclusions about the effectiveness of the training course. More research is needed.