Let’s use ED to develop globally

To say South Africa is in the middle of difficult economic times is stating the obvious. President Cyril Ramaphosa described youth unemployment as a national crisis, which is sitting at 55.2%. State Capture – Eskom the starkest example – and the private sector’s own regulatory ills are real.

However, to further bemoan the regulatory environment, especially elements of the B-BBEE scorecard focused on Enterprise Development (ED) is to repeat the common yet misplaced perception: ED creates new jobs in Small and Medium Enterprises (SME) but leads to job losses within larger enterprises.

First, it is important to understand why Government places so much emphasis on the SME sector. According to a 2017 Organisation for Economic Co-operation and Development (OECD) report, SMEs are the predominant form of enterprise, and account for 70% of jobs and 50 – 60% contribution towards GDP. By contrast, SMEs in South Africa account for 54% of the jobs and contribute to 49% of GDP.

Given South Africa’s current economic malaise, if the SME sector can be catalysed for growth, it can prove a catalyst of positive change for our national economic fortunes.

Importantly, that does not mean supplanting large companies as key employers within the economy, but rather supplementing job creation through the SME sector. Through the globalization of markets, SMES now have the opportunity to work in an integrated way with large organisations, acting as strategic partners instead of competitors.

This is how South Africa’s SME sector can aid growth without undermining the economic livelihood of larger organisations and employers. In this context, focus on the sector should be two-fold:

  • Develop SMEs so they can produce high quality product and service levels to replace imported services and products within large supply chains
  • Develop SMEs so they can be globally competitive, with their products and services exported to other cross-border markets
  • If these two objectives can be achieved, South Africa’s economy will enjoy tremendous value addition, with both SMEs and large organisations acting as job creators. Further to this, SME growth will drive transformation in South African business, the economy and reduce inequality.

    However, for SMEs to be given the best chance to succeed and be competitive in a globalised market, they cannot do it alone or in isolation. They need the support of large businesses and state agencies to thrive. The finite resources available to support SMEs must also be used in a strategic and thoughtful way, because development finance catalyses economic development and growth in a country.

    South Africa’s development finance assets as percentage of GDP is 5.3%, which is low compared to peer countries like Brazil, China and Malaysia, who are sitting at more than 14%. In this context, Enterprise Supplier Development (ESD) funds are meant to supplement development finance funds with a specific focus on developing SMEs.

    Strategic support begins with identifying the right products or services where SMEs in South Africa can attain the competitive levers required to compete globally. This entails identifying products/ services where South Africa has location factor advantages and factors such as scale, R&D and logistics do not play a role in achieving global competitiveness.

    For South Africa to achieve its future now, enterprise development and the SME sector offer a needed remedy to close the joblessness and inequality gap. Doing so means changing the way enterprise development is perceived and targeting areas of the economy where both small and large business can benefit.

    Let us develop South Africa’s SME sector for the global economy.

    Tafadzwa Mudyiwa is a senior manager in Letsema’s Economic Development Practice

    These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever. But it comes at a cost. Advertisers are cancelling campaigns, and our live events have come to an abrupt halt. Our income has been slashed.

    The Mail & Guardian is a proud news publisher with roots stretching back 35 years. We’ve survived thanks to the support of our readers, we will need you to help us get through this.

    To help us ensure another 35 future years of fiercely independent journalism, please subscribe.

    Tafadzwa Mudyiwa
    Guest Author
    Advertisting

    Odd drop in how Covid-19 numbers grow

    As the country hunkers down for a second week of lockdown, how reliable is the data available and will it enable a sound decision for whether South Africans can leave their homes on April 16?

    Mail & Guardian needs your help

    Our job is to help give you the information we all need to participate in building this country, while holding those in power to account. But now the power to help us keep doing that is in your hands

    Press Releases

    New energy mix on the cards

    REI4P already has and will continue to yield thousands of employment opportunities

    The online value of executive education in a Covid-19 world

    Executive education courses further develop the skills of leaders in the workplace

    Sisa Ntshona urges everyone to stay home, and consider travelling later

    Sisa Ntshona has urged everyone to limit their movements in line with government’s request

    SAB Zenzele’s special AGM postponed until further notice

    An arrangement has been announced for shareholders and retailers to receive a 77.5% cash payout

    20th Edition of the National Teaching Awards

    Teachers are seldom recognised but they are indispensable to the country's education system

    Awards affirm the vital work that teachers do

    Government is committed to empowering South Africa’s teachers with skills, knowledge and techniques for a changing world

    SAB Zenzele special AGM rescheduled to March 25 2020

    New voting arrangements are being made to safeguard the health of shareholders