Prioritising SMMEs is key in pursuit of inclusive economic growth

05/12/2019 | By Admin

PRESIDENT Cyril Ramaphosa’s administration has been under pressure to cut fiscal spending and create jobs and reduce unemployment. There has also been an increased focus on the need for governments to pursue inclusive growth, rather than merely focusing on macroeconomic indicators like GDP.

Inclusive growth will only be realised when economic prosperity is long term, sustainable and is able to reach broader South Africa particularly the black poor majority.

As a developing country, South Africa like the rest of the continent, has continued to struggle with limited fiscal capacity to create jobs and absorb new entrants to labour market.

As a result, the SMME sector has been seen as an attractive alternative. “SMMEs are key to job creation and globally known to be the mechanism to generate new job in society where over 90% of enterprises are small businesses and employ almost 70% of active working population. The concentration of economic power in few giant companies has made it difficult for small businesses, in particular black businesses in South Africa, to grow and this explains why the economy is struggling,” so says the executive for Strategy at Business Leadership South Africa (BLSA) Nyeleti Magadze.

Statistics on the other hand have shown that small businesses have only 37% chance of surviving 4 years and a 9% chance of surviving 10 years: 70% to 80% of small businesses fail in their first year, and only about half of those remain in business for the next five years. Despite a growing recognition of SMEs as a viable option to generate jobs, the private and public sectors to a certain extent remain the largest employers in this country.

The overreliance on private sector employment is a major problem for South Africa. This state of affairs unfortunately continues to prioritize larger companies, and that is why SMMEs face stiff challenges which include regulatory constraints, limited access to finance and limited access to markets. Magadze says the country is lagging way behind in investments in SMMEs and is calling on big companies to invest more in small businesses in order to solve the and strengthening key institutions through promotion of sound leadership and a process of holding the state to account is key to achieving inclusive economic growth.

Prioritising SMMEs is key in pursuit of inclusive economic growth. We’ve got to invest in SMMEs, particularly black entrepreneurs, so that the economy is broadly reflective of the demographics,” warns Magadze.

As part of her responsibilities, Magadze says BLSA currently supports initiatives and programmes that support SMMEs through various partnerships. A partnership with USAID, which supports KYB, an SMME in Early Childhood Development (ECD), as well as 22 On SLOANE, a start-up campus for SMMEs.

Says Magadze: “22 On SLOANE is one of our flagship partnerships. It is the largest start-up campus in Africa that offers disruptive start-ups and innovate SMMEs a complete turnkey solution to scale, from the initial idea all the way to commercialisation, funding opportunities and access to markets. Its aim is to nurture the entrepreneurial mindset, ensure their sustainability, and explore development of new industries and contribute towards job creation in Africa.”

BLSA itself is looking at launching an SMME platform aimed at connecting SMMEs with access to markets through its membership base. The platform will partner and align with organisations already doing a lot of work in this space.

The World Bank identified the following key benefits of SMMEs:

  1. SMMEs are the engine of growth: This means that SMMEs are key in creating jobs and employment in the country.
  2. SMMEs are essential for a competitive and efficient market: Because SMMEs play the competitive game differently from the big corporates, their nimble approach to competition drives efficiency and productivity.
  3. SMMEs are critical for poverty reduction.
  4. SMMEs play a particularly important role in developing countries: They are productive drivers of inclusive economic growth and development in South Africa and around the world, and they drive diversification through their development of new and unsaturated sectors of the economy.