Why SMEs have the potential to transform the economy

30/10/2017 | By Admin

Government and big business must play their part to support small businesses, says Simon Susman, chairperson of Woolworths. He shares how the retailer started as a small business and its contribution to the South African economy.

THE FIRST Woolworths store was opened by founder Max Sonnenberg in Cape Town in 1931. The economic environment at the time was uncertain with the global economy two years into the great recession.

But Sonnenberg was an entrepreneur. He believed there was an opportunity in such a climate to provide customers with a combination of good quality merchandise at reasonable prices. He was adventurous enough to take the risks involved, and fast footed enough to learn from his customers and adapt his offering accordingly.

He innovated, he competed and he expanded. Today Woolworths Holdings [JSE:WHL] is one of the top 40 companies on the JSE, employs more than 44 000 employees across 14 countries and trades in more than 1 400 store locations. Woolworths is a big business, but like all big businesses, we started as a small business.

In August, Business Leadership South Africa’s (BLSA) CEO, Bonang Mohale, launched the organisation’s contract with South Africa. It committed to deliver inclusive economic growth to the country and to our economy.

One of the primary commitments in that contract is to support small businesses. Hence the establishment of the CEO Initiative’s SME fund, which is building great momentum in funding and guiding small businesses.

As with Woolies’ history, so too do the thousands of SME’s around the country have the potential to transform this economy.

Potential of SMEs

In South Africa, it is estimated that SMEs make up 90% of formal businesses, provide employment to about 60% of the labour force and contribute roughly 34% of GDP.

SMEs are inherently more adventurous than big business. They have the single largest potential to move people out of the poverty trap of structural unemployment. They are great sources of innovation. They open new markets. They are imbued with the energy of an entrepreneur.

I am privileged to mentor some of these entrepreneurs. They bring truly fresh ideas and learn quickly how to shift those ideas into concrete and deliverable plans.

They seek first a market – big business is key in providing that. They seek advice – mentorship programmes which all experienced business people can join, are critical, and rewarding for both parties.

They seek cash, which larger businesses and projects like the CEO Initiative, can provide if the plans are good enough. But mostly they seek the freedom to get on and build their businesses.

This is where government is key.

SME’s are subject to the same labour legislation as large corporates. (No small business hires new staff unless absolutely necessary given the toughness of these laws.)

They are subject to the same minimum wages requirements as big business and the same exorbitant charges from inefficient state-owned enterprises.

They are subject to largely the same tax environment, the same licensing requirements, and a host of other restrictions and hoops that Big Business, with their pools of resources, can handle more easily.

They too have to operate in an environment where state capture and corruption from the top of government cause ever slower economic growth and make each business and hiring decision that much more risky.

With the South African economy in its current state of stagnation, the challenges are growing. This climate has forced thousands of businesses around the country to pull back on capital expenditure and on job creation. For small businesses the impact is more pronounced.

We have a Ministry for Small Business Development which has done precious little to ease any of these restrictive measures. Even in the Special Economic Zones, most of these barriers still apply – and they were conceived to make business easier.

Social contract

We challenge this government to make some real exceptions and remove these constraints completely for small business. This will result in thousands of jobs being created in a very short space of time.

From a big business perspective, the BLSA contract with South Africa recognises traditional business’s duty to help SME’s succeed. It commits to do so through financing new businesses, providing access to markets and customers, and training and mentoring entrepreneurs for success.

Most industries have operated in this manner. Mining, until its current impasse with a dogma-driven government, was a great example of this model, with thousands of small businesses supporting the industry… now sadly those numbers are shrinking fast.

At Woolworths, it is part of our value system. We are strong supporters of the BLSA programme and indeed have been operating in this manner for most of our history.

SMEs have been amongst our greatest sources of innovation and change in our product ranges. Our food and clothing businesses have relied strongly on our supplier base for growth. These suppliers have always been willing to take on the newest methods of manufacturing, farming, packaging and logistics, more often guided by ourselves. It is a symbiotic relationship from which we both benefit.

Through our Good Business Journey we are currently supporting around 50 black businesses that supply us and over the last three years have disbursed R25m in loans, creating hundreds of jobs. Many of our more established suppliers have similar programs for their own supply chains.

Businesses right across South Africa are now willingly part of the BLSA contract. Together the individual efforts of each company will add up to something very meaningful at a national level.

We now need government to change. It is from here that the real multiplier effect will have to come.

If we want millions more jobs, we need an enabling government. One truly committed to value based leadership – that is about being honest, transparent and starting to act again in the nation’s interest. One prepared to open up a fresh world for entrepreneurs to build their businesses and help create the millions of jobs we so desperately need.

Woolies and BLSA are on the journey. We wait impatiently for a clean and principled government to join us in transforming our economy with a truly inclusive and vibrant SME sector.

* Simon Susman is the chairperson of Woolworths Holdings Limited.

Published in Fin24 (30 October 2017)