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Breaking barriers to market access will help SMMEs in SA

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The success of SMMEs in South Africa is critical, given the high levels of unemployment and poverty. Picture: iStock
The success of SMMEs in South Africa is critical, given the high levels of unemployment and poverty. Picture: iStock

Global trends indicate that the small medium and micro enterprises (SMMEs) sector has experienced sustained growth and is consistently the largest employer in both the developed and developing world in recent times.

Research shows that in the Organisation for Economic Cooperation and Development (OECD) area, SMMEs represent almost the totality of the business population, accounting for about 70% of employment and generate between 50% and 60% of the value added to the economy.

In Africa, this sector forms the backbone of most countries’ economies, representing more than 90% of businesses and employing more than 60% of workers, many of whom are women and youth.

The situation in South Africa is markedly different as SMMEs are experiencing stagnation in the turnover generated and in employment growth.

A 2017 study by Small Business Institute (SBI) found that 70% of emerging small businesses failed within the first two years of operation. The same study revealed that while 98.5% of the country’s economy is made up of SMMEs, they only delivered 28% of all employment opportunities.

Worryingly, 56% of jobs in South Africa are created by the 1 000 largest companies and government. This contrasts sharply with the contribution of SMMEs in OECD countries and elsewhere on the continent.

The SBI report warned that the National Development Plan’s (NDP’s) goal of small businesses creating 90% of jobs by 2030 would not be realised unless this vital segment of the economy received the necessary support.

The success of SMMEs in South Africa is critical, given the high levels of unemployment and poverty. It is generally accepted that SMMEs create more job opportunities across geographic areas and sectors, and employ broad segments of the labour force. This includes the absorption of low skilled workers – a hallmark of the country’s economy.

Nurturing these small enterprises could also help broaden South Africa’s skills base as SMMEs provide opportunities for skills development better than large firms.

A key feature of small businesses is that they contribute to inclusion by serving locations, populations and markets that do not have enough scale to attract larger firms, thus creating new demands and markets.

One of the hurdles to the success of SMMEs is the lack of access to markets for products and services. With the rise of globalisation, market access is rapidly and constantly changing due to sustainability and product standards, industry regulations, certification, customs procedures and requirements in foreign markets.

Adopting these is costly for SMMEs because their implementation is sometimes arduous and cumbersome, which negatively affects buddying enterprises.

Globally, value and local chains are dominated by large companies, and these usually determine the requirements and standards that need to be adopted and used for producing products and services. The domination by large companies of different value chains make it difficult for small business to operate outside of the value chain. Therefore, working within these value chains offers SMMEs market access opportunities to participate in global and local markets.

The SMMEs can be integrated into the global and value chains in different ways. For example, as exporters or/and suppliers to large firms that export. Stronger participation by SMMEs in global markets creates opportunities to scale up and enhance productivity, accelerate innovation, facilitate technology spill overs and managerial know-how, broaden and deepen the skill-set.

International exposure – be it through imports, exports or foreign direct investment – frequently goes hand in hand with higher productivity and wages.

Government has gone a long way in putting in place a regulatory environment supportive of SMMEs.

This is because the state is aware of the role small businesses can play in addressing the triple challenges of unemployment, inequality and poverty.

The SMMEs could contribute enormously to setting the country on a trajectory that will ensure the achievement of the Sustainable Development Goals and National Development Goals in line with the NDP.

It is therefore critical that government should use the enterprise and supplier development programmes to facilitate access to markets and for economic transformation with a clear focus on building strong local suppliers drawn from SMMEs owned by the previously disadvantaged, with a specific focus on women.

Many companies view enterprise development or supplier development as a compliance issue and this attitude therefore limits the transformational potential of these programmes.

A study by New York University’s Centre for Global Affairs reported that the South African corporate sector has injected billions of rands into enterprise development. The money invested, however has neither realised its potential nor accomplished the underlying intentions of the broad-based black economic empowerment (B-BBEE) policy.

This is partly because enterprise development and supplier development are not generally core competencies of most corporations, and are often viewed from a compliance perspective.

The study was not conducted on random companies, the report drew data from 60 of the top 100 companies listed on the JSE – meaning it represents some of South Africa’s largest enterprise development programmes.

The important lesson from the study is that the correct implementation of the enterprise development or supplier development leads to structural economic change as suppliers will gradually move up the value chain from supplying raw materials to more sophisticated components.

However, for this happen we require dynamic and enterprising programmes that are supported by both the private sector and government in order to lift barriers to market access for small businesses.

Together with UN Development Programme (UNDP), the Gauteng department of economic development will this week host the province’s inaugural SMME summit in a bid to address some of these market failures.

It is an important step towards ensuring a thriving SMME sector. The partnership with the UNDP ensures that experiences from more than 170 countries, that have been tested in similar emerging economies similar to South Africa, are well incorporated into the response to these challenges. It also means that support is provided to SMMEs deemed not to have requisite skills and capability to make them market ready.

Mohlomi is a senior manager in the Gauteng provincial government, where he is responsible for special projects, strategic partnerships and international relations.

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