SMMEs’ importance still ignored

Small, micro and medium enterprises (SMMEs) are often regarded as the backbone and drivers of inclusive economic growth and development in South Africa, as well as the rest of the world.

SMMEs play a critical part and contribute significantly to the economy – 34% to South Africa’s gross domestic product.

This sector is often seen as one of the solutions towards alleviating some economic challenges such as poverty and the high unemployment rate. Surely these challenges can be addressed by policies that encourage SMME development and sustainability.

Growing SMMEs for economic development has been on the cards for the government for years, even in former president Jacob Zuma’s era. In his state of the nation address in 2016, Zuma stated that South Africa must have created at least 6-million jobs by 2030, and one contributor would be using SMMEs.

In 2022, President Cyril Ramaphosa announced in his Sona that the government was trying to unleash the full potential of small, micro and informal businesses.

Furthermore, the National Development Plan 2030 (NDP 2030) is looking to SMMEs as a major source of employment and big contributor to the growth of the economy.

It has also been forecast in the NDP that by 2030, over 90% of all new jobs will be in SMMEs.

A report by the International Finance Corporation (IFC) estimates that small, micro, and medium enterprises constitute more than 90% of all formal business in the country, employing more than 50%-60% of the workforce.

Considering this, is it not ironic that we do not hear much about SMMEs and their impact on economic development?

The socio-economic challenges faced by South Africa make the need to develop and nurture SMMEs nothing short of crucial, now more than ever.

One of the many ways for the government to stay committed to its plan to grow the sector was through the Planning Commission, which was meant to draw up a plan to stimulate growth and deal with other social and economic challenges that recommended the formation of the ministry of small business development in 2014.

Under this department, numerous entrepreneurship support programmes and various forms of targeted support, which include legislation requirements, is to be found.

Now that we have this ministry, how many small businesses can say they are happy with the support it has provided?

Of these programmes and initiatives, it would be great to have a clear picture of the resources that have been ploughed into them and the returns they have produced over the years.

One big challenge that we do not discuss often is the burdensome regulations SMMEs are often subjected to.

For instance, the practice of extending wage agreements, which are often above the minimum wage, and done in bargaining councils, where small businesses have little to no representation and often cannot afford higher wages that bigger businesses are able to afford and pay. This has been an issue for quite some time and has proved many times to be an impediment to small businesses growing.

While burdensome regulations are also problematic, it is important to speak to how the tender system and cadre deployment in this country contributes significantly to the failures of small businesses.

SMMEs compete with big businesses on tenders. It is well known that the more connected you are, the better chances of your business is of being selected.

Now, this is a system we need to start fighting against, and possibly do away with across all spheres of government.

Even with South Africa being a democratic country for quite some time now, one could argue we are still undergoing a transition considering all the issues we face.

I am of the view that when a country is still in its transitional phase, it will be plagued by issues of political instability and uncertainty, which could see potential foreign business enterprises staying away and not investing in SMMEs.

Apart from the challenges mentioned, it is quite important to also highlight cashflow and general operational problems that SMMEs must deal with, including late payments from potential clients, big expenses to keep the business afloat as well as buying and keeping stock.

According to research by University of the Western Cape, South Africa has a high start-up failure rate of about 70%-80% for small businesses in the first five years.

Business confidence has fallen over the years too, and the situation has worsened now that the country is facing rolling blackouts, high inflation rates, while the recent Covid-19 pandemic did not make things any easier.

The South African Reserve Bank’s announcement on Thursday of a further repo rate increase of 25 basis points, coming at a extremely difficult time, will not make it easier for SMMEs.

There is also a need for South Africa to have a more inclusive economic system.

In South Africa, we do not have a standard definition of what constitutes an SMME, and it is crucial to carefully consider an inclusive growth strategy that will channel the potential of small businesses, both formal and informal.

As economies continue to develop and adjust to new circumstances, so too does the SMME sector in this country.

This can be attested by the major economic events over the past ten years, including the global financial crisis in 2009, and new administrations (presidents Thabo Mbeki, Zuma and Ramaphosa). Thus, greater support and investment in small businesses remain crucial.

Policy uncertainty is also increasingly becoming a factor, hence a rigorous monitoring and evaluation process from policymakers and government is crucial as this will help to systematically analyse the effects of current policies and the necessity to develop and implement new regulations that will speak to the political, socio and economic trajectory in this country.

  • Ngqambela is a researcher at Rivonia Circle with interest in socio-economic research, policy and politics.

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