SMME as a Driver of Economic Transformation in South Africa: Critical Analysis of Strategies, Programmes and Institutional Arrangements

1
SMME as a Driver of Economic Transformation in
South Africa Critical Analysis of Strategies,
Programmes and Institutional Arrangements

• Vuyo Mahlati
• Africagrowth Conference, Cape Town
• 23 October 2008

2
TRANSFORMATION IMPERATIVE

• Our country requires an economy that can meet
  the needs of all our economic citizens our
  people and their enterprises in a sustainable
  manner. This will only be possible if our economy
  builds on the full potential of all persons and
  communities across the length and breadth of this
  country. Governments objective is to achieve
  this vision of an adaptive economy characterised
  by growth, employment and equity by 2014.
• Source DTI - South Africas Economic
  Transformation A Strategy for Broad-Based Black
  Economic Empowerment

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SMME DEFINITION

• "small business" means a separate and distinct
  business entity, including cooperative
  enterprises and non-governmental organisations,
  managed by one owner or more which, including its
  branches or subsidiaries, if any, is
  predominantly carried on in any sector or
  subsector of the economy mentioned in column I of
  the Schedule and which can be classified as a
  micro-, a very small, a small or a medium
  enterprise by satisfying the criteria mentioned
  in columns 3, 4 and 5 of the Schedule opposite
  the smallest relevant size or class as mentioned
  in column 2 of the Schedule (vii)
• Source NO. 102 OF 1996 NATIONAL SMALL BUSINESS
  ACT, 1996

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NATIONAL SMALL BUSINESS ACT, 1996

• Draws from 1995 White Paper on National Strategy
  on the Development and Promotion of Small
  Business in South Africa
• Main Problem - Primary objective (agency focused
  not small business strategy). According to act
• To provide for the establishment of the
  National Small Business Council and the Ntsika
  Enterprise Promotion Agency and to provide
  guidelines for organs of state in order to
  promote small business in the Republic and to
  provide for matters incidental thereto.
• 2004 Amendment Establishment of Small Enterprise
  Development Agency

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MAIN PROBLEM

• Absence of/Incoherence/Poor clarity and consensus
  on
• Comprehensive Economic Policy or National
  Development Framework
• Micro-economic Policy
• Configuration of Institutional Mechanisms
• Policy vs Implementation (National vs Province vs
  Local)
• Public vs Private
• Wholesale vs Retail
• Finance vs Non-Finance Support
• Generic vs Specialized (Sub-sector)
• Developmental vs Commercial
• Fragmented Supply Side Measures (Within DTI,
  among sector depts, Tiers of Gvt Parastatals)
• SMME alignment with Industrial Strategy and
  Economic Structure
• Failure to foster Stratification and Graduation
  for targeted and effective support

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Integrated Strategy on the Promotion of
Entrepreneurship and Small Enterprises (2006)

• Strategy covers the entire continuum of needed
  support from pre-start-up and start up assistance
  measures to growing enterprises and enterprises
  in distress
• 3 Strategic Actions
• Increase supply for financial and non-financial
  services
• Creating demand for small enterprise products and
  services
• Reduce Small Enterprise Regulatory Constraints

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What is the Driving Imperative for SMME ?

• Are SMMEs a vehicle or instrument for
• Enterprise Development for Economic growth
• Survival and Employment Creation
• Economic Deracialization and Black Economic
  Empowerment
• Poverty Relief ?
• OR
• SMMEs as an engine of economic growth and
  development and a strategic lever/catalyst for
  socio-economic transformation

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Source Sloman J. (1992)
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SMME AND COMPETITIVENESS

• Globalization of markets
• Globalization of capital investment
• Globalization of value chains
• Increasing knowledge and skill intensity of
  competition
• Value migration to the service component of the
  value chain

Source Porter 2007
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STRATEGIC LEVERS

• Legislation (BBBEE, Preferential Procurement)
• Progressive Policies and Programmes for increased
  access to
• Skills Training (Technical and Business
  Management)
• Finance
• Markets
• Land
• Water rights/access
• Product Innovation

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BUSINESS PYRAMID
At the bottom of the pyramid businesses focus on
survival as they struggle to make a decent profit
Private Limited Cos Public companies
0 0 0 0 0 0 0 0 0 0
Private Limited Cos Few CCs, Partnerships
Big
0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 00
00 00 00 00 00 0 0 00
small/ medium
000000000000000000 00000000000000000000000000 0000
00000000000000000000000000000 00000000000000000000
0000000000000000000
CCs, Sole propriety, Cooperatives Unregistered
business
Micro/ small
Source Dreamplus
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DFI mandates - focus areas
Institution
NTSIKA/ SEDA
NTSIKA
NDA
NHFC
DBSA
RHLF
NDA
NHFC
DBSA
IDT
IDC
KHULA
bank
IDT
IDC
bank
RHLF
Land
KHULA
Land
Focus
SECTORS
SECTORS
Agriculture
Agriculture
Housing
Housing
Mining
Mining
Manufacturing
Manufacturing
Retail
Retail
Tourism
Tourism
TYPE OF USE
TYPE OF USE
Housing
Housing
Infrastructure
Infrastructure
Business Finance
Business Finance
Other
Other
BUSINESS SIZE
BUSINESS SIZE
Micro/Small
Micro/Small
Medium
Medium
Large
Large
Source Deloitte 2006
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TWO ECONOMIES OF SOUTH AFRICA TODAY

• Regulatory Environment well developed and state
  supported
• Legal instruments well developed and are fully
  accessed by the institutions
• Institutions/agencies serve primarily the
  well-off and employed
• Skills and HRD training Clear career tracks from
  secondary school to management
• Resource base massive available resources with
  substantial backing from the state
• Business culture promoted by private sector

100
Corporate Sector
UPPER CLASS Mainly White Males
Standard Bank First National Bank ABSA Nedbank Etc
.
IDC DBSA Landbank Khula Etc.
92 ltR8000p.m.
lt100 Empl.
Medium
MIDDLE CLASS All Races
78 ltR3500p.m.
74 ltR2500p.m.
LOWER MIDDLE CLASS Mainly Black
Small
Mainly Urban
COMMERCIAL BANKING COVERAGE
PARASTATAL COVERAGE
Turnover R150000 lt10 Employees

• Regulatory Environment Hardly exists
• Legal instruments Poorly developed and inhibits
  development of CBOs and NGOs
• Institutions/agencies Almost non-existent
• Skills and HRD training No career opportunities
• Resource base Very poor and almost no state
  backing
• Business culture Non-existent and ignored by
  private sector

48 ltR800p.m.
Micro
POOR LOWER CLASS Mainly African
Deregulated Commercial Lending Industry
35 ltR400p.m.
UNBANKED
Mainly Rural
NGO Financial Initiatives
Source WDB
Survivalists
No Employees
14 No income
POOREST OF THE POOR Mainly African Female
Social Grants
Social Responsibility
0
Financial Services
Business Communities
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Value Proposition

• Critical Clarity on driving imperative drawn
  from a Comprehensive Overarching National
  Development Framework
• Coordinated Planning and Implementation
• Maximize the Procurement potential in both public
  and private organizations
• Action Steps
• Joint Visioning based on adequate assessment and
  analysis of existing Initiatives and Gaps
• Segmentation and Stratification of Interventions
  to suit identified opportunities and challenges
• Defined and monitored outcomes and benefits

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A MODEL FOR ENTREPRENEURSHIP SUPPORT
Prof Nieman
Entrepreneurial orientation Culture
Role models Education
Work experience Personal orientation
Enterprise culture
Supportive Environment Infrastructure Finance
Laws
Training Policy framework
Co-operative Environment Institutions which are
actively involved and assist with new org
development
Entry of entrepreneurs

Acquired abilities
Inherent abilities
Products / Services
Results of entrepreneurship

• Economic growth occurs
• Incomes increase
• Living standards improve
• Investment opportunities arise

• Tax base is enlarged by a greater number of new
  firms
• Technological development occurs
• Job opportunities arise

Prof Nieman
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Group portfolio
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Customer value delivery system
Source South African Post Office
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South African Post Office SMME Opportunity

• Diverse Sub-sectors Business Unit and Value
  Chain Based that include
• Letterbags
• Refurbishment of mini containers
• Refurbishment of roll containers
• Refurbishment of locks
• Signage
• Post boxes
• Construction and related trades
• Cleaning
• Security services
• Catering
• IT roll out and maintenance
• Stationery
• IT Consumables
• Recruitment
• Clothing, textile and interior décor
• Events management
• Value-adding service industry

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SAPO SMME DEVELOPMENT PROGRAMME Manufacturing
Support 2007-2011
Traditional suppliers Products / Services SMME Development Participants BEE Status Business to Date
Letter bags 100 R 3,410,571.90
Refurbishment of Mini Containers 100 R 0.00
Refurbishment of Roll Containers 100 R 1,343,994.04
Operator chairs 100 R 0.00
Post Box Locks 100 R 3,172,058.30
Refurbishment of locks 100 R 3,172,058.30
Post Box Locks 100 R 3,172,058.30
Corporate Clothing 100 R 3,918,147.35
Signage 100 R 50,150.00
Source SAPO
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Thank You!vuyo_at_sisekose-afrika.co.zaFor SAPO
Opportunities Call 012 401 7000cookie.naidoo_at_po
stoffice.co.za
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