The SMME landscape in SA remains divided and complex

PERHAPS the government can make use of its Post Office footprint across the country to set up a small business centre for use by SMMEs, says the author.

PERHAPS the government can make use of its Post Office footprint across the country to set up a small business centre for use by SMMEs, says the author.

Published May 19, 2022

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By Rentia Mahoney

South Africa’s small-, medium- and micro-sized enterprise (SMME) landscape is characterised by a divide between formal urban enterprises located closer to developed business and financial hubs, and less formal peri-urban or peripheral enterprises located in townships, informal settlements or among rural communities.

Both segments face onerous and often inappropriate regulation. Implementation and co-ordination of limited, simpler policies for SMMEs is required.

These two segments experience challenges with power supply, crime, municipal, provincial and national services, expensive transport and poor, pricey and inadequately distributed internet connectivity. Furthermore, these two segments struggle to attract skills.

For the peripheral small business segment, township enterprises are not located close to business activity hubs. The lack of infrastructure in these communities fail to compensate for their geographical location away from business centres and connectivity and logistics networks.

Therefore, many of these small, peripheral businesses are isolated in disconnected, economically marginalised and poorly-serviced areas where severe competition from other similar survivalist businesses contribute to low survival rates.

Perhaps the government can make use of its Post Office footprint across the country to set up a small business centre for use by SMMEs. Such centres could have internet connectivity, printing facilities and basic courier facilities at a nominal fee to these small businesses.

An efficient and effective state sector has a significant role to play in alleviating many of the disadvantages that SMMEs and small township or periphery businesses suffer.

Even though South Africa has many policy initiatives designed to support the SMME sector, these have to be co-ordinated and implemented to address the pressing issues of businesses in this sector.

A significant intervention could be the consideration of separate, limited and simplified legislation for SMMEs so as not to be held to the same commitment as big, corporate organisations.

Better municipal services and effective, co-ordinated government policy and implementation at provincial and national levels would, for example, compensate for the isolation of peripheral businesses, while building much more robust local economies in previously marginalised areas.

Good governance and effective services will also drive more SMME formation, especially in peripheral areas. Great services will also lead to developed formal businesses with better skills, capital and networks to invest in peripheral areas.

In short, the government has a significant and pivotal role to play in creating the conditions for SMMEs and, in particular, for peripheral and small township businesses to evolve into larger businesses.

This should see improvement in the integration between South Africa’s core and marginalised business segments. This should also drive inclusion, increase growth and increase employment among currently economically isolated communities. This will lead to a greater contribution to the broader economic growth, as well as increased employment.

Perhaps agreements between retailers such as Checkers to take produce from small business operations will also assist this integration..

It must be mentioned that the development of South Africa’s SMME sector is critical to economic growth and social stability.

A larger and more robust small business segment in South Africa will dramatically increase employment, enabling more South Africans to support themselves and their families. The result will be fewer people relying on the government for welfare grants and other social services.

At the same time, a more robust small enterprise sector will broaden the tax base and increase national revenue. All this will free the government to focus funding on maintaining and expanding the social and economic infrastructure to support growth, create more jobs and broaden inclusion.

Perhaps we should start at school level with entrepreneur days in which children must practically bring goods or services to school for sale to their friends. Teachers can instil an entrepreneurial spirit in the children.

A more robust small business segment in South Africa will dramatically increase employment, enabling more South Africans to support themselves and their families. The result will be fewer people relying on the government for welfare grants and other social services.

South Africa’s SMME sector is critically important because it holds the key to growth, inclusion and long-term social stability.

In a country with a shrinking tax base and high social wage bill, the advantages of liberating millions of South Africans from state dependence is probably the strongest argument for a concerted effort across all sectors and industries to unlock the potential of South Africa’s SMME sector to reignite growth and make general and permanent prosperity a reality for the majority of South Africans.

It will broaden the tax base and increase national revenue. All this will free the government to focus funding on maintaining and expanding the social and economic infrastructure.

In most economies around the world, small businesses contribute by far the largest portion of the gross domestic product (GDP), employment and tax revenue. In South Africa, small businesses contribute only 34 percent of GDP, and just a little over half of South Africa’s already very low employment numbers.

There are several ways in which government could assist small business; for example assisting small, emerging enterprises with formal business registration, building and gearing the right payment channels, and providing access to business capabilities and skills in order to start, manage and scale their businesses.

This is the strongest argument for a concerted effort across all sectors and industries to unlock the potential of South Africa’s SMME sector to reignite growth and make general and permanent prosperity a reality for the majority of South Africans.

This is just one small example of the very big opportunity that South Africa’s small businesses present for economic growth and inclusion if properly understood, professionally engaged with and supported.

The SME Landscape Report offers a comprehensive assessment of the state of SMMEs in South Africa, with a focus on the key challenges, opportunities, risks and proposed next steps.

As per the SME Landscape Report issued by the International Finance Corporation (IFC), the government can play a greater role to generate bigger small business development impact through policy reforms, reducing bureaucratic complexity and the costs involved, and simplifying and amplifying communication efforts as well as improving access to financing and improvement of SMME liquidity.

Rentia Mahoney is an independent analyst

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