Why SMMEs are so Important in South Africa, but Need Work

Why SMMEs are so Important in South Africa, but Need Work

by Alex Kinmont

The National Development Plan is government’s answer to South Africa’s social and economic crises. The Plan aims to eliminate poverty by the year 2030 “by drawing on the energies of its people, growing an inclusive economy, building capabilities, enhancing the capacity of the state, and promoting leadership and partnerships throughout society.”

Small, Medium and Micro Enterprises (SMMEs) are a major component of this plan. Global trends show SMMEs as forming the vast majority of formal businesses, and employing between 60 and 70% of the population. Where South Africa’s SMMEs form 98,5% of enterprises, they only employ less than 30% of the population.

South Africa’s unemployment rate has most recently been recorded at 29%, the highest it’s been since 2008.

So how do we better use the globally-recognised potential of SMMEs to improve our employment?

The first step is to better understand South African SMMEs in terms of current statistics.

Truthfully, we know very little about Small, Medium and Micro Enterprises in South Africa. Our reports on SMMEs differ drastically:

The Small Enterprise Development Agency (SEDA) is an agency within the government’s Small Business Development department and their 2018 report stated an estimate of between 2.3 and 2.5 million SMMEs in South Africa.

A year later, the Small Business Institute, a non-profit organisation and member of Business Unity South Africa (BUSA), estimated only 250 000 SMMEs.

Either South Africa lost over 2 million SMMEs in a year, or the numbers were wrong.

Regardless of which institute has the right estimate, it is enough to show how little South Africa knows about its small businesses.

If we don’t even know basic statistics about our SMMEs, how can we hope to be effective in nurturing them enough to employ more of the population?

Over half of South Africa’s unemployed are youth. With their unemployment rate sitting at 40%, it is just about double the rate of adults.

Why are our youth unemployed? Education specialist Nick Spaull believes the problem to be lying in primary school education where the reading and mathematics levels are far below 50%. If we are not giving our youth a decent foundation in basic skills, how can we expect them to cope in any working environment?

Part of the National Development Plan focuses on the younger generation, taking on a “youth lens”. Some of its objectives include open access to two years of early childhood development, boosting teacher training, literacy and mathematics levels above 50% and overall improvement of the school system.

The first step towards improving the lives of South Africans is to improve their education, giving them a stronger foundation from which to search for jobs. From here, we need to improve job opportunity, something which SMMEs have significant potential for.

Half of South Africa’s small enterprises fail within two years of starting up, due to lack of finance and “the inability and inexperience of their owners,” says the former Head of Small Enterprises at Standard Bank, Ravi Govender.

South African government and large corporates need to invest in small businesses, focusing on training and mentoring. If small enterprises are failing because of a lack of finance and guidance, then there is hope if those in positions of power take a stand.

If we concentrate on training and funding small businesses, then these businesses can fulfill their potential in providing jobs.

Where our SMMEs are currently employing only 30% of people, if we meet the global standard in terms of our SMMEs then these small business will double their job creation, making way for a rise in employment.

As ambitious as the NDP may be, SMMEs in South Africa have the potential to change our economic landscape. We need to understand them better. If we use our positions of influence to fund and train our country’s small businesses, then our SMMEs will succeed, thus employing more people, reducing the unemployment rate and providing a future for our youth.

For more information on our New Venture qualification, read here.

The SETA Grant Regulations, December 2102 – BUSA’s Response

A crucial development in the vocational development and training space is currently in play regarding the mandatory grants available through the SETA’s. The SETA Grant Regulations issued by the Minister of Higher Education and Training on 3 December 2012 revise the Mandatory Grants from 50% to 20%. As these amended figures fundamentally affect vocational training and development, Business Unity South Africa (BUSA) has taken a pro-active role in addressing the issues arising from these regulations.
BUSA has both engaged with the Minister of Higher Education and Training, and pursued the optional path of seeking legal opinion. However, before a legal process is pursued, BUSA will facilitate a bilateral meeting with the Minister to discuss its concerns, also taking into account the need to resolve this matter amicably as it tries to build trust and strengthen the relationship between business and government as part of its collective goal to deliver on the National Development Plan. A letter requesting a meeting with the Minister has been sent and acknowledged by the Minister, and we are following up with the Minister’s office to secure a date for this meeting. Should this process not yield any positive outcome, BUSA will continue with the legal process bearing in mind that the Regulations come into effect in April 2013 and SETA’s are already preparing for implementation.
According to the preliminary legal opinion, there is a reasonable to good prospect of success on a procedural challenge of the regulations given that there was inadequate consultation with the National Skills Authority as required by s36 of the Skills Development Act. There is also a rationality argument based on the irrationality of giving SETAs more discretion and the NSA more funding if these institutions are already currently struggling to disburse in terms of the current and more limited funding model.

Please click here for the attached circular from BUSA which details of the engagement between relevant stakeholders from 2012 to the current date.