Enterprise and supplier development (ESD) within South Africa faces unique restrictions, particularly previously disadvantaged entrepreneurs. While apartheid itself is firmly in the rear view mirror of the past, the structural imbalances it produced in South Africa’s economy, both intentional and unforeseen, still persist today.
The purpose of South Africa’s policy framework, which targets enterprise and supplier development, seeks to address these structural imbalances. What are they and how do they negatively impact the organic development of broad-based entrepreneurship in South Africa?
These barriers can, from a high level, be divided into three categories. It is important to recognise that these barrier dynamics differ in each value chain:
- Market Access
The financial barriers faced by those targeted by ESD programmes include:
- The ability to raise start-up capital – Entrepreneurs regularly source funds from family, friends and established financial institutions. However, large proportions of South Africa’s population do not have access to these resources, impacting their ability to raise the necessary capital to start a business
- Working capital constraints – If an entrepreneur does manage to raise capital, it is possible that either they are not able to raise enough to optimally launch their business or other financial considerations make it difficult to dedicate the necessary capital to the business
- Access to secure financing – Linked to the ability to raise start-up capital, South Africa’s financial system requires certain administrative criteria to be met and history produced before financing can be accessed to meet equipment or product purchase needs. Entrepreneurs face a significant administrative burden to produce the required documentation to fulfill such criteria
Market access barriers
The market access obstacles faced within ESD include both perceived and real barriers.
- The ability to penetrate existing supply chains – This occurs because of a lack of visibility or an entrepreneur’s offerings are incompatible with the needs of established actors within the value chain
- Established market actors restricting supply chain access – It is in the best interest of established market actors to maintain their competitive advantage. This can manifest itself via supply chain distortions or market chain access, or other areas linked to established competitors’ footprint business footprint
Non-financial barriers that restrict ESD relate as much to the surrounding socio-economic picture as they do about the sector or market entrepreneurs seek to target.
These barriers include:
- Skills deficit – Linked to education deficit. Running a successful enterprise requires a basket of skills that need to be nurtured. However, acquiring these needed skills is difficult due to lack of educational opportunities, mentors capable of guiding development and the ability to source needed skills in local communities
- Education deficit – The ability to access quality education in South Africa, from a tertiary/technical perspective, requires financial resources and a sound secondary education to build on. However, many budding entrepreneurs do not have equal access to transformational education compared to their privileged peers
- Certification – Administratively managing a business is a significant burden, and the process of certifying it for compliance purposes, from professional bodies to government departments, acts as a barrier due to the technical, logistical and financial resources required
Combating these challenges requires a thorough analysis of potential ESD participants so their specific barriers and needs can be identified and built into the programme structure. This should take place in conjunction with an assessment of the market being targeted, the factors influencing its specific supply chain, and the shape and composition of the supply chain.
This will inform further decisions that form part of the ESD programme being developed or what needs to be executed. An intervention toolkit to support both organic and inorganic growth opportunities can then be crafted based on the identified opportunities.
In markets characterised by long-term incumbency, but active competition, the opportunity for inorganic growth through exploiting new market niches is typically less than in more concentrated, less competitive markets.