South Africa’s economy, 25 years after the official end of apartheid, is structurally imbalanced. The dominance of limited number of players in different sectors is a vestige of the apartheid era, a status quo that must be changed for South Africa to be able to address the triple challenges of unemployment, poverty and inequality.
Key to solving these challenges is developing the local SMME (Small, Medium and Micro Enterprise) sector. At present, the sector plays a disproportionately small role in the economy due to significant economic and cultural barriers. As a result, competition is reduced, innovation is stifled and South Africa’s economy is competent but not globally competitive.
SMME economic inclusion is particularly important because SMMEs are a culturally diverse constituency, particularly relevant in a South African society where the distribution of wealth is associated with particular demographic groups. A greater economic role for SMMEs organically offers a degree of redress for the structural imbalances of the past.
Critical to supporting SMME activity is expanding market access. With it, SMMEs can drive increased competitiveness in larger organisations where they are focused upon innovation and strategic constraints.
Coupled with this, SMME development must be premised on wealth creation for entrepreneurs. This leads to increased job opportunities and skills diffusion within a sustainable, strategically-aligned business model.
Supply and Demand SMME development
Sustainable economies require competitive, commercially viable enterprises connected to local and regional market opportunities, underlined by a focus on both the ‘supply’ and ‘demand’ sides of the economic equation, and the creation of a partnership-driven enabling ecosystem for development.
There are two sides to SMME Development: Supply and Demand.
Supply is focused on two objectives. The first is to create and implement a series of support interventions that have been crafted with target businesses in mind. The second is through research and analysis, to identify the entrepreneurial talent needed so it can guided and nurtured towards opportunities of greater scale and growth.
In comparison, Demand is concerned with creating opportunities for SMMEs to find linkages into the existing economy, identifying and then capitalising on entrepreneurial opportunities within new sectors and emerging niches. However, creating these linkages is an incremental process, where careful management is required.
Enabling a developmental ecosystem
Enabling an environment that tends to support and develop SMMEs features five participants, each with a role to play in supporting SMME growth and development. They are local government, local industry, enabling partners, donors and provincial government.
During the formulation of a programme to support a specific SMME, business or businesses, these actors must ensure the following:
- Accept that the programme has to be managed and such governance needs to be coordinated – There must be a governance structure in place so that decisions are made timeously and objectively, without one party becoming overly influential in the decision-making process
- That they integrate their various efforts through internal financial planning and objective setting – Guarantee that available financial resources are pulling in the same direction so ROI on spend is maximised
- Find each other at the beginning of the programme – Share a common view or perspective of how the programme is meant to work and what it is meant to achieve
- Be clear on each of their responsibilities and the rules governing their participation – Know the rules of the game and who is responsible for the different programme aspects
- Operate with aligned objectives – If different actors have different objectives, programme effectiveness will be stifled
Given the structural restrictions that stifle the SMME’s sectors ability to grow and become a vibrant player within the South African economy, when working with selected entrepreneurs and businesses, certain programme conditions must be in place before success can be contemplated.
- Scaling existing entrepreneurs through improving their competitiveness
- Nurturing entrepreneurial talent through activities such as mentoring
- Establishing a supportive partnership framework around the entrepreneurs to enable success
- Aligning and re-designing business structures if necessary so they are commercially viable and to guarantee, as can best be foreseen, long-term strategic value-add to the market
As illustrated above, formulating a long-term strategy capable of lifting and creating SMMEs that will create jobs, give entrepreneurs social mobility and enhance social cohesion is a complex task. It is therefore crucial that when such programmes are formulated, and partners sought, a clear strategy must be in place to guide programme formulation, establishment and function.
There are several reasons why such programmes and strategies that aim to uplift the SMME sector fail. However, with the right partners in place, a shared objective, the necessary resources and willing participants, there is no reason why the seeds can’t be laid for South Africa’s economy to evolve and grow to spread socio-economic benefit to all, with SMMEs at the heart of this growth.
To learn more about the SMME sector’s value to South Africa, and where ESD fits in, contact Letsema’s Economic Development team here.