[Opinion] Open for business? How SMMEs in South Africa can thrive

Small, medium, and micro enterprises (SMMEs) have the potential to drive economic growth and employment in South Africa. However, this potential is not being realised.

The Small Business Institute estimates that approximately 98% of all registered businesses in the country are SMMEs. However, SMMEs consistently contribute less than 28% of jobs, which is a far cry from the government’s ambitions of 90% contribution to job creation by small businesses by 2030. In fact, large firms with over 250 employees remain the lynchpin of job creation and account for just under 70% of firms that employ 10 or more people (according to the OECD).

Although sources differ on how SMMEs are classified, data provided by the Small Enterprise Development Agency (SEDA) suggests that there are roughly 2.55 million ‘SMME owners’ (a proxy measure for the number of formal and informal SMMEs) in South Africa).

In our recent report on the SMME landscape in SA, we highlight the sustainability of SMMEs as a concern. SEDA data reveals that 107 377 new SMMEs entered the market in Q1 2019.

However, fewer and fewer firms survive each year, and many of those that do survive are unable to grow revenues or employment. According to the Enterprise Observatory of South Africa an average of 31 companies with taxable income of less than R10 million close down each week, and the number of employees hardly increases as SMMEs grow older.

The reasons for these high failure rates are many and complex. Our report outlines our view and experience: SMMEs are caught in a cycle of limited bargaining power, cash flow constraints, significant skills gaps and having to operate in a taxing regulatory environment. Each of the aforementioned challenges exacerbates the next:

While these factors are not unique to South African SMMEs, their magnitude certainly is. For instance, whilst over 54% of SMME owners have not completed secondary schooling in South Africa, only 5% of entrepreneurs in the United States have not completed high school.

SMME development needs to focus on creating the right factors for companies to not just survive, but to grow. We propose the following interventions to facilitate SMME growth in SA:

SMMEs have the potential to contribute significantly to employment, income generation and asset accumulation. Unlocking this potential requires implementing innovative reforms to make South Africa truly open for business.

Original article here.