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SMME sector in SA stuck in a quandry

At this stage, towards the middle of 2001, there are clear signs that the SMME sector (small, medium and micro enterprises) in South Africa got stuck in a quandary and that the sector is not nearly as much contributing to job creation and economic growth as is being expected. Carrying already some 57% of jobs in the SA economy, hope is being pinned on the SMME sector to create further jobs, because that is not forthcoming from the big business sector. The overall result is that the unemployment level in SA is still rising. Moreover, the SA economic growth rate is expected to fall short of the anticipated 3% per annum, again mainly because the SMME contribution / output is falling short.

Problem areas
The problem areas with the poor performance of the SMME sector can be pinpointed as follows:
• Lack of strong central leadership for the SMME sector. Although the Dept. of Trade & Industry (DTI) is doing its best and do offer substantial incentives to the SMME sector, it is almost a lone voice in the wilderness. The back-up, especially from other central government departments also dealing with the SMME sector, is lacking. It is as if at central government level roleplayers are fiddling around, not knowing exactly what and how to do, let alone provide clear directions and encouragement.
• The general economic climate in SA is not conducive to the SMME development. The crime tidal wave, unkind labour legislation, persistent discrimination on the basis of colour, widespread examples of serious corruption and the exodus of skilled manpower are taking a heavy toll, spinning off also to the productivity of the SMME sector.
• The limping of Ntsika and Khula. These two agencies, created especially by DTI to drive SMME development - Ntsika on the developmental side and Khula on the financing side - are at present limping badly. Last year Ntsika got R50 million from the government to do its tasks, but this year the R35 million budgeted has not even been approved, while the entire focus of Ntsika is currently under review. Khula meanwhile last year struck an operating loss of R25 million and has this year told Parliament it needs R1,2 billion to implement its extended program. However, only R20 million from government is under consideration as against the R141 million allocated last year.
• Some private companies are also down-scaling on SMME development. It is being reported that some private companies are redirecting programs and facilities for SMME's, such as Plesseys, AECI, Anglo American, De Beers, Dow Chemicals, Chamber of Mines, Iscor, etc.
• Governmental expenditure on development is shrinking - currently representing only 0,34% of GNP, which is less than the average of SA's most important trading partners.
• The general support structure for SMME development is inadequate. It has become clear that the vast SMME sector, varying from would be starter-ups to going medium-sized enterprises already employing between 50 and 500 people, needs a diversified and targeted approach. It has accordingly become clear that an efficient SMME support structure should consist mainly of special business centres, like the Namac structures, of which Permac at PE and Durmac at Durban, are worthwhile examples. The potential of proper business centres is crucial to the possible success of the SMME sector in SA.
• There are further factors contributing to the marking time of the SMME sector in SA, like lack of effective communication, funding problems, a misconception of the significance of entrepreneurship, insufficient preparation for the unremitting competitiveness of the international marketplace, etc. These could best be addressed by a purposeful, comprehensive and effective SMME policy framework.

Silver lining
Alas, also this dark cloud has a silver lining and that is the inherent resilience of the SA SMME sector, as is basically contained in the indomitable entrepreneurial spirit of many South Africans. To them the saying applies that "when the going gets tough, the tough gets going." The cornerstone for future building is the realization that the SMME sector can in the final analysis only get up by its own bootstrings - and the grace of God. There is no other mercy.

Interview with the Minister of Trade & Industry, Mr. Alec Erwin

The aspect of development featured saliently in the 2001 budget speech of the Minister of Finance, Mr. Trevor Manual, while the Dept. Trade & Industry is introducing this year a string of new measures aimed at boosting the SMME sector. Against this background The Business Bulletin approached the Minister for Trade & Industry, Mr. Alec Erwin, with some questions, to which he replied as follows:

Could you just highlight the main new measures your Department is introducing this year with a view to boosting the SMME sector ?
As I have indicated in the past, Government's interventions in the sector have had mixed results of lack of capacity rather than lack of financial resources. The new measures being introduced to address these shortfalls and to accelerate the delivery of services in the sector are based on a number of focal areas.
• Now SMME development activities are going to form an integral of all industrial development initiatives throughout the department. This will ensure that SMME development does not become isolated or get thrown into the periphery of mainstream industrial development strategies.
• My Department has also identified the key strategic issues that need focused attention by way of resources and strengthening of policy delivery mechanisms. In this area we intend to work in partnership with key roleplayers in both the public and private sectors to develop new and innovative strategies for enhancing access to finance for small enterprises.
• We also intend to strengthen collaboration between all DTI agencies in order to jointly develop and implement integrates SMME support programmes and strengthen synergies amongst them.
• We have also positioned ourselves to play a central role in facilitating viable income generating activities in historically disadvantaged communities especially by harnessing the potential of potent resource endowment of those areas.
• We plan to provide strategic leadership to the implementation of small enterprise development initiatives of public, private, NGO, and parastatal organizations through enhanced partnerships; and fast track the opening of public and parastatals markets to the sector through the provision of holistic support services to small enterprises. We will introduce strategies to foster an entrepreneurial culture.
All these areas of intervention are designed to address the specific issues and weaknesses limiting the growth of entrepreneurial activities in the sector. Specific performance indicators will be used to track the implementation process to ensure we achieve our intended outcomes.

There is a general conception that while much is being said and planned about SMME development in South Africa, the physical results are not of the same extent, perhaps mainly because planning is not being affectively executed and co-ordinated. Your comments briefly, please.
The measures introduced during the initial phases of the National Strategy have had mixed results. This is due to a variety of reasons, which cannot be generalized under a lack of proper planning or co-ordination. An analysis has been done of our past performance in this area, which is based on a number of reviews, studies, and experiential learning points to factors such as: The diversity of the sector requiring differentiation in the range of support programs and innovative thinking in developing small enterprise support services; The realization that, institutional learning and capacity building require time, resources, and closer collaboration between implementation agencies and other role players; The need for continuous monitoring and evaluation of the impact of support programs to ensure timely corrective action and improvement; and lastly, SMME development by its nature is a complex field, which requires an intimate understanding of issue, passion, specialized skills and dedication.

In a nutshell, how would you say has the aspect of development, especially SMME development, been differently addressed in this year's budget speech by Mr. Manuel ?
Min. Trevor Manuel has progressively throughout the years introduced some key interventions directly geared towards the development of the small enterprise sector through the tax system. This has to be viewed in relation to many other governments priorities, which require the balancing of government expenditure. Having said so, the announcement this year that small enterprises may now write off capital acquisitions as depreciation for tax purposes will contribute significantly into growth of the sector. This specific concession, which is key to stimulation of manufacturing activities amongst SMME's, means that SMME's may now improve their productivity capacity, for example by investing in capital equipment that enhance their efficiency. This is in addition to various other pronouncements made in the past years. As an example, the fact that for small enterprises the first R100 000 of income generated is taxed 15% rather than the standard 30% applicable to other companies are concrete steps to lessen the tax compliance burden for SMME's.

It is being generally accepted that in any country in the world today it is mainly the SMME sector which would be responsible for economic growth and job creation. Your views, briefly, on the situation pertaining to South Africa.
There is indeed evidence that in South Africa through a number of small enterprise support initiatives, jobs have been created and sustained. It is however, a fallacy to expect all small enterprise development activities to contribute to job creation. In our experiences, some survivalist and micro enterprise activities serve only as instruments for sustaining jobs, whereas, small and medium enterprises stand a greater chance to create new jobs. This is why, as government, we have to strategically design policies to promote specific objectives and to stimulate the creation of an enabling environment appropriate to the circumstances of entrepreneurs.

Again in a nutshell please, your message to the SMME sector in South Africa ?
Unless small enterprises themselves realize the role that they are expected to play in socio-economic development, we will achieve limited impact in the interventions we introduce into the sector.
From government's side, we are confident that we understand what the key ingredients at the policy level are for a vibrant small enterprise sector. This is why we have also consistently endeavoured to stabilize the macro economic environment in which businesses must operate.
I would like to also congratulate those entrepreneurs who have, on their own, made strides towards integrating their innovative business operations into mainstream economic activities.
In the near future, DTI will release the details of the planned support measures, and we are convinced that these will contribute towards the building of a coherent effective approach to small enterprise development activities throughout.