Current Edition >> Archives Section >> SMME Information >> May 2001
All indications are that, in line with the trend elsewhere in the world, the SMME sector in South Africa is the country's only real hope for meaningful economic growth and job creation. Already, the contribution of small and medium-sized enterprises to the economy is substantial: It is reliably estimated that they account for more than 50% of total employment of the combined group (large, medium and small, but excluding micro) and about 41% of the country's formal sector gross national product. Their largest relative
contributions are in agriculture, where they account for some 65% of employment and 63% of
value-added and in trade, where they absorb some 52% of employment and produce some 65% of
value-added. In the construction industry they provide 58% of employment and 64% of value-adding.
These figures do not include informal sector activities which are mostly micro and survivalist in nature, but whose contribution to the gross national product is growing -
according to estimates by Statistics South Africa (SSA), about 20% of the economically
active population engages in informal sector activities (including domestic worker
services). This underscores the fact that many South Africans are each year pushed rather
than pulled into informal sector activities in the face of the inability of formal sector
companies to create enough jobs.
Two basic categories
The upshot of all this is that the SMME sector is comparatively a fast moving sector and
as such is set to stretch for and wide in 2001 and beyond. However, practical experience
has shown that there are basically two categories in the SMME sector which can be
responsible for stimulating the sector, namely, firstly, existing businesses which wants
to upgrade and/or extend and, secondly, people who want to start-up in business, i.e.
create self-employment and employment for others. These two categories have different needs, which should accordingly be addressed differently and separately.
Vast pyramid
This phenomenon corresponds with the scientific view of the SMME sector as a vast pyramid,
with a wide bottom, narrowing to the top. A diagram illustrating this SMME pyramid, as
compiled by the National Association of Manufacturing Advice Centres (Namac) in Pretoria,
is being shown on the right. At the bottom level are hundreds of thousands - even millions
- of unemployed, poverty-stricken people desperately wanting either a job of to get
self-employed. This large segment can be called survivalists, of which, however, only a
smaller percentage is really of entrepreneurial material. On top of this layer, is the next, viz. the informal sector, which consists mainly of the sidewalk one-person hawkers, who sell anything from a few tomatoes to cigarettes. This segment is also massive. The next layer is the micro enterprises, which consist of business set-ups employing from 1 to 5 persons. Next come very small enterprises, employing anything from 6 to 50 persons. Next is the small-sized enterprises employing between 50 and 200 persons. Then follows the medium-sized enterprises, with 200 to 500 persons, while big business is on top of the pile.
Start-up problems
Own savings and assistance from relatives or friends are the most popular sources of
start-up capital, in this order. Only small percentage makes use of loans from banks or
private institutions. The biggest start-up obstacle for SMME's is generally stated as lack
of financing capital. However, experience has shown that most of the problems faced by
SMME's are not necessarily of a financial nature. The constraints usually precipitating the failure of most emerging businesses are lack of access to each of the following: Information, a networking environment, markets and consultancy. Within the framework of
the economy as a whole, SMME's should be developed and continuously upgraded towards
higher business categories, eventually qualifying for the macro economic division. Issues
such as these could be effectively addressed in a national face to face meeting of all
roleplayers.
Roleplayers
While the people making up the SMME sector count millions, it is generally accepted that
to develop the sector requires purposeful structuring and direction. Consequently there is
a host of institutions (governmental, parastatals and private sectoral) active in the
development of the SMME sector. As such the SMME sector is fluid and in a process of
evolutionary development, sometimes on a trial and error basis. The roleplayers can perhaps be classified into the following broad groupings:
• First of all, there is the Department of Trade and Industry (DTI) as the main
government department tasked to execute the policy of maximum development of the SMME
sector. To this end, the DTI has a wide range of initiatives, subsidiaries and measures in
place.
• Amongst the main DTI subsidiaries are Ntsika Enterprise Promotion Agency, operating
in the areas of management and entrepreneurship development, marketing and business
linkages, policy and research; Khula Enterprise Finance providing financial support for
small businesses through inter alia loans, a national credit guarantee scheme grand's and
institutional capacity building; Namac, operating the national manufacturing advisory
centers (MAC) coordinating office, overseeing inter alia Permac in PE and Duma in Durban;
etc.
• Other national government departments such as Minerals & Energy Affairs;
Environmental Affairs & Tourism; Agriculture; Labour; Arts, Culture, Science &
Technology; Public Enterprises; Transport; Public Works; Water Affairs & Forestry;
etc.
• SMME divisions within almost every provincial department of economic affairs.
• Development corporations (PDC's) in some provinces, such as Wesgro in the Western
Cape, Northwest Development Corporation (NWDC), Ithala (KwaZulu-Natal), Free State
Development Corporation (FDC), etc.
• SMME divisions within statutory bodies, parastatals and other national institutions
such as the CSIR, SABS, IDC, DBSA, Spoornet, Telkom, NPI, Land Bank, Eskom, Rand Water,
Iscor, etc.
• Sundry utility institutions focusing primarily on the SMME sector such as the Small
Business Project (SBP), IDT, NBI, Business Trust, CSDF, etc.
• A wide variety of business support centres, differing in format and usally some
partnership between the state and the private sector, such as Comsec in PE, Cenbis in
Centurion, The Innovation Hub in Pretoria, the Kimberley Business Incubator Centre, etc.
• Almost all large companies in SA has a SMME division, like SA Breweries, SA
Bottling, the banks, the oil companies, the mining corporations, the cell phone companies,
etc.
• The initiatives and bodies of foreign governments in SA, like that of the USA, the
British, Swedish, Norwegians, Danish, etc. These are efforts with considerable impact.
General
This is just to indicate the extent and dynamics of the SMME sector in SA. In this special
feature four major roleplayers each set out what they are doing and are offering. The
Business Bulletin intends to keep its focus on developments in the SMME sector and in
further editions introduce other roleplayers firsthand.
• boomroom.co.za: Operating from Cape Town, this interactive network focusses on the
transfer of information to entrepreneurs involved in new companies. Through panel
discussions, debates and talks by informed speakers, new entrepreneurs can learn from the
failures and successes of similar organizations.
• www.internetclinic.org/forums /Forum/index: This discussion group for beginners in
world trade contains articles, newsletters and lectures to help entrepreneurs with
information on global business.
• www.natex.co.za/entry_ entrepreneurs.asp: This site provides contact information
for entrepreneurs on products, services and suppliers, as well as manufacturers,
distributors, wholesalers, exporters and retailers.
• www.inc.com: Here entrepreneurs can build networks with others in chat rooms. Read
messages left by others, join a discussion or start your own and also have your business
listed in the Web site directory under one of the many industries.
• As an entrepreneur, you can do things the difficult way - or you can learn from the
mistakes of others. Advice in this regard and much more from www.bizmove.com
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