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The South African SME Landscape: 2015

The South African SME Landscape: 2015

Although much is being done to assist SMEs in South Africa, many gaps require attention should we wish to see a flourishing SME landscape and to reach the goals set out in the National Development Plan. Thinkroom’s recently released report “The Conduciveness of Starting and Conducting Business in Africa: An SME Landscape Study” provides insight into the SME landscapes of twelve different African countries. This article explores the South African SME landscape in particular (specifically the macro environment, the SME environment, internet and mobile capacity, as well as infrastructure and logistics), and looks at some of the progress made by the recently established Department of Small Business Development. 

In Thinkroom’s landscape research, South Africa ranked in second place out of twelve countries, for the conduciveness for SMEs to start and conduct business in the country; this was a very close second to Mauritius, which ranked in first place, and is a promising finding.

Macro Environment in South Africa

Approximately 35.9% of the population currently live below the national poverty line, making skills development and job creation an important developmental goal for the South African government. It is anticipated that the South African economy will grow 2% - 2,1% between 2015 and 2016, and while the country experiences a relatively low level of social hostility, moderate levels of corruption and political stability are evident when compared to other countries in Africa. It is positive to note that South Africa is making strides in closing the gender gap in economic, political, educational and health domains, ranking 18th out of 142 countries measured in the latest Global Gender Gap Index.

SME Environment

South Africa ranked 43rd out of 189 economies measured in the World Bank’s Overall Ease of Doing Business rankings in 2015, while ranking 61st out of 189 economies measured in the Ease of Starting a Business. The Ease of Starting a Business ranking is influenced by the amount of time it takes to start a business (taking 46 days in 2015, while taking only 19 days in 2014), the cost of starting a business (0.3% of income per capita) and the number of procedures involved in the process (6 days).

South Africa ranked 52nd out of the 130 countries considered in the latest Global Entrepreneurship Index (GEI) (2015), which measured the strength of entrepreneurship across 130 countries. The country with the strongest level of entrepreneurship is ranked in first place, while the country with the weakest level of entrepreneurship is ranked in 130th place.

Internet and Mobile Capacity

Internet penetration in South Africa is at 51,5%; i.e. the estimated percentage of the country’s population making use of the internet. Mobile phone penetration is indicated in the research as a ratio between the number of mobile cellular subscriptions per every 100 people – in South Africa, the ratio is 150 subscriptions : 100 people.

Infrastructure and Logistics

According to the World Bank’s Logistics Performance Indicator (LPI), South Africa ranked 34th out of 160 countries, which indicates that the country is faring reasonably well on a global scale in terms of its infrastructure and logistics. The LPI measure took into account the following elements: Clearance process efficiency; Trade and transport related infrastructure quality; Ease of arranging competitively priced shipments; Logistics services competence and quality; Ability to track and trace consignments; and Shipment timelines for reaching its destination within the scheduled or expected delivery time.

SME Growth Barriers

Most SMEs and development organisations can recite the following barriers to business growth off by heart (Zulu, 2014):

  • An unfavourable legal and regulatory environment;
  • Limited access to markets and procurement opportunities;
  • Unfavourable access to finance and credit;
  • Poor skills levels;
  • Poor access to information; and
  • A shortage of effective supportive institutions

 

The Department of Small Business Development

The Department of Small Business Development was announced in May 2014, and before it lay the mammoth task of supporting the goals of the National Development Plan, which includes assisting the growth of the economy, the alleviation of poverty and the development of opportunities through the creation of jobs and the development of the small business landscape in South Africa. This means removing the obstacles faced by SMEs in the country.

Although the Department was largely well received, among some of the concerns raised was that increased regulation in the SME domain could potentially hamper SME development due to increased red tape. In order to address such concerns, SBD Minister Lindiwe Zulu expressed that the end user, including SMEs and Cooperatives, would be considered in all aspects of their operations and support provision.

In September of 2015, the Department presented their achievements for the first quarter of the 2015/16 financial year (April – June), which showed promising progress (Department of Small Business Development, 2015). Thousands of SMEs and Cooperatives received millions of Rands worth of support in association with the SBD Black Business Supplier Development Programme, disbursements and financing via the Small Enterprise Finance Agency (SEFA) and growth and sustainability support from the Small Enterprise Development Agency (SEDA). Multiple youth-owned businesses, Black-owned businesses and women-owned businesses were supported in priority- provinces and sectors throughout the country, as per the New Growth Path and Industrial Policy Action Plan.

It is through partnerships with government and the private sector that true change in the SME landscape can occur. Many of these partnerships have already seen significant results pertaining to job creation and economic empowerment (e.g. Jobs Fund initiatives). 

It is evident from the research presented that, although South Africa has one of the most conducive environments in Africa for starting and conducting business, that efforts should be geared towards making it easier to start a business (especially as it relates to the time it takes to start one), as well as making it easier to do business with South African enterprises (both on a local and international level). Just under half of the country’s population still do not have access to the internet, presenting a further barrier to growth, especially when considering the significance of having access to information, as well as the possibilities of transcending local business barriers through the internet. Empowering entrepreneurs, particularly the youth, women and individuals from previously underserved areas, and the development of a supportive entrepreneurial ecosystem in South Africa, including efforts from the Department of Small Business Development, could serve as powerful mechanisms to alleviate poverty and unemployment, while driving the economy forward. 

Click here to download the complete Thinkroom report: “The Conduciveness of Starting and Conducting Business in Africa: An SME Landscape Study” 

Sources

Department of Small Business Development, September 2015. Media statement following the department’s presentation of its 2015/16 quarter one performance report to the Portfolio Committee. The South African Government (Government Website). Accessed from: http://www.gov.za/speeches/media-statement-following-department%E2%80%99s-presentation-its-201516-quarter-1-performance-report

GEDI, 2015. The Global Entrepreneurship Index. Accessed from: http://thegedi.org/countries

Internet World Stats, 2014. Africa 2014 Population and Internet Users Statistics for 2014 Q2. Accessed from: http://www.internetworldstats.com/stats1.htm

Pew-Templeton Global Religious Futures Project, 2014. Country Profiles. Accessed from: http://www.globalreligiousfutures.org/countries

Quandl, 2012. Estimated Political Stability by Country. Accessed from: https://www.quandl.com/collections/society/estimated-political-stability-by-country

The World Bank, 2015. Countries and Economies. Accessed from: http://data.worldbank.org/country

Thulo, L., 2014. The Small Business Development ministry 2014 highlights. SME South Africa (Online article). Accessed from: http://www.smesouthafrica.co.za/Highlights-of-the-small-business-ministry-so-far/

Transparency International, 2014. Corruption Perceptions Index 2014: Results. Accessed from: https://www.transparency.org/cpi2014/results

World Bank Group 2014. Logistics Performance Index (LPI): Global Rankings 2014. Accessed from: http://lpi.worldbank.org/international/global?sort=asc&order=Country#datatable

World Bank Group, 2015. Doing Business Report: 2015. Accessed from: http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB16-Chapters/DB16-DTF-and-DBRanking.pdf

World Bank, 2014. Mobile cellular subscriptions (per 100 people). Accessed from: http://data.worldbank.org/indicator/IT.CEL.SETS.P2

World Economic Forum, 2014. The Global Gender Gap Index 2014 Rankings. Accessed from: http://reports.weforum.org/global-gender-gap-report-2014/rankings/

Zulu, L., 2014. SA needs more young entrepreneurs – Minister. Fin24 (Online article). Accessed from: http://www.fin24.com/Entrepreneurs/News/Young-people-must-become-entrepreneurs-Zulu-20140622

 

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The Story of Three Young and One Wise Engineering Entrepreneur!

The Story of Three Young and One Wise Engineering Entrepreneur!

 

By: Melanie Botha

On our last day of Global Entrepreneurship Week, I'm humbled to meet a few fascinating entrepreneurs. As we are finishing off the Virtual Academy session, debriefing the topic, I recognise a few very wise seasoned entrepreneurs in the audience. Soaking in the magnetic energy, I decide to sit back and give Lawrence Makembi the opportunity to share his most valuable lessons for which he can show the scars. As he starts to share, the audience engage and it is here where we come across these three awesome young businessmen who are facing the exact same challenge. Their faces light up as they engage with Mr Lawrence who shares with them his humble beginnings.

This is where the penny drops and they recognise the power of networking, and the power of learning from mentors who've walked the path. In the same industry! Engineering entrepreneurs have to pay thousands to get certification, and as a startup, it’s impossible if you do not have a strong source of funds available; they discuss this big challenge with him. He asks: “Do you have a tool and tester in your pocket?” Surprisingly, Raymond opens up his pockets revealing the equipment he is walking around with in order to be ready to take on a job the moment he closes a deal. Mr Lawrence tells a personal story of how he went to Livingstone with only three days' money provisions, and a cleaning machine. Giving up was not part of his vocabulary! He managed to get a deal and ended up staying there, being able to fund his accommodation for weeks and eventually finding an apartment. He says you have to build up a few income streams simultaneously in order to create cash-cows.

The young men have a challenge with funding for engineering registration papers; without this, they cannot conduct business. And then the magic happened... Mr Lawrence offered these young entrepreneurs the opportunity to use his papers and to trade under his legal terms until they have built up enough money to pay for their own papers. What an awesome opportunity taking place right in front of us! They will now submit their business plans to him and look at an agreement. All of this happened because people had a space to interact and had access to people who have been there before. 

I just loved this humbling experience. This is why I am so grateful for the amazing opportunity to work with incredible SMEs!

Saluting Mr Lawrence for his passion to make a difference in other peoples' lives! @ThinkroomTalk and @4Afrika, you certainly managed to create spaces for entrepreneurs to grow this week!

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