How South Africa can boost the development of small businesses

The development of small business in South Africa is extremely important as small and medium-sized businesses are the backbone of economic development in emerging markets such as India, South Africa, Kenya and Colombia, where these enterprises contribute up to 40% of national gross domestic product.

SMEs in these nations developed at different speeds during recent years, with countries such as Brazil joining economic powerhouses like the UK and America in topping the list of countries with the largest new business growth.

“These inspiring examples are key learning opportunities for South African small businesses,” says Mark Paper, chief operation officer at Business Partners Limited.

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The three-pronged approach to sector development

Paper uses the success of India’s IT industry as an example of how strategic positioning and long-term planning can reap huge dividends for the country and its people.

During the early 1990s, India experienced a ‘brain drain’ in its fledgling IT industry, with local talent emigrating to other markets.

This loss of key talent served as a prompt for key decision-makers to boost investment into building new capacities. For India, an intervention at school-level education was identified as a possible solution.

Therefore, government poured resources into encouraging young children to pursue careers in IT and technology-related fields.

Today, India is a global technology hub, producing between 600 000 and 800 000 tertiary IT graduates per year, according to Bombay-listed software and services giant, Zensar Technologies.

“India’s success in this arena cannot be attributed to the state acting alone but rather to the collaborative efforts of multiple stakeholders in civil society, education, training and development, career development and the corporate realm.”

He says true impact for small business development requires the cooperation and collaboration of the golden tripartite: the public sector, the private sector and the South African public.

“Our country is well-positioned to follow India’s lead, albeit in the broader context of STEM (science, technology, engineering and mathematics), but more investment needs to flow in from multiple directions.”

State-led interventions to encourage education-driven initiatives are important, he says, but points out that the private sector must employ these graduates at scale.

“This also needs the backing of civil society, which plays a crucial role as the parents and caregivers of young talent in promoting STEM education and equipping young people with the tools they need to succeed in these areas.”

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Policies targeted at achieving specific, measurable goals

Paper says one of the cornerstones of Brazil’s success as a country with a thriving SME sector is the measurability of its policies.

According to a report published by leading South African researcher and journalist, Stephen Timm in recent years, Brazil’s planning ministry focused on fostering a more enabling environment for entrepreneurship.

These efforts were backed by strong policy reforms, such as mandated, governmental ‘set-asides’ or large portions of the state’s procurement bill that are allocated for small firms. Under articles 42 to 49 of Lei Geral, all governmental tenders of up to US $80 000 (about R260 000) in value must be granted to SMEs.

“However, the process of these policy changes and their implementation are measured closely. Policymakers are held to account according to measurable targets on the number of loans offered to SMEs on an annual basis, the number of small businesses registered as taxpayers and supported in fulfilling their obligations and the number of SMEs supporting key industries such as export and manufacturing.”

Paper says this approach is conducive to creating an environment where policymakers can be held to account for the implementation of their policies – one in which “we do what we say we are going to do and we remain open to exploring what we can do better”.

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Leveraging financial technology

You cannot consider small business development without touching on solutions to its greatest challenge. Research conducted by Business Partners Limited for its quarterly SME Confidence Index indicated that access to finance is one of the biggest and most prevalent hurdles to success in South Africa.

Mexico provides a key learning opportunity of how non-bank financial institutions and fintech startups can work together to fill this gap and provide SMEs with greater access to funding, Paper says.

Mexican financial leasing firm and direct SME lender Mega is leading the charge in the financial sector by offering finance to the ‘unbanked’ and under-served constituent of SMEs that are not regarded as part of the formal sector.

Paper says Mega and its non-bank counterparts in Mexico hold another invaluable lesson for South Africans.

“Our local entrepreneurship base is alive with talent and our entrepreneurs are hungry for innovation. In fintech, we find a viable solution to how we can leapfrog other emerging markets and harness our drive to succeed by advocating for greater financial inclusion.”

Providing more non-traditional financing solutions for SMMEs, particularly on a micro scale should not be seen as a goal in isolation, he says.

“Fintech innovators should rather frame their efforts within the broader imperative of sustainability, a crucial part of which involves social justice and equality. This is what investors, corporate decision-makers and the government want to see more of.”