SME sector in peril

Smaller businesses are closing up shop and fewer entrepreneurs are trying to start out on their own as confidence in the SME sector reaches “alarmingly low” levels and undercuts the economy’s ability to add jobs, a new study says.

The latest Global Entrepreneurship Monitor (GEM) finds South Africa’s entrepreneurial activity is a quarter of that elsewhere in sub-Saharan Africa. The report says more education and skills training and less red tape are vital to turn things around.

Dropping sharply

Entrepreneurial activity as a percentage of all business dropped sharply last year, from 10.6% to 7%, ending a decade of gradual but constant growth. In other words, just 7% of South African adults are engaged in early entrepreneurship, while 2.7% already own or manage an established business.

That does not bode well for a sector that the government has earmarked for stimulation and job creation. It questions the efficacy of state efforts to stimulate and nurture SMEs.

“A good infrastructure and banking systems are the two biggest enablers of entrepreneurship in South Africa. Major constraints are an inadequately educated workforce, inefficient government bureaucracy, high levels of crime and onerous labour laws,” the report finds.

Speaking at a breakfast hosted by Women’s Development Bank Investment Holdings, Thakhani Makhuvha, CEO of the Small Enterprise Finance Agency (Sefa), said regulation and red tape was a major impediment to small business. He said Sefa, an agency of the department of small business development, would seek to influence policy formulation within the department and government along with easing red tape.

Makhuvha said of the 68 000 SMEs and co-operatives Sefa funded, more than 60 000 had been women-led, the majority street vendors or owners of micro enterprises.

The GEM report finds that there has been an increase in women entrepreneurship, primarily due to government support, but that private companies support the most successful entrepreneurial initiatives. The report highlights Anglo American’s Zimele programme and South African Breweries KickStart initiative as two examples.

“There is not just one organisation or intervention that makes a successful entrepreneur, but a number of interventions,” commented acting CEO of the Small Enterprise Development Agency, Lusapho Njenge.

Janice Johnson, investment officer at Vumela Enterprise Development Fund, which is funded by FNB and managed by Edge Growth, says confidence is an issue for women entrepreneurs, in particular when accessing finance. Absa’s Women Empowerment Fund has ring-fenced R250 million especially for female entrepreneurs.