Developing small businesses in South Africa: Policy gaps or opportunities?

President Jacob Zuma, in his 2011 state of the nation address, declared 2011 as the year of job creation. He urged that every sector and enterprise regardless of size, work towards this goal.

Therefore, it was not surprising that President Zuma highlighted the importance of the small business sector as part of this job creation drive. He indicated that the government would continue to provide financial and non-financial support to the sector. The President did not stop there; he went on to emphasize that as part of moving towards a developmental state, the social grants system would be linked to enterprise development.

This is what the President’s state of the nation address should do – highlight key policy goals that hopefully inspire policy makers to create an enabling environment in which appropriate interventions and programmes can be developed and implemented.

The question we then have to ask ourselves is whether policy makers have been inspired to create an enabling environment to foster higher levels of small business development in South Africa? This is an important question to answer as a country’s political environment (policies, regulations etc) may positively or negatively impact the rate and sustainability of small business development.

On the policy front, we can see that South Africa’s policy framework for entrepreneurship and small business development has evolved over the years. This policy framework has shaped various small business development interventions, yet we still find that South Africa’s rate of entrepreneurship is still low despite South Africa’s overall competitiveness ranking and ease of doing business.

Why is this the case? Is it just that not as many people in South Africa consider starting their own business as desirable and/or feasible given their personal background and/or business environment?

Some possible postulations (not exhaustive) can be put forward that suggest that there are some policy ‘gaps’ that might be at the root of the problem.

Firstly, there is limited evidence of a cohesive small business development policy framework across the three spheres of government and associated state-funded implementation agencies.

Secondly, the policy framework may not be appropriate to cater for the diversity found in small business sector. For example, the financial and non-financial needs of informal enterprises are inherently different from formal enterprises as well different for the different categories found in South Africa’s small business sector.

Thirdly, some structural imbalances of South Africa’s economy continue to influence the rate of new small business formation. Some of these imbalances include the lack of an entrepreneurial culture, lack of a small business development enabling environment (despite continuous recognition of need to foster such), lack of access to entrepreneurial finance (despite well-developed financial infrastructure and existence of several state-funded funding institutions) as well limited investment in research and development among others.

However, these possible policy ‘gaps’ can be converted to opportunities for policy makers and implementation departments/agencies.

In the first instance, policy makers and implementation departments/agencies could take the opportunity to review the extent to which the current policy framework creates an enabling environment for small business development.

This would entail, for example, assessing the extent of policy cohesion, coordination and collaboration between implementation departments/agencies.

In the second instance, an opportunity exists for policy makers and implementation departments/agencies to review existing small business development interventions and (re)formulate appropriate ones.

The purpose would be to identify and meaningfully reducing barriers to small business entry as well as leveraging potential comparative advantages in the sector. This may require assessing how to further incentivize and/or to develop one’s confidence to participate in the sector through providing appropriate financial and non-financial products and services; investing in research and development as well as identifying sector value chains in which small businesses can realistically participate and be competitive among others.

Most of what is being suggested above is not new; rather, it is a renewed call that it can’t be left to politicians and policy makers alone to take up the challenge of developing the country’s small business sector.

It also requires the collective, meaningful engagement and participation of key interest groups in policy formulation and implementation. This could see a shift from continuously focusing on policy gaps to identifying opportunities for policy enhancement and implementation that could well see the small business sector migrate onto a more sustainable trajectory.

Showing 2 Comments »

  1. I agree with the writer that these are not new assertions but rather
    need renewed emphasis, unfortunately, as much as the gaps exist in
    policy, there’s still even bigger gaps in the capacity
    of those officials that need to implement the policies. This is
    evident in the programmes that departments have to promote small
    business, there is no innovation or creativity on how funds can be
    or ceeded to SMEs to, at least, give them a push in the right
    direction. It can also be that the creativity is restricted by the
    structuring of the funding programmes. Without mentioning names, there
    are funds
    available for agricultural projects but the funding maybe earmarked
    for infrastructure and the said infrastructure would be fencing, while
    this is not what the co-ops require and these funds cannot be
    used for any other activity but fencing. Then there needs to be an
    application for funds that would be for the required activity, only to
    be considered, not approved, in the next financial year and by then
    the initial
    applicants have lost interest. This lack of flexibility also
    influences prospective investor interest, negatively. This is not only
    in the agricultural sector but cuts across most sectors. As much as it
    is important to look at
    the policies, we also need to look at the extent to which public
    consultation is conducted. How low does it go? Do they actually
    consult those that will be affected by the policy or does it end with
    those that have access to
    these forums and actually understand the language in these policies,
    and are ultimately not literally affected by the very policies.

    Comment by Ofentse Mokitlane — 21 October 2011 @ 8:11 am

  2. Good stuff Sandra

    Comment by J Welman — 27 October 2011 @ 4:01 pm

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