State Led SMME development: Quo Vadis?

Most research or think pieces about the small business sector invariably make the assertion that small businesses are important for a country’s economic development plans. The question has to be asked whether South Africa’s state-led institutional support for SMMEs has in fact contributed to the development of the sector?

Many suggest that the sector is important for creating employment, as a source of innovation, as a means to create and redistribute wealth, has the ability to stimulate demand for goods and services, encourages competitive behaviour that benefits customers among others.

However, in the same vein, much is said about sector- and enterprise-specific challenges facing small businesses. In South Africa, some sector-specific challenges include the limited and consistent empirical data about the SMME sector and state-led support for the sector is fragmented and uncoordinated compounded by three spheres of government setup and a dated SMME strategy.

In terms of enterprise-specific challenges, these include among others – cost of doing business because of regulatory compliance requirements, access to appropriate forms of finance as well as lack of small-scale finance, lack of access to affordable information to support decision-making, perceived rigidity of labour laws, and lack of affordable, suitable training and development programmes for the sector.

Enter the state and in particular, enter the aspirations of South Africa as a developmental state where its role of taking the lead in directing the country’s economic development activity is key.

In this regard, the state’s role in the support of the SMME sector is highly visible.

A brief scan of state-led institutional financial support for the sector reveals that the state and its agencies have the ability to for example, provide loans (e.g. ECDC, GEP, NYDA, DBSA), grants, incentives and subsidies (e.g. the DTI, various regional IDZs), surety and guarantees (e.g. Khula) as well as equity/quasi-equity financing (e.g. Nef, IDC).

In terms of non-financial support, the state can for example, provide support casino online in the following ways – business advisory services (Seda), trade fairs/exhibitions support and business linkages (e.g. Wesgro, ECDC, Seda), business networking opportunities (e.g. SAWEN), business incubation (e.g. Seda, GEP), technology transfer (e.g. Seda, TIA) among others.

It cannot be disputed that South African SMMEs compared to most other African countries have higher levels of state-led support. The question that arises is whether the state’s institutional support has actually contributed to the development of the sector?

We don’t really know and here are some of the reasons why this appears to the case.

Firstly, the fragmented and uncoordinated state-led support for the sector compounded by three spheres of government setup and a dated SMME/entrepreneurship strategy makes it difficult to effectively assess contribution. The lack of a coordinating mechanism largely because of the autonomy that the three spheres of government set-up allows, has most probably led to duplication of interventions and inefficient use of resources rather than a sustainable SMME development investment by the state.

Furthermore, the current SMME/entrepreneurship strategy was released in 2005, yet many changes have happened – the recession, the adoption of the New Growth Path in 2011, the National Development Plan in 2012 among others are not reflected in strategy.

And while the state has often done 10 year reviews of the sector, any strategy needs to have the flexibility built in to allow for reviews to reflect current realities otherwise it ceases to be of relevance.

Importantly, the strategy needs to be driven by policy; but the one-hat-fits-all approach to policy in this sector is not feasible. There is a difference between SMME policy and entrepreneurship policy.

SMME policy focuses on established enterprises while entrepreneurship policy focuses on encouraging new venture creation. It is not clear if the state’s investment has contributed in developing existing enterprises or to the creation of new enterprises.

Showing 2 Comments »

  1. I fully concur with the fact a lack of coordination and monitoring lead to duplication of intervention that does not yield results. secondly, the biggest challenge of them all in the sector is the misunderstanding of the concept of entrepreneurship. Most start-ups are not initiated as going concerns hence they fail within the first 5 years of existence.

    Comment by Mawande — 5 September 2012 @ 6:28 pm

  2. There does seem to be a 101 government organisations far removed from each other doing their own bit. As your article points out, it would be more effective for one body to co-ordinate efforts in the sector. One can only hope more people in government realise the practical benefits of this and move to make this a reality – strong leadership and long term vision. Sadly lacking right now. Pravin Gordan for post? 🙂

    Comment by Sudhashen Naicker — 6 September 2012 @ 5:37 am

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