According to researchers Finmark Trust’s Finscope 2010 survey, small businesses could create 2.5 million jobs by 2020. Finmark states that between 1985 and 2005, 90% of all new jobs in South Africa were created by small, micro and medium firms.
According to Professor Neil Rankin from Wits University’s School of Economics and Business Science, 73% of employed people work for firms with fewer than 50 employees.
Large companies and banks are often criticised for not offering more support and funding to small suppliers. Former Pick n Pay chairman Raymond Ackerman insists that the corporate sector needs a complete mind change if it is to support small businesses more effectively.
Ackerman started Pick n Pay in 1967 and grew the business to become one of the largest retailers in Africa. Today, the Raymond Ackerman Foundation helps develop black franchisees; funds and supports small suppliers, including 40 farmers; and backs two entrepreneurship academies.
“I’ve always said the customer must come first,” Ackerman says. “Business must look after its country and not only their profits.”
He refers to the fact that large companies viewed the development of small business as something the government should be doing and “the curse of big business”.
Thami Mazwai, director of the University of Johannesburg’s Centre for Small Business Development, says the private sector has behaved “absolutely disgracefully” and has a “head-in-the-sand” mentality when it comes to supporting small enterprises.
“The way it (the private sector) goes on, it’s like we don’t have a large informal sector and huge unemployment problem,” he says.
Contrary to the call from businesses that the government should cut red tape, Mazwai believes the government should add more regulations.
“The private sector has been complaining since 1994. The closer we get to 2014, the more I’m convinced that the government must come with massive regulation,” he says.
But small business analyst Septi Bukula believes the way to do it is for the government to give incentives to the private sector to support small business.
He says the government should offer a pot of money that those in the private sector – such as business associations, big businesses and others – can tap into to fund innovative small business support schemes.
Bukula believes there was a “great deal of seriousness” in the government to support small businesses, but says the government “should be crowding the private sector a lot more”.
He points out that there are a number of good business incubators that are willing to expand and open new centres, and could do so with additional government funding. Most importantly, the government should look to fund support models that work, which needn’t be profit-driven, but should not be subsistence-type organisations.
Bukula singles out the Automotive Industrial Development Centre’s partnership with Ford to set up an incubator to develop third-tier suppliers, with the help of R100 million in funding from the Department of Trade and Industry.
The incubator has so far helped set up five black suppliers, who collectively employ 150 people. The initiative proved so successful that Nissan has approached the department to fund a similar incubator. This, says Bukula, was an indication of the vital importance of the government backing sector-focused initiatives.
Yet one of the biggest concerns for business owners remains labour regulations, which they say limit them from hiring more employees.
This was a key complaint of the 500 business owners surveyed by researchers SBP last year for its Headline Report.
For Herman Mashaba, who started Black Like Me and built it into one of the biggest haircare product retailers in the country, this is the biggest hurdle that small firms face.
He says the biggest stumbling block to small business growth is the Labour Relations Act – which makes it possible that any employee could take you to the CCMA, and makes it difficult to get rid of employees who aren’t performing.
“We replaced the apartheid regime with another regime – labour practitioners,” he says, adding that this includes unions and Cosatu. “Instead of focusing on your business, you are focusing on the mistakes you may make.
“We need a total abolition of some of these pieces of legislation.” He mentions that labour brokers are good for the country as they help many South Africans to find work.
But the Department of Trade and Industry’s chief director of enterprise development, Mojalefa Mohoto, isn’t convinced. He believes the debate over labour legislation has “exaggerated” the effect labour laws have on businesses.
Added to this, reviews commissioned by the department – the last in 2005 – had found that labour laws weren’t too burdensome on small firms.
Interestingly, the World Bank’s Doing Business
Report showed that it is easier to start a business in South Africa than in Brazil or India – two countries similar to South Africa.
Mohoto says small businesses that closed down tended to blame labour laws.
And there are a lot of firms closing down. According to Adcorp labour economist Loane Sharp, 440 000 small businesses have shut up shop in the last five years.
Added to this is the fact that, in 2001, about 250 000 people were involved in starting their own businesses while, in 2011, only 58 000 people were trying to do so – a decline that started in 2007.
The Global Entrepreneurship Monitor 2010 report’s figures also reveal that while 17.5% of Brazilians are running firms older than three years and 15.3% are starting and running new firms, just 2.1% of South Africans are running firms of three years and older, while 8.9% are starting them.
The department completed a small business review earlier in 2012 and Mohoto says the review could result in changes in the department’s Integrated Small Business Strategy and possibly, further down the road, changes to the 2005 Small Business Amendment Act.
Perhaps the high failure rate needs to be probed more. But, as small business researcher and SBP chief executive Chris Darroll says, more support needs to be aimed at existing businesses that have entered the two- or three-year growth phase. The government needs to engineer incentives to get big businesses to back more small businesses. But the state also needs to hone the quality of their own lacklustre support, make it more sector-specific and introduce more support for small enterprises in the growth phase.