There appears to be a broad consensus that SA`s economy needs to grow at a minimum of 5% per annum if we wish to increase the proportion of economically active population. In doing so, we will increase our tax base to stimulate economic growth.
A key element in any economic development strategy is to focus on local strength and start expanding on its core competencies. It is essential that we encourage and promote our entrepreneurs. The government must not stifle the small and growing business sector that will provide tomorrow`s innovative products and new jobs.
The government, in its efforts to support SMEs, should address obstacles that prevent SMEs from contributing to overall economic growth. A stimulation programme should provide high quality business support, including training to develop and improve the managerial skills of prospective and current SMEs. The programme should facilitate access to information, counselling and business development assistance.
It should be noted, however, that when many small businesses emerge, a considerable number fail. Some fail at their infancy stage and some fail within a few years after start-up. Invariably the technical aspects are covered well but there is a distinct lack of business acumen in start-ups. The emergence of business incubation facilities is a valuable resource that should not be discounted. There seems to be little difference in small business failure rates between developed and developing economies. For example, it is estimated that approximately 50% of all start-ups fail in their first year, and 75% to 80% fail within the first three to five years in the US. The process of business incubation swings this failure rate to an 80% success rate.
Structures for SMEs
We must teach our children to embrace the lifestyle of the entrepreneur.
Leon Lourens, CEO, Bodibeng Technology Incubator
Accepting that it will be small business that stimulates the economy and gets it moving, it is important to determine what support is required to accomplish this goal. Successful countries have generally followed a common set of policies to create economic prosperity through the expansion of existing SMEs. These include:
* Economic liberalisation, including the removal of inhibitive policies and reducing the cost of doing business like the complex tax and labour regulations.
* Sector differentiation; affordable or differentiated tax rates for small business.
* Macroeconomic stability, including political stability, relatively low inflation, stable exchange rates for importers and exporters.
* Efficient and non-corrupt governance in areas such as public administration, law and order, education and public-service provision.
Taking cognisance of the characteristics that are the most conducive to the emergence of new companies, while developing the above-mentioned policies, will deliver a fail-proof recipe. These include:
* Technologically dynamic, rapidly growing and fragmented markets offer many new opportunities for small businesses.
* Business management acumen development.
* Linking financial assistance to a business mentoring programme. Unfortunately, the paradox of SMEs having to pay a higher interest rate on short-term loans, if and when they are able to obtain such loans, inhibits growth. SME loans are generally considered riskier and more costly because of the size of the loans and high failure rate. Linking the financial loans to a business mentoring programme will dramatically decrease the risk. In industrialised countries and in many developing countries, governments consider pure financial support as the major component of a stimulant programme for the development of SMEs. This, however, is a fallacy.
* Good access to potential customers can attract entrepreneurs. SMEs are "small" but cannot function independently. The emerging world economy of networking is a pivotal requirement for the development of successful small business.
* A sound legislative environment with tax holidays for start-ups, reduced capital gains tax, increased rebates, etc, would relieve the tax burden on small business and recharge the job-growth engine.
* Role models play an important part in the encouragement of young entrepreneurs.
* The actions of government can also spell the difference between success and failure for small companies. At the local and regional level, initiatives like technical assistance programmes, incentives for new businesses and university-industry collaborations can produce fertile ground for start-ups and established small companies. Given the breadth of the ministries` responsibilities and the complexity of the SME environment, I strongly support the appointment of a separate directorate for small business.
* Training is a key ingredient. We are not brought up with an entrepreneurial mindset, but this ability can be acquired through correct training. By broadening the fertile base on which we sow the entrepreneurial seed, by benchmarking what we teach against the successful economies and delivering these quality services, this can be remedied. We must teach our children to embrace the lifestyle of the entrepreneur. The culture should begin at home, and then proceed through life to higher education and training institutions.
In summary, the bird that allows small businesses to fly must have two wings. The first is a conducive, economic and legislative environment. The second is access to funds linked to well-structured, nurturing environments.
Personally, the prospects and influence of the SME sector on our economy is what makes it such an exhilarating field. Building something from nothing is one of the great personal achievements in life.
Bodibeng Technology Incubator sponsors ITWeb`s SME industry portal. SMEs have come into their own in SA, with many vendors developing products, services and solutions targeted specifically at this market. This portal investigates the software, hardware, networking and other technology issues in this space.
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