How do South African SMEs compare?

Small and medium enterprises (SMEs) contribute significantly to job creation, social stability and economic welfare across the globe. Are South African SMEs doing the same?
Read time 4min 30sec

A decade ago, SA inherited an economy which had been in steady decline for several decades. Not accounting for all the potentially economically active population, we have an official unemployment figure of 27%. (This could be as high as 40%.) We still have a dual economy with a high-skill, capital-intensive modern sector alongside a mass of unskilled people scratching a living from subsistence trading, subsistence farming and casual employment. What we have is a first world economy within a third world.

There is enough evidence that the proliferation of small and medium enterprises (SMEs) contributes significantly to job creation, social stability and economic welfare across the globe. The SMEs in Japan account for the bulk of the country`s businesses and provide vital support for employment. In Taiwan, SMEs account for about 98% of the nation`s GDP. They create countless jobs, and promote social stability. The achievements by Taiwan are a good example of the role SMEs play in a nation`s economy. In 1993, SMEs accounted for 96% of the total number of companies, 69% of total employment and 55% of Taiwan`s manufacturing exports. Most of Taiwan`s current 400 electronic companies started as small businesses.

In the US, small businesses account for much of the vitality of the economy. During the 1980s, US employment grew by 19 million jobs. Over the same period, employment in Fortune 500 companies shrank by 3 million jobs. The growth over the past several years throughout the industrialised countries has been due in large to the growth of SMEs. In 2002 the job creation numbers in Canada show that small business generated 75% of all new jobs in the Canadian economy.

The importance of small, high-technology companies is disproportionate to their size. Fundamentally, they are not risk averse and lead the way to advancing new technologies, and create new ways of doing business. They are pioneers of new markets and develop and apply the technologies that drive economic growth.

Even so, the South African economic, legislative and tax environments are structured around big business. Big businesses for years have enjoyed most of the support from governments, financiers and other stakeholders. This situation is changing quickly in all the economies of the world and SA should be no exception if we wish to compete in the world economy. The focus is shifting towards small business development.

Big businesses are trying to survive and become more competitive by downsizing, merging and outsourcing. This process results in the retrenchment of many qualified and experienced people, ideal candidates for establishing their own small business enterprises. The South African small business economy, which is conceived by entrepreneurial flair, driven by internal passion and necessity, and sustained by the private sector and government commitment, is the country`s most important driver of employment growth.

The South African economic, legislative and tax environments are structured around big business.

Leon Lourens, CEO, Bodibeng Technology Incubator

The SA Small Business Act defines an SME as any business with less than 50 employees. If you think about that, you realise that under this definition, a small business could be a free agent working from home with revenue of less than R10 000 a year, or a manufacturing company with revenue of more than R20 million a year. Clearly the characteristics, problems and opportunities of these two companies are vastly different, yet they are often included in small business statistics and development programmes without distinction. A clear "sector" and "size" distinction should be made in the programmes that are developed to stimulate SME development.

Venture capital provided by professional investors fuels the establishment of many of these new companies. But others are launched with limited funds from the entrepreneurs themselves, their families and friends. The many stories of entrepreneurs, who turned a few thousand rand of seed capital into millions, attract many entrants to the new world economy, called entrepreneurship. Most South Africans cannot list the names of 10 successful entrepreneurs, because we are not brought up in this mould. Entrepreneurship is not the first choice of career in SA - maybe it should be, and if we get the SME business environment right, maybe it will be. Challenging and financially rewarding career opportunities exist for those who join small and rapidly growing businesses.

Throughout the world, one finds the SMEs to be the employee, the customer and the supplier who provide goods and services to the market. They also provide the majority of entrepreneurship in any economy. South Africans, according to the latest Global Entrepreneurship Monitor report, unfortunately do not rank among the most entrepreneurial people of the world. It is therefore even more important that they receive the required support.

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.

Leon Lourens

CEO of Bodibeng Technology Incubator

Leon Lourens, CEO of Bodibeng Technology Incubator, is directly responsible for the initiative. He has a BEng (Industrial) degree and studied business administration at Pretoria University. With 20 years of experience in SMME development, he has been a project manager, programme manager and general manager, and was a product and marketing director of a listed IT company. Lourens was also the GM for what could be considered to be the first successful incubation programme in SA, namely Technotron Industrial Developments (previously the Laboratory for Advanced Engineering) at the University of Pretoria.

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