SMMEs hold key to economic growth

Tuesday, November 11, 2014

By Small Business Minister Lindiwe Zulu

It must trouble our collective conscience that 20 years since our freedom, the participation of black people in the economy still leaves much to be desired. Despite the socio-economic progress, there are still structural features that constrain our ability to address these challenges. The triple challenges of poverty, unemployment and inequality continue to stare us in the face.

The high rate of unemployment and extreme inequality call for bold and far-sighted interventions. We are of the view that supporting micro, small and medium-sized enterprises offers an important vehicle for sustainable social and economic inclusion as well as national cohesion.

As government, we have made a commitment to set the country on a path of radical economic and social transformation to accelerate our onslaught on these socio-economic challenges. Radical economic transformation must ensure faster, inclusive growth combined with much higher levels of employment creation, reduced inequality and the de-racialization of the economy.

The President established the Ministry for Small Business Development as part of government’s commitment to place the economy and job creation at the centre stage. The government is convinced that through this intervention, we will be able to unlock economic opportunities and achieve inclusive economic growth and sustainable employment, particularly for women, youth and the disable.

We see small businesses and co-operatives as critical to creating an economy that benefits all. We are confident that through small business development, we will be able to defeat the triple challenges of poverty, unemployment and inequality. It is this intervention that holds the key to unlocking our economic potential, thus affording us a golden opportunity to launch a sustained onslaught on poverty, unemployment, inequality and underdevelopment.

We remain concerned that small businesses have an exceedingly high failure rate, and most of the casualties are black and women-owned. Statistics show that small businesses have only 37 percent chance of surviving for four years and 9 percent chance of surviving for 10 years. Between 70 and 80 percent of small businesses fail in their first year, and only about half of those who survive remain in business for the next five years.

The government is aware that to address problems confronting our economy and reverse the unemployment rate will require a radical policy shift that recognises the urgent need to invest in small and medium businesses because they are key drivers of economic growth and job creation. We are convinced that if we are to make an impact on the job creation front, the common problems faced by SMMEs must be addressed. Our ultimate goal is to reduce obstacles to doing business and expand access to economic opportunities for historically excluded groups.

Easing the regulatory burden and reducing red tape is going to be key if we truly want to unlock the economic and job creation potential of SMMEs. The slow business registration process, late payment of small businesses, licensing procedures and small business taxation are some of the issues.

Black small businesses and enterprises will require broader access to financial services to fund growth. Through our development finance institutions, the government will provide increased access to affordable loans that supports diversification of the economy, broad-based black economic empowerment and investment in smaller businesses in the productive economy.

Research by Global Entrepreneurship Monitor shows that small businesses are significant contributors to job creation. The SMME sector contributes more than 45 percent of the GDP. In 2007, the contribution of SMMEs to GDP was 35 percent. Targets for future contributions range from 60 to 80 percent over the next 10 to 15 years. On the other hand, Brazil, Chile and India’s SMMES and co-operatives have contributed approximately contributed 20 percent to their country’s gross domestic product and employ 60 million people.

A healthy SMME sector has the potential to create more employment opportunities and generating higher production volumes. However, the sad reality is that South Africa has one of the lowest rates of entrepreneurship activities in the world.

I urge players in industry, academia and civil society to join hands with us as we seek to unleash an entrepreneurship revolution.



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