S SMMEs Township
S SMMEs Township businesses missing link in SA growth puzzle Small businesses operating in historically designated townships on the periphery of the country’s developed urban economy are as much a part of our economy as large national companies or home-grown multinationals. “South Africa’s small business sector is critically important because they can unlock growth, inclusion and long-term social stability – everything that has been eluding South Africa for so long. Far from being peripheral, small businesses are central to building the economy and society we all want,” says Simone Cooper, Head of Business Clients, Standard Bank. Whether one looks at established economies like the US, newly arrived economies like China or other emerging economies like Rwanda, small businesses account for the greatest segment of GDP, employment and innovation. In China, for example, more than 98% of all firms are small businesses with 300 or fewer employees. These businesses contribute over 60% of the total GDP, 50% of tax income, 75% of jobs and 68% of exports in China. “Given the very large role small businesses play in employment and GDP growth around the world, if South Africans are puzzled by lacklustre growth and the inability of our economy to provide employment, we need look no further than how we support, develop and include our small business segments in the formal economy,” argues Cooper. South Africa’s small business segment is characterised by a divide between more formal urban enterprises located closer to developed business and financial hubs. While South Africa has a raft of legislation designed to bridge this divide and grow the country’s small business segment, interventions to date have not been coordinated. The result is fragmented initiatives that do not adequately address the pain points of small enterprises. A larger and more robust small business segment in South Africa will dramatically increase employment, enabling more South Africans to support themselves and their families. The result will be fewer people relying on national government for welfare grants and other social services. A thriving small business sector will broaden the tax base and increase national revenue. All this will free the government to focus funding on maintaining and expanding the social and economic infrastructure to drive growth and expand inclusion. S TRANSFORMING TOWNSHIPS The Community Transformation Accelerator Programme’s (CTAP) objective is to respond to the government’s 2030 National Development Plan and become instrumental in the growth of the South African economy. The programme’s goal is to radically change the economy in townships and rural areas throughout the country and meet the needs of community-based enterprises. CTAP aims to develop these businesses by transforming how they transact and gathering valuable data to increase sales and become profitable. This profitability is passed on through job creation within the community that they operate in. CTAP’s target is to empower 35 000 SMMEs by the end of 2023. To date, they have signed up 15 000 businesses within the fast moving consumer goods (FMCG) industry. The programme involves intense training and support by the CTAP business development facilitators. The instruction provides business owners with retail management and operational skills and is SAQA accredited. 26 | Service magazine
WHY SOUTH AFRICA’S SMEs ARE VITAL SMEs do not exist exclusively from the rest of South Africa’s business sector. They are South Africa’s business sector and understanding their importance and how much they need institutional support is paramount in the face of growing uncertainty. By Daniel Goldberg, Co-Founder and CEO, Bridgement According to McKinsey, SMEs in South Africa represent more than 98% of businesses across the country. These businesses employ between 50% and 60% of the workforce across all sectors and are responsible for not only a quarter of all job growth in the private sector, but also for 39% of South Africa’s GDP. SMEs have the potential to promote inclusive growth as 38% of them are owned by women. These are not insignificant numbers. In addition to having a dedicated state-level agency in the form of the Department of Small Business Development, multiple agencies spread across the country work hard to promote SMEs located and operating in their respective regions. THE ROLE OF A SME Job growth begins and ends on the ground level, where SMEs operate. They support our economy in other ways. A small business is one that innovates. Competition from others keeps up pressure to uphold consistent quality of service, and forces enterprises to think beyond their current state and explore new ideas. That quality of service contributes to long-lasting customer and community relationships. SMEs respond to local trends and are malleable enough to adapt in a short period of time – something larger entities struggle to do. SECURING FINANCE ACROSS SECTORS SMEs face economic and logistical setbacks like any other corporate entities in South Africa. The impact of loadshedding has long been documented since the outages first began more than a decade ago. Rising fuel prices, even prior to the Ukraine crisis, have not only dramatically increased running costs and company expenditures, but also emphasised the issues surrounding our rail and transport networks, and their importance to business. With the Small Enterprise Development Agency (SEDA) reporting that the number of SMMEs in South Africa has declined by 11% year-on-year, support and change have never been more necessary. Working capital is one of the key pillars of this support Obtaining finance is the first step to giving budding enterprises the resources they need to take off, or to give established businesses the capital they need to scale. With tech-enabled lenders streamlining the process, there’s no reason why we can’t increase growth in the sector. If the private and public sectors work towards the unified goal of creating a nurturing environment for SMEs, revitalising South Africa’s small businesses is possible. The number of SMMEs has only grown from 2.019-million in 2008 to 2.36-million in September 2020. SPAZA SHOPS Spaza shops are the backbone of many underserviced township and rural communities in South Africa. Many spaza shops are operated by “survivalist” owners selling basic goods with low margins. These store owners struggle to compete with large wholesalers and retailers that leverage their greater purchasing power to secure lower prices for products, placing them at a competitive disadvantage. Spaza shops are vital to underserviced areas, selling essential items such as bread, milk and treats to local households. But they also operate in a highly competitive environment, and if their prices don’t remain low enough, the risk is that buyers will simply walk up the road to another spaza shop or save to shop at a large retailer. Service magazine | 27
