SMEs are our silent heroes, heroes who contribute about 50% to 60% of the employment in this country – the 2.6 million SMEs that quietly go about their business every day, employing countless people, supplying products and services, and generating essential economic activity.
We know that SMEs are the engines providing economic stimulus.
In South Africa, beset by record unemployment, stagnating growth, and flip-flopping economic policy, SMEs are nothing short of essential to our future.
A report by the International Finance Corporation (IFC) estimates that micro, small, and medium enterprises (MSMEs) constitute more than 90% of all formal business in the country, and in addition to employing 50-60% of the workforce, contribute 39% of GDP.
Creating a sustainable SME sector is not only good for business it is instrumental to job creation, and to creating an equitable and sustainable economy.
Looking deeper at the power and impact that SMEs create
- SMEs are crucial to alleviating the unemployment rates and responding to our 11 million jobs by 2030 – contributing to job creation, alleviating unemployment and poverty and with that all the social ills that plague us.
- They build communities – Looking at the archetype of the entrepreneur – your local hair and nail specialists, friendly grocer, baker, and teacher. Women and youth who come from underprivileged backgrounds pursue their dreams. These stories and people build communities. They serve communities and give back to communities.
- Entrepreneurship brings more citizens into an economically active populationensuring financial inclusion – what this does, is it broadens the tax base, increases skills development, takes people off the streets, and positively impacts crime.
- Drivers of innovation – They show agility and innovation – Sweepsouth and Yebofresh are great examples of this.
The Direct Focus on Diversity and Women
South Africa moved up one place from 2020 to rank 37th on the 2021 Master Card Index of Women Entrepreneurs. South Africa moved up two places on the Women Business Owner benchmark to rank 44th, with 21.9% of all women-owned businesses in 2021.
Prof Meyer from the University of Johannesburg, says “Women are stepping up to own their own businesses. “Women entrepreneurs are considered a reservoir of entrepreneurial talent”.
There is a growing body of research that suggests that women make better entrepreneurs than men. Studies from the Centre for Entrepreneurs, and McKinsey research amongst others have shown for a long time that investment should be in women entrepreneurs to ensure growth in the economy. The data research and case studies speak truth to the power of women.
Yet the environment is still not conducive to the growth of women. It is still very much a patriarchal society with that still strongly felt in boardrooms and business relationships.
We need to focus on bridging the gaps. Legislation and policy alone cannot create change. The awareness that females can create greater impact indicates that there needs to be more commitment to making the change in embracing women and giving them equal opportunities in business.
Despite all the power and impact of SMEs, the sector has stagnated and constantly faces challenges being hit by COVID-19, load-shedding, regulatory changes and challenges, trading conditions, and consumer demands.
The challenges facing all businesses in South Africa are well documented. Still, SMEs face a host of additional obstacles that see around 70% of them fail in the first year, compared with a global average of 20%.
A range of surveys conducted on the sector found that competition from large firms, inadequate equipment or technology, lack of skills, crime and theft, difficulty finding customers, cost of labor, and local economic conditions were all barriers to starting up and growing businesses. The one thing that almost all of them recorded was the lack of funding.
The funding gap is estimated to be about R294 billion.
It’s estimated that three-quarters of MSMEs are rejected when applying for credit, and only 2% of fledgling businesses are granted bank loans. Many companies that are too large for micro-finance but too small to access funding through traditional institutional channels find themselves in the so-called “missing middle”.
Reasons found in some studies – 1)businesses are reluctant to take on more debt in uncertainty. 2) The systems are not agile enough to reach the far-outlying areas. 3) Traditional credit systems are prejudiced with many banks calling for collateral for loans that they do not have.
There are alternative cash funders but not enough to make up for the deficit.
“If everyone is moving forward together, then success takes care of itself” Henry Ford
We know that there are pockets of excellence, initiative, and programs making progress and they must be commended and given accolades for their work.
But that being said we can see it is not enough. The segmented approach will not be sustainable. We need a community with a cohesive approach to building the SME sector and realizing its growth. The key is to ensure that key stakeholders and leaders answer the critical questions that hinder growth, offer solutions, and are held accountable through a program of impact and reporting. It cannot be a tick-box exercise but an action that creates impact.
After knowing all of this, as responsible citizens, entrepreneurs, and businesses, we cannot sit back and wait or do nothing.
More than ever, what is now needed is a cohesive, consistent, and impactful program of action. We need to use our leadership voice and direct our energy towards the growth of the SME sector. We need to create a community, a movement to bring stakeholders together for solutions, impact, and growth.
Edward Hale said that `’coming together is a beginning. keeping together is progress. Working together is success”
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