The key to a future of inclusive economic growth for South Africa lies in the development and sustainability of its micro, small and medium enterprises (MSMEs).
This is the assertion made by the World Bank Group – but if the current state of this sector is an indicator of our future prosperity as a nation, we have our work cut out for us.
In a research paper titled “The Unseen Sector”, written by the World Bank Group in collaboration with Genesis Analytics and the National Treasury, the authors note with concern that the MSME sector, despite its immense potential for job creation, has remained fairly stagnant over the last decade.
Estimates suggest MSMEs already contribute around 34% to South Africa’s gross domestic product and constitute over 90% of formal businesses.
Despite this, the report estimates only about 14% of the entire sector of more than 5million enterprises count as formalised businesses.
The lack of formalisation is already within itself a major hurdle to economic growth. Businesses that operate without formal registration are less likely to have access to the same opportunities as their formal counterparts, giving rise to what the report terms “survivalist businesses”, run by entrepreneurs who only aim to put food on the table.
With the right kind of support, these businesses – which are believed to be among the majority of MSMEs – could be massive job creators, particularly for the unemployed masses struggling to find other opportunities or livelihoods.
Though the report indicates a lack of in-depth research around MSMEs in South Africa, it also lists a lack of policy, the complications of red tape and access to finance and markets among the challenges faced by these businesses.
The first two of these go hand in hand – broader research into the needs of MSMEs will serve to inform the policies that must regulate and support them.
This duty will fall largely to government as the policymakers, but the private sector and academia must form part of this process.
This particular challenge fits into the triple-helix model of collaboration we have implemented at the Nelson Mandela Bay Business Chamber.
Our in-house research unit is aimed at collecting information and insights into industries and areas that could prove catalytic to economic development – of which MSMEs is one.
Our frequent collaboration with government and academia is the next step towards affecting the policies that are needed for these businesses to thrive.
Regarding the processes of formalising a business, as the business chamber we have been quite vocal on the issue and how it hinders business growth.
The report references the MSME Growth Index by the Small Business Project in 2014, which determined that the average MSME owner spends eight working days each month dealing with red tape, while 60% of these entrepreneurs are unsure of which regulations they must comply with – due to requirements that are constantly changing.
“In addition ... the opportunity cost of the time and effort required to undergo the process may be significant,” according to the report.
“This is particularly so for informal micro enterprises, where any time spent on administrative processes is foregone revenue.”
The researchers recommend the establishment of a one-stop shop for these processes, which the business chamber has already discussed with the metro through its Metro Collaboration Task Team.
We also continue to assist members with these processes through our in-house help desk.
The final challenge, that of access to finance and markets, is laid at the feet of state departments.
The World Bank paper calls for more effective government funding, and also for stronger co-ordination efforts between government and the private sector.
“Aside from improving inter-governmental co-ordination there is a need for policymakers and regulators to strengthen ties to the private sector, including industry associations, but also with private sector incubators, business accelerators and training providers to facilitate information sharing and to jointly address MSME development issues,” the report says.
If these challenges are addressed, the World Bank estimates that the MSME market could prove vital to achieving economic growth in the long term and to creating sustainable opportunities across the country.
The role of any business chamber is to facilitate growth for businesses and the larger economy, and that is exactly what we strive to do.
Through our various task teams, we are already working to support the growth of this crucial sector of the business community.
Won’t you join us?
● Nomkhita Mona is the CEO of the Nelson Mandela Bay Business Chamber