I’m passionate about small and medium sized enterprises (SMEs) because the business I co-founded – now part of Sage plc – started as one and because our business today is about helping SMEs to grow and prosper. But in South Africa, we have much to do to get SMEs on the path to success so that they can help create jobs and grow the economy.
Government has acknowledged that SMEs have a vital role to play in our economy, with its National Development Plan (NDP) envisaging that smaller businesses will create 90% of the targeted 11 million jobs by 2030.
It has also made encouraging moves in the right direction by introducing an SME ministry, a signal that it wants to take entrepreneurs more seriously. And the news that it aims to ensure that 30% of government procurement goes to SMEs is also very positive.
Urgent help is needed for SMEs
Yet, at the same time, so much government energy seems to be absorbed by the needs of big labour and big business rather than on helping the little guy to grow his small business into something more formidable. Stats from the likes of Global Entrepreneurship Monitor (GEM) indicate that more small businesses are shutting down than opening in South Africa. Clearly, we need to see urgent action to help our SMEs to perform to their true potential.
What we need here isn’t more policy discussion or small tweaks to tax regulations, but bold steps towards reforming a regulatory environment that is often hostile to smaller businesses. It is an opportunity for government to champion the risk-takers and innovators in the SME sector and help them to take our economy forward.
Concrete steps towards change
So, what needs to be done? Let’s start with the regulation that makes it expensive to do business in South Africa. Contrary to popular belief, big business loves regulation because it creates barriers to entry for smaller, more agile competitors.
If you’re a big company, you can afford to hire lots of tax experts, labour lawyers, and risk management specialists to navigate the red tape. But for small businesses, these complex laws can be a killer. Sure, everyone needs to pay tax and we need a fair labour dispensation, but our laws could be vastly simplified to help SMEs thrive.
Next, let’s look at the impact of state-owned enterprises are on the economy. We have a power crisis largely because government is protecting a slow-moving and inefficient electricity monopoly. Our soaring power tariffs, coupled with outages and costs like generators and UPSs, are a killer for small businesses with tight budgets. Look at how liberalisation has set the telecoms industry free. Could a more liberal power market address the shortfall in power generation faster than Eskom could, especially with innovators around the world like Elon Musk working on new, more sustainable power technologies?
As I noted earlier, I’m pleased that South Africa has a Small Business Ministry. I’m hopeful that the Minister will recruit entrepreneurs rather than public servants to drive policy and execution. Though government appears well-meaning about the SME sector, it needs to tap outside expertise in the complexity and diversity of our small business landscape. The United Kingdom’s Department for Business, Innovation & Skills is a study in best practice in this regard.
Many of the steps I’ve proposed will be unpopular with some political constituencies, but leadership is about vision and decisiveness. Every day that passes, every small business that fails, represents a set back towards the 2030 job creation goals. Government has a small window of opportunity to create South Africa as a leader in the SME market.
This article was written by Steven Cohen, MD of Sage One AAMEA.