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Developing small businesses in South Africa: Policy gaps or opportunities?

Date Released: Fri, 21 October 2011 11:24 +0200

Dr Sandra Musengi-Ajulu, Partner at Dajo Associates


Therefore, it was not surprising that President Zuma highlighted the importance of the small business sector as part of this job creation drive. He indicated that the government would continue to provide financial and non-financial support to the sector. The President did not stop there; he went on to emphasize that as part of moving towards a developmental state, the social grants system would be linked to enterprise development.

This is what the President’s state of the nation address should do – highlight key policy goals that hopefully inspire policy makers to create an enabling environment in which appropriate interventions and programmes can be developed and implemented.

The question we then have to ask ourselves is whether policy makers have been inspired to create an enabling environment to foster higher levels of small business development in South Africa? This is an important question to answer as a country’s political environment (policies, regulations etc) may positively or negatively impact the rate and sustainability of small business development.

On the policy front, we can see that South Africa’s policy framework for entrepreneurship and small business development has evolved over the years. This policy framework has shaped various small business development interventions, yet we still find that South Africa’s rate of entrepreneurship is still low despite South Africa’s overall competitiveness ranking and ease of doing business.

Why is this the case? Is it just that not as many people in South Africa consider starting their own business as desirable and/or feasible given their personal background and/or business environment?

Some possible postulations (not exhaustive) can be put forward that suggest that there are some policy ‘gaps’ that might be at the root of the problem.

Firstly, there is limited evidence of a cohesive small business development policy framework across the three spheres of government and associated state-funded implementation agencies.

Secondly, the policy framework may not be appropriate to cater for the diversity found in small business sector. For example, the financial and non-financial needs of informal enterprises are inherently different from formal enterprises as well different for the different categories found in South Africa’s small business sector.

Thirdly, some structural imbalances of South Africa’s economy continue to influence the rate of new small business formation. Some of these imbalances include the lack of an entrepreneurial culture, lack of a small business development enabling environment (despite continuous recognition of need to foster such), lack of access to entrepreneurial finance (despite well-developed financial infrastructure and existence of several state-funded funding institutions) as well limited investment in research and development among others.

However, these possible policy ‘gaps’ can be converted to opportunities for policy makers and implementation departments/agencies.

In the first instance, policy makers and implementation departments/agencies could take the opportunity to review the extent to which the current policy framework creates an enabling environment for small business development.

This would entail, for example, assessing the extent of policy cohesion, coordination and collaboration between implementation departments/agencies.

In the second instance, an opportunity exists for policy makers and implementation departments/agencies to review existing small business development interventions and (re)formulate appropriate ones.

The purpose would be to identify and meaningfully reducing barriers to small business entry as well as leveraging potential comparative advantages in the sector. This may require assessing how to further incentivize and/or to develop one’s confidence to participate in the sector through providing appropriate financial and non-financial products and services; investing in research and development as well as identifying sector value chains in which small businesses can realistically participate and be competitive among others.

Most of what is being suggested above is not new; rather, it is a renewed call that it can’t be left to politicians and policy makers alone to take up the challenge of developing the country’s small business sector.

It also requires the collective, meaningful engagement and participation of key interest groups in policy formulation and implementation. This could see a shift from continuously focusing on policy gaps to identifying opportunities for policy enhancement and implementation that could well see the small business sector migrate onto a more sustainable trajectory.