Unemployment: SMEs are the key

Against the backdrop of last week’s jobs summit, it’s worth considering the potential for job creation and economic growth that lies in the country’s SME sector.

According to Hischam El-Agamy, executive director of global business school IMD, SMEs “are the foundation for creating jobs. Tapping into SMEs needs to be exploited and pushed.”

The key to making a dent in the unemployment rate, which is nearing 30%, is to help SMEs access funding, says El-Agamy.

The 80-page jobs summit framework paints a bleak picture of the sector. More than 50% of all start-ups and small businesses fail in the first 24 months because of inexperience and a lack of access to funding. Financial literacy gaps have also emerged as a hurdle.

Jennifer Cohen, director of research & advocacy at the Small Business Institute (SBI), says the government needs to have interventions that support SMEs, from the registration process through to growing their businesses.

However, says Cohen, “a cursory glance at the summit showed areas that weren’t touched on. There was no move to ease red tape or to reduce the cost of business.”

The summit did deliver some ideas around interventions to boost SMEs. These include:

• Renewing efforts to upscale the implementation and monitoring of the 30% government spending set aside for SMEs;

• Leveraging procurement from small firms and co-operatives;

• Supporting rural production clusters, and township and informal settlement enterprise support;

• A proposal to upscale and recapitalise the Khula Credit Guarantee Scheme to address the lack of collateral among SMEs;

• The creation of large-scale youth employment programmes;

• Business Unity SA and the Commission for Conciliation, Mediation & Arbitration developing an online tool for SMEs to improve employer-worker relationships; and

• Identifying initiatives that could be replicated and scaled up for greater impact.

Problematic, for Cohen, is that the summit “focused on how big business can grow”.

Already, SA’s largest 1,000 employers, including the government, provide 56% of the country’s jobs — and large firms are adding jobs at a much faster rate than SMEs. If the aim of the National Development Plan (NDP) of SMEs generating 90% of new jobs by 2030 is to be reached, something will have to give.

A study by the SBI and the Small Business Project (SBP) released in July found that SA has only 250,000 formal SMEs — those that employ fewer than 200 employees — a dramatic difference from the department of trade & industry figure of 2.8-million, contributing 60% to employment and 52%-57% to GDP.

And while the study finds these formal SMEs account for 98.5% of all formal business in the economy, they employ only 28% of the formal workforce. This is dramatically lower than SME rates internationally: in OECD countries, for example, more than 95% of businesses are SMEs, employing 60%-70% of the working population and contributing up to 60% to GDP, SBP CEO Chris Darroll told Business Day.

While a blueprint for job creation is in the works, business says increased government support will be needed if there’s any hope of reaching the ambitious goals of the NDP.

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by Financial Mail – https://www.businesslive.co.za/fm/features/2018-10-11-unemployment-smes-are-the-key/

Sunita Menon