SMME DEVELOPMENT: A PUBLIC OR PRIVATE AFFAIR? DR ANNELINE CHETTY

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1 SMME DEVELOPMENT: A PUBLIC OR PRIVATE AFFAIR? DR ANNELINE CHETTY

2 Economic Significance of SMMEs Of a total of firms operating in South Africa, large enterprises constitute only in number, or 0,7 per cent of the total. The remainder is made up of SMEs, including survivalist and micro enterprises. All large enterprises rely heavily on SMEs' performance for supply and demand reasons. Unemployment in African cities is the highest in the world, averaging around 24%. Up to 54% of all employment is in the informal sector. This presents major challenges to urban policy and management, and in particular the need to ensure a highly efficient support environment

3 Entrepreneurship defined Every successful entrepreneur, according to Ericksen (2004), is an inspirational case in point and illustrative of the spirit that turns successful visions into lucrative realities. Ericksen ( 2004) Joseph Schumpeter describes as creative destruction, tearing down old ways to provide new responses to the needs and wants of the marketplace. in-spite of this all entrepreneurs reach a point when they recognise that they cannot do it by themselves and that they need help to turn their vision into a thriving business. It is at this point that they turn to either the private or public sectors for such assistance.

4 Ethekwini Municipality Area The ethekwini Municipality is the largest port and city on the east coast of Africa. It has a population of over 3 million people with a growth rate of 2.3%, and is South Africa s second largest city (EM, 2005: 9). The municipality is responsible for an area of over square kilometres, including 98 kilometres of coastline. It is also Africa s premier port KwaZulu- Natal, EThekwini, National,

5 Public Support structures National Department of Trade and Industry SEDA National Department of Economic Development Other Ministries eg. Public Works etc also promote entrepreneurship development Provincial Departments of Economic Development Provincial SEDAs Municipalities Economic Development Departments Ethekwini Municipality Business Support, Markets and Durban Tourism Unit

6 Private sector Financial institutions, training institutions Corporate companies are expected to contribute 3% of their turnover to Enterprise development

7 Challenges in Promoting Entrepreneurship in SA Problem One - Lack of awareness and coordination of business development services There are a number of organisations, both public and private, that exist within the EMA which provide services to support and develop SMMEs. Problem Two - Capacity within institutions to provide efficient services Further criticisms of national government s SMME support programmes refer to the centralised, top-down nature of many of the programmes.

8 Challenges Continued Problem Three - Minimal impact of programmes In an evaluation of an SMME training programme implemented in the ethekwini Municipality, a significant problem raised was the range of different types of SMMEs that were expected to undergo a one-size-fits-all training programme. Problem Four - Willingness to pay for services In many developing countries, governments continue to provide heavily subsidised services for SMMEs.

9 KEY FINDINGS 72% of participants in the study had never access SMME support from Local Government Of those SMMEs who did access government services, only 16.6% thought the services were excellent while an overwhelming majority (68.4%) of SMMEs indicated that the level of service was average to poor. The most critical areas of support identified are access to finance, business linkages, information dissemination and capacity building These findings correlate to the findings of Rogerson s (2004b) study and Berry et al s study which states that government programmes have failed to meet the needs of SMMEs hence the need for a paradigm shift and to seek out more innovative solutions to address challenges faced by SMMEs.

10 KEY FINDINGS ctd The most significant roles for the private sector identified by respondents were facilitating access to finance (35.6%) and facilitating access to skills and markets (20.4%). Lever (1997) believed that in many countries SMMEs receive almost all of their support services from the private sector. These include training, the supply of raw materials and equipment, access to information and marketing services, which are provided without any subsidy and are therefore self-sustaining. Lever (1997) believed that reaching SMMEs through private sector channels is far more appealing and efficient than overly subsidised, generic government programmes.

11 RECOMMENDATIONs It is clear that the issue of "one size fits all" for SMME development needs to change in South Africa. Government programmes as being too generic and in most cases not meeting the needs of SMMEs. Lever (1997) argues that we need to develop specific responses for specific needs and the SME market needs to be clearly defined in terms of size, sector, and business cycle and gender specific requirements, if applicable. Lever (1997) believes that business support organisations need to be more visible and need to market themselves more broadly..

12 RECOMMENDATIONs Lack of co-ordination and duplication of services have been identified as key challenges in relation to providing SMME services and support. It is therefore the recommendation of this thesis to establish a SMME Coalition Hub (SCH) or an SMME Alliance Park which is similar to a one-stop-shop concept which can be achieved through a public private partnership. The SCH should initially be subsidised but mechanisms need to be put into place to ensure long-term sustainability. This means that local government should obtain resources from the other two tiers of government and help to pay for the costs of setting up the SCH. When the Hub is operational, government should slowly reduce the subsidy to the Hub until it can be sustained through the payment of services by SMMEs.

13 ETHEKWINI MUNICIPALITYS EFFORTS TO PROMOTE PPPs IN SMME DEVELOPMENT: STRATEGIC PARTNERSHIPS Government resources are limited, therefore the Unit initiated a project to form partnerships to increase the level of coordination, increase the pool of resources available and to increase the value of the service offering to SMMEs A number of partnerships have been initiated with International organisations, the Private sector and other government departments as well as tertiary institutions We appealing to other companies, organisations and institutions to come forward to forge partnerships with the Unit as part of their Corporate Social Investment Programmes or to increase your performance on BBBEE scorecards and ratings.

14 Current Strategic Partnerships

15 ACCESS TO FINANCE

16 ENTERPRISE DEVELOPMENT BBBEE FRAMEWORK: 3% CONTRIBUTION TO ENTERPRISE DEVELOPMENT ENTERPRISE DEVELOPMENT STRATEGY BUSINESS LINKAGES CASH/ IN KIND CONTRIBUTIONS SIGN MOUs WITH THE CORPORATE TO POOL RESOURCES FOR ENTERPRISE DEVELOPMENT WIN-WIN SITUATION

17 CONCLUSION Wherever you go in the world entrepreneurs are seen as the drivers of the world economy. Tecson (2004) believes that this would require that SMMEs push beyond the growth frontiers by achieving high levels of growth and productivity in their businesses through the various support mechanisms available to them. Both the private sectors and public sectors should step up their support mechanisms The public sector operating within the EMA needs to recognise and acknowledge its limitations and seek out private institutions which have the expertise to deliver SMMEs are viewed as the engine of growth of any economy and ensuring that maximum support is given to them to thrive and succeed will have a positive overall impact on the economy and quality of life of society.

18 Thank you!!