Thursday, 9 October 2014

Opinion piece in the Financial Mail - Leadership required for our entrepreneurial ecosystem to thrive

This article appears in this week's edition of the Financial Mail - read it here in the magazine or below.
 

The formation of the Small Business Development ministry has focused the minds of everyone concerned about South Africa’s weak economic growth and the role small and medium enterprises (SMEs) have in revving it up.  

A buzzword gaining traction in small business development circles is the “entrepreneurial ecosystem.” By this is meant the totality of activities, enablers, conditions, stakeholders and incentives that make up the environment in which entrepreneurialism can exist and thrive. By all accounts the ecosystem in South Africa is under-developed, fragmented and lacking leadership. The National Development Plan (NDP) expects 90% of the 11 million new jobs we need by 2030 to come from SMEs. But obstacles remain stubbornly in the way. These include our low rate of Total Early-Stage Entrepreneurial Activity (TEA), the high failure rate of newly formed enterprises, labour laws and regulations that deter job creation and low levels of business confidence. 

Added to these are poorly performing Development Finance Institutions such as the Small Enterprise Finance Agency and the National Empowerment Fund, banks reluctant to lend to high-risk businesses and supply chains dominated by big players who lock out their smaller rivals. 

The new ministry has remained silent on how to tackle these obstacles, beyond partial acknowledgement that they exist. Its task is made harder by the fact that the levers available to it can only effect improvements at the margin. Meaningful change can only come with a systemic attitudinal shift across all government departments, notably Treasury, Labour and Trade & Industry, that recognises the central role the private sector has to play in driving economic growth.  

For this to happen ideological conflicts between proponents of the NDP, the New Growth Path and the National Democratic Revolution within the ANC-SACP-COSATU Alliance need to be resolved in the NDP’s favour.  

The country is teeming with entrepreneurial endeavour and energy, but much of this is wasted in well-meaning talk and little effective action. Good work is being done by a growing number of private-sector business incubators, but our venture capital industry lags other countries’ by a mile and government funding has over-emphasised support for survivalist rather than high growth potential businesses.  

Government mind-sets have to change. Instead of focusing on inputs and activities, outputs and outcomes should be emphasised. Funding for small business is expensed on the income statement rather than reflected on the balance sheet as ROI. Money is being poured away, with no accountability or measured impact in terms of turnover growth, profits generated and loans repaid for reinvestment into more small businesses.

Some efforts are praiseworthy. A year ago the then Minister of Finance Pravin Gordhan and a group of South African entrepreneurs based in the USA convened a conference at the Reserve Bank to look at ways of unlocking South Africa’s entrepreneurial potential. Evolving from this was the formation of SiMODiSA, a not-for-profit association whose aim is the accelerated growth of SMEs in South Africa. At its second conference in October we will be able to assess its progress to date.

Fresh thinking is urgently required if we are to attain the NDP’s twin goals of 5% economic growth and 11 millions new jobs. The priority for the Department of Small Business Development must be to provide the leadership required for our entrepreneurial ecosystem to thrive. We will then have a better chance of reaching these goals.

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