Sunday, 13 September 2015

National Gazelles programme aims too low

Minister of Small Business Development Lindiwe Zulu’s launch of the National Gazelles programme was a damp squib, attracting hardly any media coverage or commentary. That Dr Thami Mazwai used his Business Day column (9th September) to highlight it is not surprising: the Department hired him to formulate it, which he does not disclose in his column.

The DA has asked the Minister to explain how her department procured the programme from Mtiya Dynamics, headed by ANC-cheerleader Mazwai, and Martin Feinstein. The Department does not appear to have followed any tender process.

The Department first became aware of “gazelles” – businesses that grow at more than 20% a year for at least four years– when the DA urged it to focus on this segment of the small business ecosystem at a Portfolio Committee workshop in September 2014.  

The term gazelles was coined by US economist David Birch in 1994 to distinguish them from elephants (the Wal-Marts) and mice (mom and pop corner shops). As Dr Mazwai acknowledges, international research shows gazelles create more jobs than big or micro businesses.  

Since then, organisations such as Endeavour, founded in the 1990s, and the Aspen Network of Development Entrepreneurs, founded in 2009, have had considerable success in supporting and promoting gazelles in countries all over the world, including South Africa.

In May Endeavour SA offered South Africa a choice: create 11 million jobs by 2030 through 8,2 million micro enterprises or 49 000 businesses growing at 20% a year. More likely it will be a mixture of both.

Where should government play in this space?

Endeavour SA’s portfolio of 22 gazelles created around 11 000 jobs in 2014 and contributed over R1 billion to the economy. By contrast, Sefa’s 2013/14 annual report states it financed 46 000 businesses over that period and created the same number of jobs – 1 job, on average, per business financed. This compares to Endeavour’s 500 jobs per business supported. The contrast could not be starker.

The government is years behind the curve in recognising the crucial role high-growth businesses play in driving growth and job creation. The ANC and its alliance partners have confused poverty alleviation with job creation, hence its record of advancing hundreds of millions of rands in loans to micro businesses that can’t, or won’t, pay them back, and fail to create jobs.

The micro business and informal sector needs a very different set of interventions compared to gazelles. As the Riversands and Philippi Village business incubators recognise, basic infrastructure including secure premises, electricity and water, transport links and broadband, are the fundamentals for getting a business off the ground. These basics are missing in practically all townships and rural areas.

Sefa and Seda, the two agencies tasked with providing financial and non-financial assistance to small businesses, have for years poured money down the drain assisting micro-enterprises, most of which did not create jobs nor failed to pay back the loans advanced.

The Department’s National Informal Business Development Strategy is still in its infancy and should take heed from the Jobs Fund’s approach.

Rather than providing loans and grants to micro businesses, government should be building the infrastructure first and providing training and support alongside micro loans backed by a strong mentor network. This is the Riversands and Philippi approach, both partnerships between the private sector and the Jobs Fund.

The National Gazelles programme is conceptually fine but has some serious flaws.

First, while the programme enlists the support of EY, KPMG, business incubators and other private sector players, it tries to replicate through state-funded and managed agencies what the private sector is doing already. Instead, government should be supporting these initiatives and encouraging massification of best practice models rather than duplicating them.

Second, its ambition grossly under-shoots compared to the need. By setting a limit of 200 companies, of which only 40 will receive “high care” support, the Department puts an artificial ceiling on the ecosystem of potential high-growth businesses thus limiting its impact.

Let’s be optimistic and using the Endeavour average the programme meets its target of supporting 2 000 businesses in ten years, each employing 500 people. That’s 1 million jobs. It sounds a lot, but is less than 10% of what we need by 2030, which is only 15 years away. The NDP expects small businesses to create 90% of these 11 million jobs.

It would be better to work backwards from the 11 million jobs target, and work out what we need to get there using the Gazelles model.

The Gazellle’s programme is another example of the “developmental state” at work. Government should direct its efforts at supporting proven methods to ramp up impact in the development of high-growth businesses, and providing infrastructure for micro businesses needing the basics to survive.

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