Small business development: Long on promises, short on delivery

Stories such as Sizwe Nzima, a young entrepreneur running a business in Khayelitsha delivering chronic medication to local residents using bicycles are only too few. Sizwe was recently named one of Forbes Magazine’s 30 best African entrepreneurs under 30. The Western Cape Department of Health and the Raymond Ackerman Academy of Entrepreneurial Development at the University of Cape Town are now helping formalise the business, enabling him to take advantage of the huge latent demand for his services.                               

Photo of Sizwe Nzima courtesy of Forbes.com


With a sluggish economy and an ever decreasing supply of jobs in the formal sector, entrepreneurial activity is often the only option for the unemployed, particularly the youth, seeking paid work.

But half of 18 to 34 year-olds interviewed for the 2013 Global Entrepreneurship Monitor (GEM) said becoming an entrepreneur in South Africa is too difficult. Only 13% of the non-entrepreneurial youth, those not currently establishing or managing a business, said they intended to start a business in the next three years.

A staggering 61% of young people surveyed believe that most young adults who start businesses have to work too hard for too little money.

Perceptions of the merits of engaging in entrepreneurial activity were considerably more negative than those held by South Africa’s sub-Saharan counterparts, namely Botswana, Namibia, Nigeria, Ghana, Malawi and Zambia

With such strong negative sentiment, a lot still needs to be done to infuse an entrepreneurial spirit in South Africa’s youth.

It was thus with much interest that I listened to the newly minted Minister of Small Business Development, Lindiwe Zulu’s maiden speech in Parliament this past week.

To be sure, the Minister made all the right noises. Phrases such as inclusive economic growth, a commitment to ensuring government departments pay service providers on time and ensuring the regulatory environment is business-friendly shows she has quickly picked up some of the main priorities for the new department.

However, these commitments are nothing new.

As early as 1995, the Government released its White Paper on National Strategy for the Development and Promotion of Small Business in South Africa. The White Paper’s stated objective was to create an enabling environment for small business.

Unsurprisingly, the paper identified the regulatory environment, access to finance, a high tax burden, access to markets and quality business infrastructure in poor areas, and skills acquisition as constraints to establishing a small business.  Now, almost 20 years later, we continue to talk about the same issues.

The Deputy Minister of Small Business Development, Elizabeth Thabethe, must suffer from fatigue having preached the same tune since 2005 – Thabethe served as the former Deputy Minister responsible for small business in the Department of Trade and Industry under Presidents Mbeki and Zuma.

Yet, very little progress has been made in removing those very same constraints while support for those struggling to get a business off the ground remains limited.

Depressingly, Department of Trade & Industry Minister Rob Davies reported in May last year that 70% of small businesses in South Africa fail in their first year.

Government remains adept at publishing a slew of policy frameworks which, instead of providing a unified strategic approach to strengthening the economy and improving the lot of small business, do little except reveal ideological conflicts within government’s economics cluster ministries.

The Minister needs to provide more than empty promises during her tenure. She needs to take urgent and decisive steps to fight for the consolidation of government’s ideological position under the National Development Plan (NDP), provide innovative support facilities for those who brave it out on their own, and foster a spirit of innovation among would-be entrepreneurs, particularly the youth.

One such intervention we wish to see is substantial tax incentives for ‘angel investment’ in start-ups and emerging small businesses.

This is a way of reinvesting wealth into the productive economy instead of into the money market and other financial instruments, which very rarely trickle down into the hands of small business. It is also a vehicle to promote mentorship between experienced business people and entrepreneurs.

Further, a National Venture Capital Fund, targeting start-ups and early stage businesses, would provide a strong enabling platform for aspiring entrepreneurs.

Also in included in the DA’s raft of small business-friendly policies is the creation of Opportunity Centres which act as one-stop-support-shops for small businesses, job-seekers and entrepreneurs; and equipping small business owners with Opportunity Cards which can be used to access free or discounted training, business support and advisory services.

I was pleased to hear Minister Zulu single out the informal sector as a driver of jobs. Providing safe trading spaces for informal traders and developing a Code of Good Practice, as the City of Cape Town has done, is crucial both to supporting this sector and moving it up the value chain into the formal economy.

The National Development Plan, which the DA supports, says 90% of the 11 million jobs we need to create by 2030 will come from small business. A step change both in policy and implementation is needed for South Africa to stand even a remote chance of attaining this goal.