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Crucial Role of SMMEs in Economic Growth - published 6 Mar 2019

             Crucial  Role of SMMEs in Economic Growth

UNATHI MAHOLWANA: CDC’s SMME Programme Manager outlines the importance of supporting SMMEs in growing the economy  

Small, Medium and Micro-sized Enterprises (SMMEs) have been identified as productive drivers of inclusive economic growth and development in South Africa and around the world. The small business sector in South Africa is a critical part of the national economy with the government’s National Development Plan 2030 (NDP 2030) looking to SMMEs to be major sources of employment and drivers of growth in the economy; they are considered as important drivers for reducing unemployment, especially since the formal sector continues to shed jobs. SMMEs are feted to be the future of business, representing forty percent (40%) of all business in SA; it has been forecast by the National Development Plan that by 2030, over ninety percent (90%) of all new jobs will be in SMMEs.

According to the SMME landscape report (An Assessment of South Africa’s SMME Landscape: Challenges, Opportunities, Risks & Next Steps’ 2018/2019), the SMME landscape in South Africa is made up of relatively young businesses, with around sixty percent (60%) of owners being in operation for less than three years. For the most part, SMME owners were operating their first business (70%). Access to funding was identified as a major stumbling block. Only six percent (6%) of SMME owners indicated that they’ve received funding from the government. The top three sources of government funding were government grants (21%), the Department of Trade and Industry (17%) and the National Youth Development Agency (16%).

Professor Gideon Nieman emphasized that SMMEs have become an important focus for policy makers. SMMEs provide the higher labor- absorptive capacity of small business sector than that of other size classes; the average capital cost of a job created in the SMME sector is lower than in the big business sector; they allow for more competitive markets; they can adapt more rapidly than larger organizations to changing preferences and trends; they often make use of local resources; there is provision of opportunities to aspiring entrepreneurs especially those who are unemployed, under-employed or retrenched; workers at the smaller end of the scale often require limited or no skills or training; and subcontracting by large enterprises to SMMEs lends fertility to production processes.

In addition, the NDP 2030 encourages more emphasis on SMMEs to support these businesses, encourage government and the private sector to procure from small firms, and to enhance the development of black and female managers and professionals. A rapidly growing economy that is diversifying into new sectors will open up opportunities for black-owned firms and smaller businesses, promoting inclusive growth.

In light of the above, the CDC’s SMME business unit continues to assist SMMEs with training and development.  The unit’s target for procurement spend on SMME is thirty nine percent (39%).

Given the importance of SMMEs, it is almost impossible to ignore the mounting challenges that affect them, as identified by Prof. Nieman, which include, amongst others, burdensome regulations; lack of skills; local economic conditions; cost of labor; lack of finance and increased competition. 

However, these challenges are more pronounced and concentrated within the South Africa’s construction industry. Currently, the distribution of economic benefits in the industry are being enjoyed by a very small number of large constructions firms that are forever in the day being awarded big infrastructure contracts by the government.

The following are some of the challenges facing SMMEs in the construction industry: access to market and finance; lack of skilled labor; poor training facilities; regulatory challenges; weak business networking; lack of management and financial skills; poor quality supplies and equipment; unresolved disputes; and high crime levels.

As a result, the CDC established a highly successful SMME development programme, which provides tools that prepare SMMEs for competing and responding to government tenders, concludes Maholwana. However, a coordinated support for small businesses is essential through better relevant agencies, development finance institutions, and public and private incubators. 

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