SMMEs

Small business development in South Africa - Annotated bibliography

An assessment of government support measures, institutional frameworks, and entrepreneurial growth initiatives: 

Compiled by Graham Sherbut

Small business development in South Africa - Annotated bibliographyThis annotated bibliography highlights a selection of what may be termed the “core” literature focused on small business development in South Africa.  The articles tend not to be theoretical in nature, but are instead focused on the practicalities surrounding small business development policy in South Africa over the past ten years –particularly those policies related to small, micro, and medium enterprises (SMMEs).

The purpose of this annotated bibliography is to provide concerned parties with an overview of the literature pertaining to small business and SMME development in South Africa.  In particular, the bibliography highlights articles that are focused on: 1) assessing the South African government’s small business support policies and instruments; 2) examining the impact of assorted South African institutions – both private and public sector – on small business growth over the last decade; and 3) considering why South Africa has seemingly failed to develop the “culture of entrepreneurship” that is taken to be characteristic of many other middle-income developing countries.

Abu, Orefi and Johann F. Kirsten. “Profit Efficiency of Small and Medium-Scale Maize Milling Enterprises in South Africa.” Development Southern Africa 26.3 (2009): 353-368. Electronic.

This article, put forward by researchers from the University of Pretoria, uses a series of structured survey questionnaires with South African SMME maize producers to try and understand the factors that influence profit efficiency amongst the country’s small agri-business firms.  While standing in some isolation from the wider literature on SMME development in South Africa, this article puts forward a notable argument stating that because primary sector SMMEs will tend to operate in commodity sectors dominated by large firms, SMMEs are left to operate in niche markets for which low levels of competition cause production margins to remain unsustainably high.  The article thus recommends that if state policies are to benefit SMMEs operating in the agricultural sector, then policy reforms should be geared towards increasing competition within “niche” areas such as maize milling.

Dealing with the profitability of primary sector SMMEs, the article states that the difficulties faced by small firms in achieving economies of scale remains a key challenge.  In particular, agricultural SMMEs are often forced to pay more for their inputs as the result of not being able to engage in bulk purchasing and they tend to spend more on transport per unit of production.  These factors increase costs, constrain revenues, and lead to poor profitability and a lack of stability for small firms.  While recognizing these issues, however, the article makes an intriguing suggestion that rather than designing sophisticated policy measures to address these problems, it is better to focus on providing SMME owner-managers with intensive training on how to better undertake “allocative decisions” within the constraints that they face.  While not likely to solve all problems, increasing the decision-making confidence of entrepreneurs constitutes an important first step in helping SMMEs enhance their growth potential within an imperfect operating environment.

Berry, Al et al. “The Economics of SMMEs in South Africa.” Trade and Industrial Policy Strategies Research Report (2002). Electronic.

This research paper, written in 2002 for the South African Department of Trade and Industry (dti), sees researchers from a number of South African tertiary institutions attempt to link developments in the country’s macroeconomy to the growth potential of national SMMEs.  The paper is primarily theoretical but does use qualitative survey research to explore key issues such as small enterprises’ access to finance.  The paper makes its most convincing argument however, when it comes to considering the impact of national labour regulations on SMME growth. 

 

Identifying SMMEs as being labour-intensive in sectors such as clothing and furniture production, the paper asserts that the relatively high costs of labour in South Africa – which is a product of well-intentioned worker benefit legislation – acts as a serious constraint on SMME growth.  Indeed, the paper argues that with South Africa’s relatively high minimum wage, it is difficult for SMMEs – particularly at the start-up stage – to afford the costs associated with hiring even unskilled or semi-skilled workers.  This inability to hire adequate levels of human capital, in turn, has a clear impact on inhibiting enterprise growth.  It is argued that institutional policy efforts should be geared towards lessening the rigidity of the national labour market so that small firms are given more of an incentive to hire workers (and generate employment) in a cost-effective manner.

Booyens, Irma. “Are Small, Medium, and Micro-Sized Enterprises Engines of Innovation? The Reality in South Africa.” Science and Public Policy 38.1 (2011): 67-78. Electronic.

This article uses data from the South African National Innovations Survey (2002-2004) to comment on the determinants of SMME innovation in South Africa.  The author repeats the argument put forward by Ligthelm (2008) noted below in saying that South African policymakers often fail to adequately distinguish between what constitutes “survivalist” versus “non-survivalist” dynamic enterprises.  As a result, policy interventions often assume (incorrectly) that all SMMEs have a substantial scope for innovation.  In reality, a capacity to innovate is inevitably the preserve of a few select firms.  It is these firms, the article argues, which should be given priority when it comes to the majority of SMME support initiatives. 

Even among supposedly “dynamic” enterprises, however, levels of firm innovation tend to be very low.  If innovation occurs at all, it will happen very early in a product life cycle.  If an SMME is a late entrant to the market in terms of producing a particular product or offering a specific service, then it is unlikely to be highly innovative.  Innovation is stifled in South Africa, the article suggests, by the fact that SMMEs tend not to form strong upward linkages with larger firms, thus denying opportunities for technology diffusion.  If innovation does occur, then it is often incremental and is not sustained.  The article offers policy recommendations stating that the government should encourage the growth of “knowledge networks” that will offer SMMEs the opportunity to more easily exchange information with domestic and (especially) international large firms. 

Brand, R.P. et al. “Small Business Development: Improving Sustainability through Networked-Enterprises.” University of Stellenbosch Department of Industrial Engineering Working Paper. Electronic.

This working paper, prepared by researchers at the University of Stellenbosch’s Department of Industrial Engineering, argues that a sustainable business model for SMME growth in South Africa does not yet exist.  On the contrary, South African policymakers do not generally know the steps that must be taken to transform small-scale informal enterprises into dynamic firms operating in the formal economy.  Attempting to remedy this gap, the paper puts forward proposals for a new “Business Framework” that will help SMMEs build their customer and supplier networks, improve their marketing capacities, and manage their finances.  In essence, there is little obvious difference between the Framework proposed in this paper and the concept of a business incubation service mentioned in some of this document’s other entries.  The specifics of the Framework are somewhat vague, with the exception that the authors expect such a Framework to be led by representatives from assorted institutions such as civil society, the government, larger established firms, academics, technology producers, etc. Representatives from these bodies would all sit on a Framework Board of Advisors for different SMMEs and these Boards would possess a de facto right to operate particular SMMEs alongside their owner-managers until the firms were seen as being capable of self-sustainability.

The idea of limiting the autonomy of SMME owner-managers and subsuming their authority to a “Business Framework” Board seems too radical a concept.  The paper contends that such a Board would be in a better position to orient firm growth towards a government-defined target growth rate and it would be in a better position than owner-managers to exploit the economic and socio-political networks required for firms to be incorporated into various supply chains.  These are intriguing ideas, though they remain somewhat fanciful given the likelihood of SMME owner-managers refusing to concede partial control of their firms even for a short-term period of time.   

Buys, A.J. and P.N. Mbewana. “Key Success Factors for Business Incubation in South Africa: The Godisa Case Study.” South African Journal of Science 103.9/10 (2007): 356-358. Electronic.

This article, written by researchers based with the Graduate School of Technology Management at the University of Pretoria, offers an assessment of the Godisa Initiative; a key business incubation strategy launched by the South African government.  The article focuses specifically on the key factors that inform the creation of successful business incubators.  The article reveals these to include: 1) the extent to which incubator services can attract sophisticated science and technology expertise; 2) the extent to which an incubator service chooses to be selective about the firms it assists; 3) the availability of consistent funding to keep the incubator service sustainable; 4) the extent to which government bodies have introduced supportive “pro-business” policies; and 5) whether the incubator is managed by an effective advisory board capable of offering client firms a solid range of networking opportunities.

None of these factors are particularly surprising and the article tends to make fairly generic arguments about the need for private sector support if business incubators are to succeed.  The article points to the necessity of creating strong linkages between SMMEs and South African universities; linkages that the article identifies as being weaker than desired on the basis of its own interviews with incubator service providers.  Perhaps the main contribution of the article is to suggest, like Booyens (2011) noted above, that business incubators (and business support services in general) be more selective in identifying and assisting only those enterprises that have strong potential for dynamic growth.  In other words, there should be a more clear-cut distinction between SMME support that is development-based and SMME support that is growth-based.  Business incubators, this article perhaps controversially asserts, should only serve growth-oriented dynamic firms.

Chabane, N. “Private Procurement and the Development of Black SMMEs in Ekurhuleni.” Briefing Paper #2, University of the Witwatersrand Joint Programme of Research on Industrial Development in Ekurhuleni (2003). Electronic.

This article, written in 2003 by a researcher at the University of the Witwatersrand, explores the concept of “affirmative procurement” and argues that the provision of preferential procurement contracts to black-run SMMEs is an essential step that South Africa’s private and public sectors must take to ensure long-term SMME growth.  Taking the Municipality of Ekurhuleni as a case study, this paper draws upon in-depth interviews with the managers of large firms as well as managers of sub-contracted SMMEs to assert that “affirmative procurement” has the potential to address a number of the key barriers to SMME development.  For example, as is noted in many of the other articles included in this document, SMMEs tend to struggle to develop lasting business linkages with large firms due to their perceived inexperience and doubts about their abilities to adhere to high-level product quality standards.  The mandating of “affirmative procurement”, however, would place a general obligation on larger firms to give black-owned SMMEs the first opportunity to meet procurement demands.  This, over time, would increase these firms’ capabilities, reputations, and likelihoods of survival.

The concept of “affirmative procurement” is surely controversial and it tends to be frowned upon within the wider South African SMME literature.  From a policy perspective, however, this paper suggests that “affirmative procurement” should be pursued only to the extent that it helps to institutionalize a high quality of work within emerging SMMEs.  The paper suggests that municipalities and small business associations should initiate a database that incorporates a “portfolio” of every SMME’s past work so that as the procurement process evolves, firms will be able to attract business linkages with large firms on the basis of their reputation rather than solely as an outcome of preferential procurement processes.  “Affirmative procurement”, in other words, is vital in the short-term but should be temporary and must eventually be replaced by a procurement system based entirely on firm quality.    

 

Chetty, Anneline. “A Critical Analysis of Current Approaches to SMME Development and Support within the e-Thekwini Municipal Area.” Doctoral Thesis – University of KwaZulu-Natal, School of Environmental Sciences (2009). Electronic.

This thesis, written by a doctorial candidate at the University of KwaZulu-Natal’s School of Environmental Sciences, uses qualitative survey data from interviews with over two hundred fifty SMMEs to examine the efficacy of SMME support measures at the local government level – in the eThekwini (Durban) Municipality.  Similar to many of the comments made elsewhere in the literature about fragmented service delivery at the national level, the author contends that SMME support services at the municipality level are often fragmented and many services are duplicated, leading to confusion amongst entrepreneurs about which specific services they should access.  On a more positive angle, it is argued that SMME support services offered by local governments have a much greater visibility amongst entrepreneurs than when these services are made available by provincial or national government bodies. 

The thesis makes its strongest argument, however, in contending that SMME support services are most successful when they are offered by private sector interests rather than by state bodies.  Private sector support services are almost always demand-driven, enjoy a high degree of visibility, are more flexible in terms of the types of services offered, and tend to better distinguish between the needs of different types of SMMEs.  Intriguingly, the thesis also reveals that the majority of small business entrepreneurs are willing to pay fees to access support services when these are seen as adding value to the SMME.  In regards to future policies, these arguments indicate that reducing the role of the state as a service provider in favour of private sector interests may be a sound idea.

Department of Trade and Industry. “Integrated Strategy on the Promotion of Entrepreneurship and Small Enterprises.” Policy Report (2005). Electronic.

This strategic planning report released in 2005 by the dti sets out some of the key challenges facing the state’s SMME support mechanisms.  In particular, the report focuses on the performance of key programs such as Khula Enterprise Finance, the National Empowerment Fund (NEF), the South African Women Entrepreneur’s Network, the SEDA Technology Program, and the Corporate Small Business Development Forum (CSDF).  The report finds these programs to generally be functioning well and as acting to complement the state’s wider microeconomic policy objectives.

In spite of these successes, however, the report identifies a number of problem areas that could severely impede the success of long-term SMME support initiatives.  Inter-departmental cooperation within government, for example, is identified as a particular weakness that often creates confused objectives when it comes to program planning and implementation.  More problematic is that when inter-departmental conflicts become intractable, the search for solutions is often abandoned and different government departments go about creating their own SMME functions, thus creating overlapping areas of jurisdiction without clear mandates in a number of areas.  This lack of inter-department cooperation has also hampered the development of a robust monitoring and evaluation (M&E) framework for assessing the success of SMME support programs.  The strategy paper recognizes, however belatedly, that improving South Africa’s SMME support mechanisms requires more than the state simply creating an ever-growing list of new bureaucracies.  Instead, it requires a degree of common purpose within state structures that has (until now) not been forthcoming. 

Department of Trade and Industry. “Unlocking Potential in an Enterprising Nation: The Integrated Small Business Development Strategy in South Africa, 2004-2014.” Policy Report (2003). Electronic.

This policy strategy paper, drafted by the dti in 2003, presents the objectives of South Africa’s Integrated Small Business Development Strategy and corresponding national entrepreneurship promotion campaign.  Stated policy goals include: 1) increasing the contribution of SMMEs to overall economic growth; 2) creating a stronger enabling environment conducive to small business development; 3) creating sustainable opportunities for female entrepreneurs; 4) giving greater opportunities to “previously disadvantaged” constituencies in regards to entrepreneurship promotion; and 5) improving standards of communication between government (at all levels) and the SMME sector.  As a strategy paper, this report does not seek to analytically assess the likelihood of the state achieving success with these initiatives.  Instead, the report simply outlines the steps taken by the state to boost SMME growth and it notes the institutional partners the state will work with to achieve success.

Notably, an examination of this policy strategy paper reveals a potential flaw in the state’s approach to SMME development that is mentioned elsewhere in the literature: namely, that the South African government too often tries to act as a service provider rather than simply as a service facilitator.  While mention is made of partnering with civil society, private sector bodies, etc., the emphasis in this strategy paper still rests on government taking the lead role in identifying procurement opportunities for SMMEs, managing and monitoring most processes related to technology transfer, and managing institutions seeking to enhance access to finance for small enterprises.  These are not necessarily incorrect approaches.  However, they do reflect the state’s desire to substantially influence many of the key processes surrounding SMME development; something much of the rest of the literature believes has been (or will be) unsuccessful. 

eThekwini Municipality. Entrepreneurship in eThekwini. eThekwini Municipality Business Support and Markets Unit, Peer Exchange Report (2011). Electronic.

The eThekwini Municipality produced this report after a joint internal/external review of its SMME support policies in late 2010.  The report does not offer much in the way of new ideas, though it does indicate a recognition amongst government officials that existing SMME support strategies are inadequate in many ways.  A lack of coordination between public and private providers of services, an over-centralization of programs, a failure to shape programs to meet the particular challenges facing different SMME sub-sectors, and the lack of an over-arching M&E framework by which to assess the outcomes of SMME support mechanisms, are all identified as problem areas in this report.  Notably, however, this government report makes the case that it is the private sector or, if conditions allow, PPPs that should provide support to entrepreneurs, with a user-fee system being introduced to help determine areas of legitimate market demand. 

The paper puts forward examples of a number of recent PPPs, such as a joint initiative between the municipality, ABSA, and Deloitte, to offer a business capacity building course to female entrepreneurs, as an example of how such services should be structured in the future.  This emphasis on PPPs as an ideal mode of delivery for BDS is a common theme within the literature, and is an area that many writers argue must be further explored between actors in the SMME development field.

Financial Services Regulation Task Group. “SMEs’ Access to Finance in South Africa: A Supply-Side Regulatory Review.” Internal Task Group Report (2007). Print.

This paper, drafted by members of the Government of South Africa’s Financial Services Regulation Task Group, explores the adequacy of SMEs’ access to capital, debt, and equity, and evaluates the extent to which the institutional nature of South Africa’s banking industry is enabling or harming the country’s small enterprises.  The paper makes the fairly unsurprising comment that South Africa’s banking and investment climate is highly conservative, with financial services and incoming investment opportunities accruing mainly to smaller firms in the later stages of development (as opposed to start-up SMEs).  The challenges facing SMEs in terms of access to finance are familiar – inadequate collateral, a lack of a recorded credit history, etc. These problems afflict black-run entrepreneurs in particular.

Arguing that increasing SMEs’ access to finance through formal banking mechanisms is unlikely to prove successful in the short-term, the paper asserts that more emphasis should be placed on encouraging SME lending by non-bank financial institutions – though it is recognized that these bodies tend to be under-capitalized and not adequate when it comes to lending substantial amounts.  The paper puts forward more creative arguments when it comes to recommending that the South African banking sector be opened to allow market entry for a larger number of “second-tier” banks (e.g. micro-credit providers, village cooperatives, etc.).  More intriguingly, the paper advocates the development of more sophisticated capital markets by way of increased securitization.  This, along with enacting legislation that would allow for the easier inflow of venture capital into South Africa (e.g. providing tax incentives) would go some way towards remedying the problems that SMEs currently face in attempting to access financial services from commercial operators.

FinMark Trust. Finscope Small Business Survey 2010 (2010). Electronic.

This report, based on the Finscope Small Business Survey of 2010, uses focus groups and structured questionnaires to sample small business owners across South Africa (both rural and urban-based) about the challenges they face in their day-to-day operations.  The survey finds that, contrary to much of the prevailing literature, SMMEs in South Africa do not face sets of uniform challenges.  Instead, challenges tend to be location-specific.  SMMEs in Gauteng, for example, tend to have greater access to finance and suppliers, but have more difficulty finding space in which to operate.  By contrast, SMMEs in Mpumalanga and the Northern Cape claim to have access to adequate amenities and space, but cite particular challenges related to accessing finance due to the predominantly rural nature of their operations.  Finally, SMMEs in the North-West province, while claiming adequate access to suppliers and satisfactory access to finance, claim problems related to utilities (particularly the delivery of electricity).  Solutions to SMME constraints, the report argues, should also be cognizant of regional and local-level differences.

The survey report also makes note of a number of issues surrounding the associational life of SMMEs.  In particular, while the vast majority of South African SMMEs claim to belong to some type of business-related group or association, only 2% claim to belong to groups geared towards establishing networking opportunities and only 1% belong to a certified professional business organization.  According to the survey report, these figures raise questions about the effectiveness of those business organizations that do exist, and it is apparent that more aggressive outreach initiatives on the part of more “professional” business organizations towards SMMEs is required.  This is particularly important given that these higher-quality business associations are more likely to compel their members to gain registration with CIPRO and the associated benefits that come with this status.

Funchall, D.M. et al. “A Workable Model for Small, Medium, and Micro Enterprises Hosted in Select Incubators in South Africa.” Paper presented at the proceedings of the 3rd International IDIA Development Informatics Conference (28-30 October 2009). Electronic.

This conference paper, written by a PhD student at the Tshwane University of Technology, and supported by the South African Council for Scientific and Industrial Research (CSIR), takes a unique perspective within the literature by focusing on how technology can be used to help SMMEs assess their own progress towards becoming “mature” operations with all aspects of their businesses successfully aligned in a professionalized manner.  In presenting the People, Innovation, Capability, and Maturity Model (PICaMM), the paper argues that South African stakeholders may potentially have recourse to a means of redressing past failures to utilize technology properly as a means to pursue monitoring and evaluation (M&E).  The PICaMM approach depicts five levels of progressive improvement within an organization’s level of maturity – from a low level of “random practices” to a mature level of “aligned practices”.

By making SMMEs responsible for inputting data on their operations into model software, it should be possible for organizations themselves (with proper training) to get a sense of where they stand when it comes to professionalizing their practices and standards.  While more detailed descriptions of the model can be found in the paper itself, what is notable to note here is that the ideas presented in this paper complement much of CSIR’s other core arguments surrounding the need to make technology a more central aspect of all SMME and entrepreneurship development practices.  

 

Gumede, V. “Export Propensities and Intensities of Small and Medium Manufacturing Enterprises in South Africa.” Small Business Economics 22.5 (2004): 379-389. Electronic.

The author, based at the University of Cape Town, presents an article which focuses on a topic not considered widely in the prevailing literature on SMMEs in South Africa: namely, to what extent can these small firms hope to become sustainable exporters? Like Kirsten and Rogerson (2002) and Sawers et al. (2008), the article operates under the assumption that successful SMMEs will inevitably have to form partnerships with established larger enterprises in order to sustain their growth.  These linkages will facilitate information flows and will make it easier for small firms to achieve economies of scale – including in the vital area of marketing.  As noted by Rogerson (2002), however, this article identifies weaknesses in these linkages and contends that very few small firms are able to establish linkages with larger firms on a sustainable basis.

From an export perspective, the weakness of these SMME-large firm linkages can be particularly damaging.  While an SMME may partner with a large firm in order to access export opportunities, these opportunities tend to disappear quickly depending on the strength of the upward linkage.  Many South African SMMEs, the article argues, are only able to export “haphazardly” and they are never able to gain an institutionalized understanding of export processes.  This, in turn, constrains the growth potential of these enterprises.  From a policy perspective, the article claims that the state has not developed effective SMME export orientation programs and that this is something that should change in the near future – perhaps by having the Department of Trade and Industry (dti) dedicate a “pool of export mentors” to help firms develop a sustainable export planning strategy.

Havemann, Glenn. “Capacity Building of Construction SMMEs – Experiences on a South African Toll Road.” Industry Report (2001). Electronic.

This somewhat dated article by a specialist with the Development Bank of Southern Africa’s (DBSA’s) Specialist Business Unit, takes a sector-specific view of construction SMMEs.  The author praises the potential of small businesses in this sector to create jobs.  However, it is also noted that even in comparison to the types of SMME sectors noted elsewhere in this document, construction SMMEs struggle to access finance due to the perceived “low-skill” nature of their core activities.  As such, for many small-scale firms hoping to participate in tendering projects, it is necessary to access “bridging finance”; something many find difficult to do.  The author makes the case that while increased access to finance would be ideal, construction SMMEs are unlikely to be seen as a viable lending risk until they have demonstrated a proven track record of successful work.  The paper argues that it is through public-private partnerships (PPPs) and the increased use of “social contracting” that construction SMMEs are likely to find pathways towards sustainability.

“Social contracting” is seen as particularly important, as it places an obligation on concessionaires to partner with an SMME, sub-contract particular areas of work to the SMME, and then work with the small firm to provide on-site training and skills transfers.  Using the example of the N4 toll road, the author argues that this type of contracting is already being used across South Africa (usually supported through PPPs).  However, it is also suggested that the training programs geared towards SMMEs in a “social contracting” arrangement are too often budget-driven rather than demand-driven.  This means that the levels of funding available to put in place mentorship programs are inadequate in allowing for these programs to provide the scale of mentorship that SMMEs require to succeed over the long-term.  Future PPP arrangements should act to rectify this problem by finding more innovative and cost-effective ways to establish mentorship programs.

Herrington, Mike, Jacqui Kew, and Penny Kew. “Tracking Entrepreneurship in South Africa: A GEM Perspective.” Global Entrepreneurship Monitor 2009 Country Report. Electronic.

This report, drafted by the Director of the University of Cape Town’s Centre for Innovation and Entrepreneurship, alongside other researchers closely involved with this University’s Graduate School of Business, details South Africa’s comparative international standing when it comes to the performance of different entrepreneurship indicators.  As part of a broader global research programme known as the Global Entrepreneurship Monitor (GEM), this report is focused less on examining entrepreneurial issues on a stage-by-stage basis, and instead takes the perspective that entrepreneurship is a process that must be continuously monitored and fostered from the period of start-up to the growth of small businesses into mature and stable entities.  Basing its findings on a survey of over 3 000 small business owners in all parts of South Africa, the report finds that the country’s Total Entrepreneurial Activity Rate (TEA) is 5.9%, considerably lower than what would be expected for middle-income “efficiency-driven economies”.

The report identifies a number of problem areas that must be addressed if this figure is to improve.  Using Latin American countries as a benchmark for comparison, the report argues that sustained efforts must be made by stakeholders to improve both the popularity of maths and sciences amongst young people (both at secondary and post-secondary levels), as well as standards of achievement in these subjects.  Like other sources noted in this document, the report also argues that the labour market must be liberalized to provide more flexibility for small businesses.  The establishment of Special Economic Zones (SEZs) is also put forward as a recommendation geared towards providing small enterprises with advantageous tax conditions and lower barriers to market entry.  The report is arguably most convincing, however, in arguing that South African small businesses must be supported by a range of private and public stakeholders in making better use of information communication technologies (ICTs).  The establishment of a higher number of community-based ICT and business centres (staffed by qualified volunteer personnel such as other already established entrepreneurs), liberalizing the telecommunications sector to spur competition and bring down broadband internet costs, and ensuring that the provision of BDS services contains strong ICT components, are all put forward as key recommendations.      

International Finance Corporation. Access to Finance for Women Entrepreneurs (2006). Electronic.

This International Finance Corporation (IFC) policy report, supported by the FinMark Trust and the dti’s Gender and Economic Empowerment Unit, uses data from the Labour Force Survey of 2005 to claim that African women are the largest single self-employed segment of the South African population.  Despite this, the report claims that neither business activity targets set by certain industries, nor private and public sector economic development strategies, incorporate adequate proposals for empowering female entrepreneurs.  Seizing upon the issue of access to finance, the report notes such shortcomings as the 2003 Financial Sector Charter failing to make note of gender equality issues in its promises to support enterprise finance or procurement finance, the propensity of finance institutions to assume (incorrectly) that buying into BEE strategies will inevitably lead to benefits for women, and the fact that the majority of South African finance institutions possess gender-neutral lending strategies that do not recognize the substantial barriers that women face in achieving financial inclusion.  The report is particularly critical of the fact that national credit bureaus often keep poor records on the financial and credit histories of women, and typically fail to share this information with other financial sector actors. 

Potential female entrepreneurs, the IFC report claims, are more likely to lack confidence in approaching a bank for a loan.  The fact that banks themselves typically lack staff with the cultural awareness and requisite language skills needed to help these women, simply compounds the problem.  While staff training in these areas would be valuable (as would commercial banks choosing to disaggregate their loan portfolios), the report argues that it is the South African microfinance sector that requires more support from private and public stakeholders.  It is these types of small institutions, capable of adapting more easily to rural contexts and to the cultural needs of clients, which will be most valuable in assisting female entrepreneurs in the long run.  The legacy of underinvestment and neglect that the microfinance sector has faced in South Africa, must end according to this report.     

 

Kesper, Anna. “Failing or Not Aiming to Grow? Manufacturing SMMEs and their Contribution to Employment Growth in South Africa.” Trade and Industrial Policy Strategies Working Paper no. 15 (2000). Electronic.

The author, an economist at the University of the Witwatersrand, offers an account of why the SMME sector in South Africa failed to generate substantial employment in the years immediately following the end of apartheid.  Basing its results on survey data obtained from a number of SMMEs operating in the Western Cape, the article contends that slow rates of SMME growth in the post—1994 period were responsible for the sector’s inability to generate strong levels of employment.  While this is an unsurprising argument, the author asserts that this failure in SMME growth was the result of the state’s failure to try and distinguish between “survivalist” and “non-survivalist” enterprises and its propensity to dedicate too many resources to promoting growth within a “survivalist” sector that would have been better served by interventions targeted solely around poverty reduction and livelihoods development.  For those “non-survivalist” enterprises that were dynamic enough to create employment, the author argues that these firms were never given the same level of policy focus as their “survivalist” counterparts. 

Moreover, when “non-survivalist” firms in the Western Cape were given recognition and were provided with government support services, these services tended to be overly ambitious in regards to their assumptions about SMME capabilities.  Management training initiatives often assumed a level of skill amongst emerging entrepreneurs which did not exist and they emphasized issues like technology acquisition without addressing key basic problems such as SMMEs’ lack of access to working capital.  In this sense, the article is similar to the writing put forward by Neiman (2001) mentioned later in this document – essentially, SMME training programs are designed to a level that is too complex with regard to the capabilities of existing small firms.     

Kirsten, Marié and Christian M. Rogerson. “Tourism, Business Linkages and Small Enterprise Development in South Africa.” Development Southern Africa 19.1 (2002): 29-59. Electronic.

The article, written by researchers operating out of the Department of Geography at the University of the Witwatersrand, examines the extent to which tourism SMMEs in South Africa have been able to successfully develop business linkages with the country’s large-scale tourism operators.  Similar to Rogerson’s 2005 article on tourism SMMEs (noted later in this document), this article recognizes that the South African tourism sector is highly concentrated with large enterprises – e.g. Southern Sun – enjoying market dominance in many areas.  As such, the article identifies the need for smaller firms to work with their larger counterparts – often as in-sourcing or out-sourcing bodies – if they wish to grow their businesses.  At the same time, the article contends that the sustainability of these linkages may be brought into question by the fact that SMMEs are often not equipped with the skills and training necessary to operate to the international quality standards required by large firms.  The result of this, according to the authors, is that SMME—large firm linkages tend to be very fluid, with smaller firms unable to sustain themselves as quality partners over the long-term. 

Basing its analysis on interviews with sixty tourism SMME operators, the article questions whether the formation of business linkages is the ideal path for tourism SMMEs, particularly those operated by low-income entrepreneurs.  Instead, the article argues that more needs to be done by government stakeholders to promote niche tourism – e.g. eco-tourism, township tourism, etc. – in which SMMEs can independently achieve comparative advantages.  The article contends that government support measures should revolve around an increased emphasis on training SMME entrepreneurs on tourism marketing as it relates to these niche areas.  In doing so, the state will be in a better position to help tourism SMMEs develop in those areas where their “less polished” standards of operation will not be an impediment to future growth.    

Ladzani, Watson and Godfrey Netswera. “Support for Rural Small Businesses in Limpopo Province, South Africa.” Development Southern Africa 26.2 (2009): 225-239. Electronic.

The authors, researchers at the Tshwane University of Technology, use qualitative survey data obtained from SMMEs operating in Limpopo, in order to examine the efficacy of existing small business government support programs in this province.  Unlike many writers, who often critique the South African government’s SMME support policies from an urban-based perspective, these writers consider the needs of rural entrepreneurs and claim that the types of state-led support services in place for SMMEs in South Africa are wholly inadequate for the needs of rural small business owners.  In particular, while the authors praise the value of Khula Enterprise Finance and the Umsobomvu Youth Fund for providing seed capital to start-up SMMEs, they claim that these institutions tend to lack visibility in isolated rural locations.  Moreover, it is claimed that these institutions themselves have an urban bias that makes them less willing to operate in rural areas or to properly work with rural enterprises to develop business plans, identify markets, and help these firms sustain an initial business start-up.  The article contends that rural SMMEs, unlike their urban counterparts, are in a particularly poor position when it comes to joining forces and lobbying government institutions to better address their needs – mainly due to the smallness of individual firms and the fact that rural enterprises are unable to form clusters that will enhance their joint organizational capabilities.

It is suggested that the state more aggressively develop and market entrepreneurship training programs in rural locations.  It is also argued that the state should use its powers of setting procurement contracts to help develop consumer markets for rural SMMEs.  These measures do not seem terribly substantive, however, and a lack of more transformative ideas in the article rates as a disappointment. 

Ligthelm, André A. “A Targeted Approach to Informal Business Development: The Entrepreneurial Route.” Development Southern Africa 25.4 (2008): 367-382. Electronic.

The author, an economist at the University of the Witwatersrand, focuses this article on the issue of South African SMMEs’ access to finance and other types of government support infrastructure.  The paper claims, much like Kesper (2000) noted earlier, that South African policymakers have too often failed to distinguish between “survivalist” and “non-survivalist” enterprises.  As a consequence, the state has been too eager to prescribe the label of “entrepreneur” to all people looking to start an SMME, regardless of the growth potential of the prospective enterprise.  According to this article, this over-generalization of the concept of “entrepreneur” has seen the South African state dedicate wasted resources to providing business training to “survivalist” entrepreneurs who will never use such information for growth purposes.  While McGrath (2005) noted below says that this failure to differentiate between “survivalist” and “non-survivalist” SMMEs is a positive trait, this article firmly disagrees.

What is needed, it is argued, is for the South African state to develop a “dual approach” to SMME support.  On one hand, the state can target “survivalist” enterprises with a generalized training program that is not sector specific, but which involves basic skills development and market identification training (perhaps aided by facilitating access to micro-credit services).  For dynamic firms with growth potential, however, programs should be introduced in a more intensive manner and the needs for individual firms should be catered for in the context of training program development.  These dynamic firms, which are likely to constitute only 10%-15% of the total number of SMMEs in South Africa, should be the primary focus of government support.  A failure to prioritize the development of these firms in favour of a developmental approach to assisting larger numbers of “survivalist” firms, the article contends, is hampering South Africa’s ability to produce high quality competitive SMMEs.

Louw, Andre. “Determining the Factors that Limit Agro-Processing Development in the Maize Milling Industry in Rural Areas in South Africa.” Report for the National Agricultural Marketing Council (2010). Electronic.

This industry overview report by the Chief Executive Officer of Agriculture Risk Specialists (ARS), offers a sector-specific assessment of the challenges facing entrepreneurs and their small enterprises in the maize milling sector.  The report uses interviews with small business owners in the Free State and North-West province and offers a SWOT analysis that summarizes the state of this particular SMME sub-sector.  In some respects, agro-processing SMMEs have advantages that other small business sectors do not – namely, there tends to exist stable market demand for their products, market prices remain relatively stable, access to raw materials is easy to come by, and the management models employed by successful firms can be more easily copied than is the case in other SMME sectors.  Based on these findings, the author argues that some of the existing SMME support methods undertaken by the state and private actors will not necessarily be relevant for this sub-sector.

Where challenges do arise, however, it is in relation to a lack of innovative thinking on the part of business managers.  Within much of the agro-processing SMME sub-sector, a “copycat” mentality prevails that sees firms simply try to copy one another without any single firm (or group of firms) having the confidence to emerge with new business ideas.  This is an assertion that is rarely made in the other sources cited in this document – which tend to assume that a propensity to innovate will inherently exist among entrepreneurs if only they had opportunities to gain support and pursue improved marketing.  As another issue specific to agro-processing, the author states that not enough support has been given to agro-processing SMMEs to cope with more strict (and costly) regulations such as the Government’s fortification law (which demands that maize millers add additional vitamins and minerals to their final products).  More support in this area would be invaluable, the report suggests.

Luiz, John. “Small Business Development, Entrepreneurship and Expanding the Business Sector in a Developing Economy: The Case of South Africa.” Journal of Applied Business Research 18.2 (2002): 53-68. Electronic.

This article, written nine years ago by a researcher at the University of the Witwatersrand, uses in-depth interviews with assorted private sector representatives to present an argument which is at odds with much of the literature focusing on SMME-large business linkages in South Africa today: namely, that the country’s large firms are playing an active and enthusiastic role in helping to facilitate SMME development across a wide range of economic sectors.  The Anglo/De Beers Small Business Initiative and the South African Breweries commercial equity programme are identified by the author as key examples of South Africa’s private sector playing an important role in assisting SMMEs.  It is not the state that should take the lead role in enabling the growth of small business in South Africa, the article contends, but rather the country’s capable and established large private sector.

The author does acknowledge that many large firms choose to form linkages with SMMEs solely for cosmetic purposes and to improve their Black Economic Empowerment (BEE) credentials.  However, the article asserts that many firms are undertaking efforts to develop complementarities between themselves and SMMEs, often in the area of sub-contracting.  The article recommends that the South African government and the private sector play a joint role in ensuring the strength of SMME-large firm linkages by way of enacting legislation that forces large firms to procure their goods from national SMMEs rather than from imports.  Also, the article recommends the elimination of all taxes on inter-firm transactions within South Africa.  These efforts, the article supposes, will help encourage the formation of lasting business linkages that benefit SMMEs and the South African private sector as a whole.

Marr, Ana et al. “Financial Services for SME Fisheries: The Case Study of South Africa.” Project Report for the German Agency for Technical Cooperation (GTZ) and the National Resources Institute (2011). Electronic.

This report is an outcome of a GTZ-funded project looking into the sector-specific challenges facing SMME fisheries operators.  The paper takes an innovative approach in arguing that while entrepreneurship is commonly perceived in South Africa as being an outcome of individual initiative, the capital-intensive nature of some fisheries operations and the reliance of many coastal communities on fishing, means that small enterprises in this sector often take the form of community co-operatives.  The paper argues that South African legislation is not cognizant of this fact, however, and that a key barrier to fisheries SMME development lies with the fact that fishing licenses can only be given to individuals.  While making the case for a greater recognition of “collective entrepreneurship”, the article also follows in the footsteps of Philip (2007) noted below, in arguing for the implementation of a more effective business development support model.

 

In particular, the article points to the relative success story that is Business Partners, Ltd., a public-private partnership (PPP) that has taken great strides to develop a “risk investment portfolio” that offers financing to SMMEs that do not have the collateral necessary to apply for a bank loan.  In the Western Cape’s fisheries sector, Business Partners, Ltd. has assisted entrepreneurs by helping them to establish networks with partners who would be interested in acting as potential shareholders and equity investors.  In many instances, Business Partners, Ltd. has also taken a role as a minority shareholder and it sets exit strategies.  The benefit of this model, the authors argue, is that by adopting an approach that prioritizes equity capital rather than attempting to facilitate access to commercial loans, small businesses in sub-sectors such as fisheries will be in a position of having more stable financial support as well as committed shareholder support that can act as a pool of advice for entrepreneurs.  The paper recommends that this approach be considered in other SMME sub-sectors.  

Mather, Charles. “The Growth Challenges of Small and Medium Enterprises (SMEs) in South Africa’s Food Processing Complex.” Development Southern Africa 22.5 (2005): 607—622. Electronic.

This article, written by a scholar based in the School of Environmental Studies at the University of the Witwatersrand, takes a highly practical view of the challenges facing SMEs in one particular economic sector: food processing.  Using survey data gained from interviews with over twenty food-processing SMEs, the author contends that contrary to some prevailing opinions, SMEs tend to be competitive with larger processing firms on product cost and quality.  The problem, the article claims, is that South Africa’s regulatory environment and the corresponding demands of the large retailers to whom food processing SMEs often sell their goods, are exceptionally strict in the area of setting product quality standards.  Even if food-processing SMEs can produce what would usually be termed “high quality” products, they lack the financial resources and technical knowledge required to upgrade their production processes in a way that will satisfy product standards watchdogs. 

Moreover, the author notes that when they attempt to form partnerships with large retailers, food-processing SMEs will often have to bear all of the costs associated with the audit process undertaken by these retailers to assess the SMEs’ capabilities as suppliers.  These inhibitive costs, in turn, will often dissuade SMEs from forming partnerships with large retailers in the first place – instead leaving them to sell their goods solely to small independent retailers whose level of demand does not promise the SME substantial growth in financial returns.  Unfortunately, while pointing out the challenges facing food-processing SMEs in South Africa, the article does not provide much in the way of policy advice that could make meeting product quality standards easier and less costly for small firms.  

McGrath, Simon. “Skills for Productive Citizenship for All: The Place of Skills Development for Micro and Small Enterprises in South Africa.” Journal of Education and Work 18.1 (2005): 111-125. Electronic.

This article, written by an associate researcher at the Human Sciences Research Council (HSRC), attempts to provide a concise overview of the South African government’s SMME skills development programs up to the year 2005.  The article is especially interested in the institutional relationships within government that influence how these programs are designed and administered.  The article generally praises initiatives such as the National Skills Development Strategy (NSDS) for taking an inclusive approach to promoting skills building amongst entrepreneurs operating both “survivalist” and “non-survivalist” enterprises.  In other words, the state has done a sound job of considering skills development beneficial from both a development and a growth perspective.  Unlike other writers who claim that the South African government too often fails to acknowledge the differences between SMME sectors when designing targeted assistance programs, this article generally praises the state for making this sectoral distinction.

 

However, the author argues that a lack of inter-departmental cooperation within government has played a role in hindering the growth of improved skills development programs for SMMEs.  Specifically, the Department of Education is singled out as having failed to adequately cooperate with the Departments of Trade and Industry (dti) and Labour in the implementation of these programs.  The failure of the dti to develop a strong “lead agency” to coordinate program development between these three departments is also singled out as an important shortcoming.  The paper makes the claim that while South Africa’s SMME skills training programs are generally strong, their sustained success requires stronger coordination within government and a decisive end to inter-departmental disagreements.

Meyer-Stamer, Jörg. “The Hexagon of Local Economic Development and LED in South Africa.” Mesopartner Working Paper No. 5 (2006)

This article, composed by a consultant with an international “local economic delivery” think-tank, explores an issue that is beginning to emerge more strongly within the South African SMME literature: namely, the nexus between small enterprise development and local economic development (LED).  The paper argues that South Africa is different from other middle-income developing countries in that it provides local government with a great deal of power to shape economic development priorities.  Despite this, it is contended that planning conducive to Local Economic Development has often been lacking amongst policymakers and other development actors in South African municipalities.  Contrary to much of the literature, which is shifting towards the perspective of “hands-off” government approaches to SMME support in favour of a grassroots demand-led approach, this paper argues that local government should vigorously seek to plan and determine which types of enterprises to actively support and which to dismiss in given geographic areas. 

It is argued in the paper that this intense planning should take the form of government and its advisors actively designating particular geographic areas as hubs for certain industries.  SMMEs should not be encouraged simply for the sake of fostering business growth.  Instead, support to particular types of SMMEs should be encouraged to the extent that these businesses will serve the wider development needs of the areas they would be located in.  As such, decisions regarding SMME support among a host of actors should begin considering issues such as the spill-over effects (e.g. job creation) that could emerge with certain types of businesses, whether or not businesses have in place succession plans to guarantee their survival should the owner-manager be unable to run the firm, and whether the SMMEs being supported could be spun-off into franchises.  While this article makes a highly “bureaucratic” argument in advocating substantial planning at the expense of grassroots SMME growth, an intriguing argument is made about tying SMME growth to the development of particular geographic localities.    

Naude, Wim et al. “Regional Determinants of Entrepreneurial Start-Ups in a Developing Country.” Entrepreneurship and Regional Development 20.2 (2008): 111-124. Electronic.

This article, prepared by a team of researchers at the World Institute for Development Economics Research (WIDER) at the United Nations University in Helsinki, explores the extent to which regional inequality within a country has an impact on differentiating SMME start-up rates in different sub-national regions.  Using South Africa as a case study, this article suggests that there is a positive correlation between regional inequality and differing levels of investment in entrepreneurship within a country.  More interesting, however, is that the findings of this article go directly against the argument made by Rogerson (2000) described later in this document.  Specifically, while Rogerson argues in favour of SMMEs forming spatial clusters in order to facilitate their access to inputs and markets, the findings of this study argue that clustering does not spur growth but instead places often-fragile SMMEs in a position of having to compete too intensely “under conditions of increasing returns”.  Stated differently, clustering is something that SMMEs should only engage in if they are stable, financially secure, and already have in place access to markets, suppliers, and technology.

 

The article reinforces this argument by noting that, on the basis of its own survey research, SMME start-ups are less likely to emerge in regions of strong economic development than they are in areas where levels of economic development (and thus clustering) are low.  The more competition that exists in a given region, therefore, the less likely SMMEs are to emerge in the first place.  This is a controversial argument and the fact that so much of the literature provides evidence of the exact opposite conclusion casts some doubt on the validity of the article’s findings.  Nevertheless, it is interesting to note that this article goes against the grain in calling for the South African government and private sector to invest more efforts into providing skills training and other types of support infrastructure in less developed regions of the country as it is here that the real potential for strong SMME growth can be found.

Ndabeni, Lindile L. “The Contribution of Business Incubators and Technology Stations to Small Enterprise Development in South Africa.” Development Southern Africa 25.3 (2008): 259-268. Electronic.

The author, a Senior Research Fellow for Economic Research and Innovation at the Tshwane University of Technology, focuses on the efficacy of business incubators as a means to foster the growth and sustainability of SMME start-ups.  While stating that policy environments are less of a determinant of SMME success than individual firm characteristics (e.g. the education level of firm owner-managers), the author claims that the South African government’s efforts to encourage the growth of business incubators is testament to the state’s growing “pro-business” outlook.  The article draws upon the perceived success of the Godisa Programme as a means to claim that business incubators are doing a sound job of linking entrepreneurs with the people and technology they require to improve their skill sets.

The article is perhaps too accommodating of the various business incubation programs established in South Africa over the period 2002-2008.  The drawbacks of these incubators are topics that are dealt with in more detail elsewhere. However, the article does make the compelling case that business incubation services are one of the few SMME policy initiatives that has gained stakeholder buy-in from a wide range of sources – including government, scientific councils, technikons, technology producers, large-scale business, venture capital providers, etc.  In this sense, the article does effectively make the case that business incubation is an approach that should continue to be advocated within the South African context.   

NEDLAC. Promotion of Small and Medium Enterprises in the South African Chemicals Sector. Policy Document (2005). Electronic.

This policy paper, put forward by the South African National Economic Development and Labour Council (NEDLAC), provides a consideration of some of the challenges facing the chemical-producing SMME sub-sector.  Like a number of other writers noted in this document, the article claims that an inflexible labour market harms SMMEs from a cost perspective and prevents them from being able to hire even skilled workers on terms and conditions that are realistic from the perspective of small firms.  While the article notes a number of the familiar constraints to SMME growth that also afflict other sub-sectors, such as lack of access to finance, this article suggests that chemical producing small businesses are at a particular disadvantage because their success depends on gaining access to R&D information and funding, as well as technology transfers.  The article asserts that small non-corporate producers in this sector are too often denied access to high quality information that could improve their business performances.    

The article puts forward three suggestions aimed to allowing chemical-producing SMMEs to benefit in the near term: 1) more effort needs to be made by stakeholders to ensure that SMMEs are represented at industry conferences and workshops – both to facilitate information exchange and to provide networking opportunities; 2) continued thought needs to be given as to how stakeholders can provide incentives to encourage South Africa’s scarce science and technology graduates to go into the SMME (rather than corporate) sector; and 3) a web-based industry portal should be created to make available to SMME chemical producers a single-site resource that provides information on regulatory requirements, information on current research, and opportunities for entrepreneur networking.  The creation of these portals, it is argued, could benefit SMMEs across a broad range of production areas.

 

Neiman, Gideon et al. “Constraints Facing Tourism Entrepreneurs in South Africa: A Study in the Gauteng and Mpumalanga Provinces, South Africa.” Development Southern Africa 25.3 (2008): 283-296. Electronic.

This article by a University of Pretoria research team utilizes a Likert-scale-based survey methodology to identify the key barriers facing tourism entrepreneurs in Gauteng and Mpumalanga provinces.  Surprisingly, given the supposedly high level of support the state has given to the tourism sector in recent years, the survey demonstrates that the majority of entrepreneurs believe that the government deems informal economy-based tourism enterprises as a “nuisance” that are hindering the modernization of the tourism sector as a whole.  Stated differently, the article presents findings suggesting that the state wishes to exclude informal tourism SMMEs from the economy of this particular sector.  The article does not provide evidence to empirically support the entrepreneurs’ claims.  However, the article does key on a specific issue mentioned elsewhere in the tourism-based literature: that SMMEs struggle to gain market entry into a sector dominated by large firms. 

The article claims that inabilities to access adequate levels of finance, as well as a lack of technical knowledge of how to go about developing strong marketing strategies, are the key factors that truly prevent South Africa’s tourism SMMEs from growing.  While this article does not put forward sets of concrete policy proposals for addressing these issues, it does recommend that local government be given more authority and funding to work with tourism entrepreneurs, particularly in the area of marketing.  This, the article claims, would be the best way of ensuring that the smallest tourism enterprises remain visible to those stakeholders who have the potential to provide these firms with valuable assistance – this lack of visibility is a key problem when the national government takes overt responsibility for planning sector-wide tourism interventions for SMMEs.  

Neiman, Gideon. “Training Entrepreneurs and Small Business Enterprises in South Africa: A Situational Analysis.” Education and Training 43.8/9 (2001): 445-450. Electronic.

This 2001 article by a scholar based at the University of Pretoria, offers a critical examination of current and past South African government policies directed towards SMME entrepreneurship training.  Basing its analyses on in-depth qualitative interviews with entrepreneurs who have participated in such programs, the article argues that responsibility for entrepreneurship training in South Africa has too often been divided amongst a “proliferation of role players”.  A lack of coordination between these players – which include community-based organizations (CBOs), assorted government agencies, non-governmental organizations (NGOs), and universities – has tended to prevent the development of a clear understanding of what this type of training should seek to achieve and what methodologies it should use to achieve its objectives.

The article also makes a point that is repeated elsewhere within the literature: namely, that SMME entrepreneurship training in South Africa is often not context-appropriate for the small business sector.  On the contrary, the supply-driven (rather than demand-driven) nature of these training programs has tended to result in the proliferation of programs that provide highly technical training on concepts that are appropriate for the operation of large enterprises – e.g. sophisticated marketing techniques – but which have little to do with the common challenges facing small entrepreneurs.  Similar to authors such as Rogerson (2005), the author suggests that future entrepreneurship training programs be simplified and be created on the basis of legitimate demand rather than being directed from above in a manner that renders them of little value to willing entrepreneurs.

Nemasetoni, Irene and Christian M. Rogerson. “Developing Small Firms in Township Tourism: Emerging Tour Operators in Gauteng, South Africa.” Urban Forum 16.2/3 (2005): 196-213. Electronic.

This article, written by researchers based at the University of the Witwatersrand, makes a familiar argument about the challenges facing small enterprises within South Africa’s tourism sector – mainly, that they find it difficult to compete in a sector that is dominated by a concentrated number of large firms.  Similar to Rogerson (2005) as well as Kirsten and Rogerson (2002) noted elsewhere in this document, this article contends that tourism SMMEs will struggle to compete with larger firms on the basis of quality.  As such, they will be forced to establish linkages with these firms, primarily as out-sourcing bodies, if they hope to grow.  The article criticizes the large-scale end of the tourism sector, however, for not demonstrating a great deal of interest in establishing the types of long-term partnerships with SMMEs that will allow these small organisations to gain confidence, establish markets, and pursue growth.

Moreover, while the article gives recognition to the role played by organizations such as the Gauteng Tourism Authority (GTA) and the Tourism Enterprise Programme (TEP) for creating a more inclusive environment for SMMEs, the article is equally adamant that these organizations (as well as other government support programs) have not been very good when it comes to providing small firms with marketing support.  Indeed, the majority of training programs either neglect marketing issues or give them only a cursory overview.  This is in spite of the fact that the majority of tourism SMMEs identify an inability to market themselves as being the main constraint on their growth.  Similar to Neiman (2001), the article ends by calling for SMME training to be more oriented towards the teaching of simple but innovative marketing strategies. 

Ngassam, Ernest Ketcha et al. “Preliminary Investigations into the Business Ecosystem in Rural South Africa: An e-Business Perspective.” Council for Scientific and Industrial Research, Working Paper (2010). Electronic.

This working paper, supported by the South African Council for Scientific and Industrial Research (CSIR), differs from many of the other sources noted in this document by placing a greater emphasis on the role of technology in enabling entrepreneurship and SMME growth.  Focusing on the community of Khautswane in Limpopo province, the paper argues that while rural South Africa faces a number of barriers when it comes to fostering a strong environment for business growth, stronger efforts could be geared towards capitalizing on one key advantage that these areas do have: a sound mobile technology infrastructure.

The paper proposes that mobile technology can be used to help rural entrepreneurs overcome some of the challenges they face.  In particular, it is argued that organizations such as CSIR should work to develop a web-based interface that can be placed on most mobile phones.  This interface would serve small businesses looking to more easily purchase or sell goods – e.g. by making available an online mobile product catalogue that then allows retailers to place orders over the phone, by providing order tracking and invoicing options, and my making available an “e-wallet” system that allows for mobile-based payments.  Ideally, the creation of this interface would allow for orders to be placed and received in real-time, and this would prevent entrepreneurs from having to bear the transportation and other types of transaction costs that are usually required simply to procure basic goods and services.  The paper cautions that the input of a wide-range of stakeholders – CSIR, universities, the private sector, government, etc. will be necessary if this interface is to be established; a level of coordination that has often been lacking in technology-based endeavours.    

Njiro, Esther and Thami Mazwai. “Situational Analysis of Township Small Businesses and Enterprises in Gauteng Province, South Africa.” University of Johannesburg Centre for Small Business Development, Conference Paper (2010). Electronic.

This conference paper, written by a researcher associated with the South African Council for Scientific and Industrial Research (CSIR), as well as the Director of the University of Johannesburg’s Centre for Small Business Development, focuses on the importance of promoting entrepreneurial activity in the heart of South Africa’s township communities.  Identifying townships as “dormitories of labour” that fail to benefit either from the labour they produce (which is often utilized outside the community) or the disposable incomes produced by this labour (which tend to be spent outside township areas), the paper argues that both private and public stakeholders should work to create an enterprise sector focused on serving township markets.  Using interviews with 240 small business owners in a number of Gauteng townships, it is contended that large-scale policy interventions may not be necessary to promote the initial growth of township enterprises. 

 

In recent years, the authors claim, small improvements in the provision of basic services such as utilities and improved transport infrastructure, have helped solidify a small but solid base of SMMEs in many Gauteng townships.  This suggests that a continued emphasis on infrastructure development and service delivery, rather than a direct focus on advanced enterprise support programs, may be an effective way to promote at least modest initial SMME growth (with more focused interventions being necessary to grow the SMME sector in a broader fashion, however).  The article does make a familiar claim that poor access to financial services (and low levels of financial literacy) as well as a lack of knowledge of how to pursue sustained marketing activities, are major problems for township enterprises.  It is these factors, alongside improved basic service delivery, that this report claims are the most important issues to tackle.

Noma, Bulelwa. “A Descriptive Analysis of the Differences between Two of the SMME Categories in Relation to Entrepreneurial Orientation, Age, and Levels of Education in South Africa.” University of Pretoria, Gordon Institute of Business Science Research Paper (2008). Electronic.

This article, written by a researcher at the University of Pretoria’s Gordon Institute of Business Science, repeats a theme identified elsewhere in the literature on South African SMMEs: that policymakers and other stakeholders typically fail to differentiate between the needs of different SMME sectors when designing support programs.  Like Kesper (2000) noted earlier in this document, the author distinguishes between “survivalist” and “non-survivalist” SMMEs and, by association, the differences between “necessity entrepreneurship” and “opportunity entrepreneurship”.  Using baseline survey data obtained from interviews with forty-five SMME owner-managers in Gauteng, the article attempts to identify the entrepreneurial characteristics common to the two separate types of entrepreneurship.  Surprisingly, the article finds that both “opportunity” and “necessity” entrepreneurs are willing to take risk (though for different reasons), both show a high propensity to pursue innovation, and both tend to be “pro-active” in attempting to identify markets. 

The primary difference between an “opportunity entrepreneur” and a “necessity entrepreneur”, however, is that the latter will tend to be less educated than the former.  This has implications when it comes to the capabilities of the entrepreneur to gather market information, identify opportunities for financial support, etc. In other words, whereas much of the literature suggests that “survivalist” and “non-survivalist” enterprises are inherently different and should not be targeted with the same types of interventions, this article disagrees and states that the two types of SMMEs are quite similar, with the exception that “necessity entrepreneurs” require more intensive assistance from the state – e.g. in regards to forming business networks.  The article contends that “survivalist” SMMEs can spur growth and they should not, as Kesper (2000) or Ligthelm (2008) suggest, be neglected in favour of targeting policies primarily to self-evidently “dynamic” growth-oriented firms.   

Philip, Kate. “Job Creation through Rural Enterprise Support: A Case Study of Mineworkers Development Agency.” University of Manchester, School of Environment and Development, Research Report (2007). Electronic.

This research report, drafted by the Chief Executive Officer of the Mineworkers Development Agency, tackles the issue of business development services, and particularly how these services can be provided on the scale necessary to reduce costs for rural entrepreneurs.  Recognizing that business support services in rural South Africa are (and have always been) weak and focused mainly on the co-operative model, the author presents a case study of the Mineworkers Development Agency’s own Business Supply Stores.  These bodies, the author claims, could serve as a model for similar service provision elsewhere in South Africa because instead of focusing on helping entrepreneurs through the development of particular supply-driven projects, Business Supply Stores are focused solely on the provision of demand-led services.  The paper describes the nature of these services, which range from partially-subsidized basic business training, practical training, and counselling, as well as services related to product development and marketing support, to “economic services” that include the provision of bulk raw materials, and the provision of rented facilities or inputs.

The key to the Business Supply Store model finding some degree of success has been its insistence that fees be paid to access the highest level of its services (the “economic services”).  It is only by charging such fees that organizations offering business development support can grow, expand their operations, and achieve economies of scale that boost efficiency and reduce costs.  By operating as subsidized entities, however, business development service providers often fail to achieve adequate scale and become unsustainable over the long-term.  The author presents the Business Supply Stores model as an initiative with the potential to be replicated elsewhere.

Rogerson, Christian M. “Tracking SMME Development in South Africa: Issues of Finance, Training and the Regulatory Environment.” Urban Forum 19.1 (2008): 61-81. Electronic.

This article by Rogerson offers a departure from much of the literature’s consideration of micro-level interventions in favour of SMME development and instead considers the general regulatory environment in place to foster small business growth in South Africa.  Basing conclusions on a series of interviews with small (mainly black) entrepreneurs, the article asserts that a “sub-optimal regulatory environment” exists in South Africa with relation to fostering SMME development.  The legal regulations put in place surrounding issues like labour, property rights, and taxation, are seen by entrepreneurs as being too vague or, if they are clear, they are viewed as onerous and as likely to force firms to incur extra costs.  Like the paper by Berry et al. noted earlier, this article points to inflexible labour regulations and the resulting high costs of labour, as being a key regulatory constraint on the growth of small businesses across different sectors.  The regulatory environment, it is argued, seeks to apply uniform sets of standards to the SMME sector as a whole without recognizing: a) that there are sharp differences in needs and capabilities between firms in different economic areas; and b) that firms’ capacities to adhere to certain regulations will differ depending on whether they are start-up operations or whether they are well-established enterprises.  By adopting a blanket set of regulations for SMMEs, however, the South African government has not recognized these differences and the state’s laws often make it difficult for SMMEs to emerge as strong and viable institutions.   

Also, the article puts forward an argument found elsewhere in the literature suggesting that when entrepreneurs are provided training in how to deal with regulatory issues, this training is often given in a manner more appropriate for large established enterprises.  For small entrepreneurs, particularly those without a great deal of formal education, the article suggests that training programs are often poorly planned and fail to provide SMME owner-managers with the skill sets they need to overcome regulatory challenges.

Rogerson, Christian M. “Small Enterprise Development in South Africa’s Lagging Regions: The Case of Mpumalanga Province.” Urban Forum 18.1 (2007): 60-93. Electronic.

Rogerson’s 2007 article builds on a theme explored by the author in other articles (see the next entry in this document): namely, the development of SMMEs in isolated peripheral parts of South Africa.  The author uses data obtained from interviews with over thirty Mpumalanga entrepreneurs to explore the factors constraining SMME growth in this province.  It is argued that a seemingly contradictory problem of high labour costs and the poor quality of worker skills are primary factors constraining small enterprise growth.  This is a theme noted elsewhere in this document such as with Berry et al. (2002) and Rogerson (2005).  The existence of what the author calls a “fragmented and uncoordinated” skills development process is another growth-inhibiting barrier.  In particular, the article asserts that because rural areas are not seen as having much growth potential, skills programs tend only to teach home-based basic skills like sewing and horticulture while failing to pass on the types of managerial-style training that such programs typically provide in urban areas.  By failing to recognize any growth potential in rural-based SMMEs, the article contends that these small firms are being unfairly relegated to a position of unimportance within the national policy framework. 

 

In addition, the article notes that when SMMEs have grown in rural districts in Mpumalanga, it has generally been on the back of much broader development efforts such as the Maputo Spatial Development Initiative.  Even here, however, the author cautions that while large-scale development projects can spur SMME growth in rural areas – particularly through the targeted use of public procurement – sustained growth amongst manufacturing SMMEs tends to encourage enterprise clustering.  While the author views this clustering as a positive development, it has the consequence of encouraging many rural SMMEs to migrate closer to urban centres, thus leaving rural markets largely underserved.  The article offers no real policy options to address this issue other than to state that more targeted efforts are needed (likely through procurement) to make rural SMMEs sustainable over the long-term.   

Rogerson, Christian M. “SMME Development in Peripheral Regions: Manufacturing in Free State Province, South Africa.” Urban Forum 16.1 (2005): 35-54. Electronic.

Rogerson’s article, not unlike the article put forward by Ladzani and Netswera (2009) noted earlier, focuses on SMME development outside of South Africa’s key urban centres.  Focusing on the Free State and using interview data with over thirty low-income entrepreneurs as a guide, the article contends that the SMME support measures put in place by both private and public sector interests struggle to work with enterprises engaged in the informal economy – despite the fact that the majority of SMMEs in South Africa are in fact operating outside of “mainstream” economic structures.  An inability to recognize the particular needs and challenges of informal enterprises is a particular problem when it comes to SMMEs operating in peripheral regions such as rural Free State.  Indeed, issues such as market development and supplier contracting are much more difficult for isolated informal enterprises to deal with and yet state business support programs tend not to recognize this fact.

For informal manufacturing SMMEs, challenges of market development are identified as being a vital, yet under-explored, area of policy consideration.  With the rural-urban migration characteristic of South Africa unlikely to end soon, the article states that rural SMMEs are rapidly losing their access to both ready consumer and supplier markets.  As such, they are forced to secure markets further away (e.g. Free State manufacturers often have to utilize suppliers in Gauteng) and this adds extra costs that may make isolated rural enterprises unsustainable.  For these reasons, the article contentiously claims that isolated rural SMMEs are unlikely to survive without receiving regular targeted state interventions – likely revolving around the provision of guaranteed contracts through public procurement. 

Rogerson, Christian M. “Johannesburg: Pro-Poor Growth through Support of the SMME Economy.” Case Study prepared for the World Bank-Netherlands Partnership Program Evaluating and Disseminating Experiences in Local Economic Development (LED) (2005).

This case study prepared by Rogerson provides an examination of the Johannesburg 2030 Local Economic Development (LED) initiative and comments on the likely impact of this project on SMME growth.  The case study makes few points that are not provided in more detail in Rogerson’s other articles noted in this document.  Similar to Rogerson (2000) noted below, this case study strongly advocates the concept of SMMEs choosing to form clusters within small geographic areas so that they can access customer and supplier networks as well as skilled and unskilled labour more readily.  The case study suggests that political action, such as municipal government planning projects (e.g. in transportation) can directly encourage SMMEs to cluster in given areas; something that the Johannesburg City Council has (rightly in this paper’s view) chosen to vigorously pursue.

Rogerson, Christian M. “Unpacking Tourism SMMEs in South Africa: Structure, Support Needs and Policy Response.” Development Southern Africa 22.5 (2005): 623-642. Electronic.

This 2005 article by one of the foremost experts in SMME policy in South Africa, adopts a generalized perspective in trying to understand the barriers to growth amongst South African tourism small enterprises.  Besides failing to adequately distinguish between those tourism enterprises that have legitimate opportunities for dynamic growth and those that have been formed merely as “survivalist” initiatives by low-income entrepreneurs, the South African government has failed to recognize that tourism entrepreneurs from “previously disadvantaged” backgrounds are in need of types of assistance that differ greatly from the assistance required by the mainstream tourism SMME sector.  While seemingly an obvious argument, the article contends that tourism SMMEs operate in a highly concentrated sector in which large firms and long-established “lifestyle” small businesses have come to develop market dominance.  For emerging black-owned tourism SMMEs to be successful, particular types of state assistance are required that have so far not been forthcoming.

The article sharply criticizes the failure of government-led tourism SMME training programs to offer low-income entrepreneurs formal training on tourism marketing.  Because the mainstream tourism sector is seen by the state as having in place a strong marketing regime, there is an assumption that black tourism entrepreneurs can piggyback on this regime rather than engage in their own types of unique marketing.  This, the author claims, underestimates the challenges faced by emerging SMMEs located in isolated and/or impoverished areas (such as townships) who face a host of challenges in selling their services.  The author suggests that policy initiatives geared towards the tourism sector need to be more cognizant of the different circumstances facing various types of entrepreneurs and a blanket approach to tourism SMME training should be discarded as soon as possible.

Rogerson, Christian M. “Growing the SMME Manufacturing Economy of South Africa: Evidence from Gauteng Province.” Journal of Contemporary African Studies 19.2 (2001): 267-291. Electronic.

Rogerson’s 2001 article on the Gauteng SMME manufacturing sector uses interviews with one hundred thirty-two enterprises in and around Johannesburg to comment on some of the key challenges facing emerging small firms.  The article repeats a number of the key points made within the wider literature – that successful SMMEs must be able to capitalize on “agglomeration externalities”, that SMMEs struggle to meet product quality standards comparable to larger firms, and that the business linkages between SMMEs and larger firms (e.g. in an out-sourcing relationships) are often fluid and fail to be sustained.  The article identifies a key challenge for manufacturing SMMEs when it comes to their capacity to replace outdated or poorly operating equipment.  As such, it is suggested that more work needs to be done by private and public sector stakeholders to assist manufacturing SMMEs identify reliable and cost-effective supplier networks.

Despite all of the problems that conspire to inhibit the growth of manufacturing SMMEs in Gauteng, the article strongly argues that government and non-government-provided SMME training sessions could go a long way towards providing SMME employees with a better awareness about how to address some of these problems and pursue innovation.  However, the article criticizes the propensity of SMME training initiatives to focus solely on the training of managerial staff.  The training of administrative and technical staff, as well as other human capital in non-managerial positions, is equally important if SMMEs are to maximize their potential for growth.  This rather modest call for broader-based training is the main policy recommendation put forward in this article – though it is not stated who should be responsible for providing (and paying for) this training.

Rogerson, Christian M. “Successful SMEs in South Africa: The Case of Clothing Producers in the Witwatersrand.” Development Southern Africa 17.5 (2000): 687-716. Electronic.

The article, written by an economic geographer based jointly at the University of Johannesburg and the University of the Witwatersrand, uses qualitative survey data to explore the determinants of successful small and medium enterprise (SME) development in South Africa’s urban centres.  Focusing specifically on Johannesburg-based clothing producers, the article argues that a key determinant of SME success is the issue of firm location – and particularly whether a firm can benefit from the “agglomeration externalities” created by sectoral clustering.  While potentially a dated argument, the author convincingly states that those firms capable of achieving spatial proximity with other firms engaged in similar economic activities are more likely to reap the benefits of technology diffusion and will be able to practice “positive learning” and “imitation” in such a way that they can then adopt the best business practices of growing larger-scale firms. 

The author claims that because of the benefits to be gained from “agglomeration economies”, manufacturing and service-based enterprises are the likeliest SME candidates to experience rapid growth.  From a policy perspective, the article recommends that the South African government take more robust steps to recognize the benefits of clustering by discouraging the growth of home-based SMEs in favour of encouraging SMEs to locate themselves in cluster areas where they will have greater access to customers, sub-contractors, and input suppliers.  A failure to aggressively encourage this clustering, this now eleven year old article claims, played an important role in preventing SMEs from growing as quickly as desired in the post-1994 period.

Sawers, Jill L. et al. “Safeguarding SMEs Dynamic Capabilities in Technology Innovative SME-Large Company Partnerships in South Africa.” Technovation 28 (2008): 171-182. Electronic.

This article, written by a researcher from the University of Pretoria, provides a critical examination of a theme that appears to be somewhat under-explored within the literature: namely, the asymmetrical power dynamics found within the “learning partnerships” formed between South African SMMEs and large national firms.  Using interviews with representatives from firms of different sizes, the author claims that SMMEs will often choose to form partnerships with their larger counterparts in order to accrue technological advantages, an expanded customer base, and general economies of scale.  Many SMMEs, particularly in the manufacturing sector, choose to form these partnerships by offering themselves as sub-contractors to larger firms. 

The author puts forward a sound critique of the one-sided power relationships that often characterize these partnerships.  In particular, it is claimed that SMMEs, which the author says are often in possession of specialized knowledge and entrepreneurial “dynamism”, too often find themselves in the position of having to “give away” this knowledge to their larger-scale partners as a pre-condition for attracting a committed partnership.  Over time, the author argues that small firms lose their competitive niches as their large firm partners co-opt the knowledge they have gained from SMMEs and employ it for their own competitive benefits.  The author somewhat vaguely suggests that these partnerships be subject to greater government scrutiny in the future and that as part of SMME training initiatives, small entrepreneurs be equipped with the knowledge of how to best protect their intellectual property and develop more equal partnerships with large firms.

SBP Business Environment Specialists. “Small Business Development in South Africa: Time to Re-Assess.” SBP Occasional Paper (2009).

This occasional paper, written by a South African consulting firm called SBP Business Environment Specialists, attempts to provide a basic cost-benefit analysis of the South African government’s SMME support policies in the period 1994-2009.  The paper argues that the state’s return on its investment has been poor, primarily because institutions like Khula Enterprise Finance and the Small Enterprise Development Agency (SEDA) have absorbed substantial amounts of state funding (typically in excess of R500 million per year) without the country having seen substantial growth in SMME start-ups.  One of the main problems with the government’s efforts, as also claimed by other writers noted in this document, is that the state has often failed to distinguish between “survivalist” enterprises with few growth prospects and more dynamics firms that could grow if given the right types of targeted support.  Because the state has not adequately distinguished between these types of enterprises, this paper claims that a great deal of wasted money and time has been directed towards assisting enterprises that are unlikely to contribute much to the South African economy over the long-term.

The paper makes a more damning critique in claiming that the South African government has largely failed as a service provider to SMMEs.  The over-bureaucratic nature of these programs is credited by the authors of this paper as being a major reason why the state, if it is to truly serve SMMEs, must transition away from being a service provider to solely being a service “facilitator”.  This would involve government actors taking the lead in promoting a culture of entrepreneurship in South Africa, creating an ideal enabling environment for business growth, and helping to form “peer networks” and other types of communication linkages between SMMEs and other actors from whom they could receive positive learning opportunities.

Von Broembsen, Marlese. “Poverty Alleviation beyond the National Small Business Strategy.” IDASA Occasional Paper Series (2003). Print.

This paper, written by a researcher connected to both the Institute for Social Development at the University of the Western Cape as well as South Consulting, argues that South Africa’s approach to fostering SMME growth has not been sufficiently developmental in its approach.  Contrary to writers such as Booyens (2011) and Ligthelm (2008) noted earlier, this author suggests that rather than focus policy interventions on only those SMMEs that show the potential for dynamic growth, South Africa’s approach to SMME development should be focused more on issues of development, gender inclusion, and poverty alleviation.  The paper vigorously argues that the South African government has failed to meet these development-based SMME objectives because of the structural flaws inherent in state SMME assistance programs.  In particular, SMME support organizations tend to be too dispersed geographically and are often not present at all in remote rural areas.  Also, business development services (BDS) provided under the auspices of the National Small Business Strategy (NSBS) are often “generic”, too short, or too technical.  Programs are also designed and implemented in a top-down manner, with few (if any) SMME support programs being designed on the basis of active input from entrepreneurs.

The paper makes the familiar argument that policymakers must be better able to differentiate between the needs of different types of SMMEs and to acknowledge that a supply-driven approach to SMME support training is unlikely to pay dividends.