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SMEs key to SA’s employment problem

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South Africa could meets its employment targets if it was able to utilise the small to medium-sized enterprise (SME) sector to create employment.

This is according to Faith Ngwenya, technical director at the South African Institute of Professional Accountants (SAIPA), in a paper presented to The Clute Institute’s International Academic Conference held in Bangkok.

However, she concludes, educating and empowering the sector demands much more than just pumping millions of rands into incentive and other schemes.

Ngwenya makes the point that about 61% of those who are employed work for an SME, while SMEs provides between 52% and 57% of the country’s gross domestic product. These are particularly impressive statistics when one considers that of the 5,98-million SMEs registered with the Companies and Intellectual Property Commission (CIPC), 67% are one-person businesses and don’t create any employment at all.

“If 33% of the existing SMEs make such a huge contribution to our economy, imagine what the effect would be if we could grow the sector even by a relatively small percentage each year,” Ngwenya observes.

Government has recognised that SMEs offer the best opportunity to turn back the tide of unemployment that is swamping the country, and is making large sums of money available to it: R9-billion for the Jobs Fund, R10-billion for the Industrial Development Corporation and R20-billion in tax allowances and breaks for the manufacturing sector. All of this in addition to the funding provided by the Small Enterprise Development Agency (SEDA), Khula Enterprise Finance, and Export Marketing & Investment Assistance, among others. The aim is to create 5-million jobs by 2020.

The fact that scant progress is being made is thus not lack of money. Rather, Ngwenya says, entrepreneurs typically lack the knowledge to run a business

“Identifying their problems and then providing appropriate training should be a priority,” Ngwenya reasons. “The economy is highly competitive and good managerial skills are vital. SAIPA members, the country’s growing cadre of professional accountants, are in fact positioned to play a key role in providing SMEs with just these skills.”

Ngwenya’s research pinpoints some of the major causes of SME failure – and thus areas where help is needed. They include lack of management, financial, marketing and human resources skills. Contributing factors, it seems, are a limited culture of family businesses, failure to control business growth and overemphasis on financial reward.

In general, researchers have found that SMEs are bad at setting strategic goals, unwilling to adapt to change and, perhaps most telling of all, reluctant to seek advice, she says.

“Many SMEs don’t access government funding because they simply are ill-informed,” Ngwenya says. “But more than money, what they need is training and mentoring to make them sustainable over the long term.”

The paper received a prestigious Best in Session award, based on input from faculty and conference chairpersons. It forms part of a broader project in which Ngwenya will be identifying a framework for measuring SME success.