Programme Director;
His Worship, the Mayor of EThekwini Municipality, Cllr James Nxumalo;
Distinguished International delegates;
Esteemed Councillors present;
Representatives of all social partner formations;
Economic Development Practitioners from all spheres;
Business leaders and entrepreneurs;
Ladies and gentlemen;
All protocol observed
On behalf of the government of the province of KwaZulu-Natal and the people of our province, we wish to extend a warm welcome to all the delegates attending this August occasion. Indeed, it is an honour for us as the provincial government of KwaZulu-Natal to host the 19th International conference on SME organised by the World Association for Small and Medium Enterprises.
Having hosted a number of other international conferences and summits as the Province of KwaZulu-Natal, including the BRICS Summit and COP17 conference, in recent times, we are confident that delegates to this particular conference will sample our world-famous hospitality and the warmth of our people.
Programme Director, the theme of this 19th edition of the International conference on SME, namely: ‘’Beyond the Downturn: Revitalising the Global Economy through Small and Medium Enterprises’’ could not have come at a better time for the global economy and, in particular, the role of small and medium enterprises in the recovery and sustainable growth of the global economy. We have no doubt that the deliberations in this conference will contribute towards taking the world economy into a new growth trajectory.
Before we share a few ideas with this conference, we feel it is apt, on behalf of the province of KwaZulu-Natal, to acknowledge that the World Association for Small and Medium Enterprises’ (WASME) annual International conference on Small and Medium Enterprise development (ICSME) has become a prestigious annual event, which brings together, under one roof, business support organizations, policy makers, financial institutions, international experts, academics and entrepreneurs ,together with other international and multi-national Aid Agencies, on small business development issues.
Our government is honoured to be associated with such a prestigious event.Our delegates from outside the borders of South Africa would have noticed that we use the terms SME and SMME interchangeably. This is not a contradiction as our construct, here in South Africa and based on our history of inequality, we added micro enterprises as one ofthe focal points of our economic transformation agenda. Therefore, I plead with esteemed delegates not be confused by SMME or SME. In essence, the subject matter is the same.
At this juncture, Programme Director, we wish to share our understanding of the SMME sector which also influences our approach to the development of this sector. According to the Edinburgh Group which is a coalition of 14 accountancy bodies from across the world representing about a million professional accountants in countries from Africa, North America, Asia, Australia, Europe and Latin America:
“Small and medium-sized enterprises (SMEs) play an important role in the world economy and contribute substantially to income, output and employment. However, the recent global financial crisis created a particularly tough climate for SMEs, with a reduction in demand for goods and services and a contraction in lending by banks and other financial institutions.
In every region, SMEs make a huge contribution to gross domestic product (GDP) and employment. Obviously, SMEs also experienced new challenges as a result of the global financial crisis of 2008. Findings are mixed as to how effectively businesses have recovered from the crisis and coped with recessionary climates, but access to finance has been a problem for many.
It is estimated that more than 95% of enterprises across the world are SMEs accounting for approximately 60% of private sector employment. Japan has the highest proportion of SMEs among the industrialised countries, accounting for more than 99% of total enterprises.India, according to its Ministry of Micro, Small and Medium Enterprises, had 13 million SMEs in 2008, equivalent to 80% of all the country’s businesses.
In South Africa, it is estimated that 91% of the formal business entities are SMEs. Estimated data for the 27 countries in the European Union (the EU-27) for 2012 also illustrate the importance of SMEs.They account for 99.8% of all enterprises; employ 67% of all workers and contribute 58% of gross value added (GVA) defined as the value of their outputs less the value of intermediate consumption and an important factor in GDP.
The contribution made by SMEs does vary widely between countries and regions. Nevertheless, although they play particularly key roles in high-income countries, SMEs are also important to low-income countries, making significant contributions to both GDP and employment.
They are also major contributors to innovation in many economies, partly through collaboration with the larger corporate sector. SMEs that become embedded in the supply chains of larger businesses can be spurred on to improve their own human and technological capital, thus improving their own productivity and performance.
Programme Director, the tumultuous economic times in which we live, where we continue to witness once perceived global economic powerhouses rapidly losing momentum, dictate that those with an entrepreneurial flair are properly guided and assisted in order to take advantage of the opportunities that have appeared as a result of the shifting global economic trends.
The quagmire of the global economic meltdown that visited upon the world some few years ago brought with it the need to create a strong SMME sector, one that is capable of creating jobs and contributing to the economy. The small business sector has an important role to play in the development and growth of the economy.
The recent economic indicators reveal that at least 30% of gross domestic product is derived through SMMEs’ economic contribution. In our case and given our past, government is driving the economic transformation of our country as a critical pillar for the creation of an equal society. As such, business development and especially, small enterprise development lies at the core of the governments’ agenda to address the triple challenges of poverty, inequality and unemployment.
We are encouraged by active participation of other sectors of the society and the private sector as they join us in our efforts to transform the economic landscape of our country and province. Nationally, our government contributed to the signing of an agreement between the China Development Bank and our Industrial Development Corporation to access $100 million US for small business lending at favourable terms.
Furthermore, a cooperation agreement was signed between the National Department of Economic Development and the South African Institute of Chartered Accountants to train 100 Accountants. These accountants, will, in turn support small businesses and establish a Business Hub to provide technical assistance to small and medium enterprises.
In his 2013 budget speech, the Minister of Finance, the Hon Pravin Gordhan, announced further tax relief for small businesses, including an increase in the monetary tax thresholds applicable for small business corporations.
However, Programme Director, we hypothesise that whilst vitally important, funding alone is neither the proverbial silver bullet nor the sole ingredient that it is often made out to be when it comes to nurturing and growing the SMME sector. We hold steadfast to the view that funding interventions need to be complemented by robust business support interventions, with a strong education focus that provides SMMEs with training, relevant information and indeed networking opportunities.
The approach of our government is not to merely throw money at SMMEs and thereafter leave them in the lurch; without the necessary training and support – hoping that they will make it on their own. Rather, we seek to create a new breed of entrepreneur one bent on acquiring skills that will help them improve and grow their business and, more importantly, one that will create jobs and contribute to the economy of our province.
Programme Director, in order to give physical expression to our commitment towards supporting SMMEs, in the year 2011 the Executive Council of KwaZulu-Natal took a Cabinet Resolution that 85% of our procurement spend would be directed at SMMEs and Cooperatives starting from year 2012.
However, we were advised that our resolution conflicted with the preferential procurement policy framework act and therefore the Province could not implement it. Provincial Treasury is currently revising its Provincial SCM Policy Framework. A resolution was therefore taken that the 85% preferential procurement resolution be incorporated into the Provincial SCM Policy Framework.
These and other initiatives are but practical examples of the work that the state has done to support SMME development in our province. However, we are under no illusion that SMMEs can only thrive at the back of government support only. Indeed, private sector engagement and as well as participation are critical in our drive to support business development.
Already, Programme Director, our province has some creative partnership programmes with the private sector, all aimed at growing and sustaining the SMME sector.
For example, the KwaZulu-Natal Department of Economic Development and Tourism has funding agreements with several leading financial institutions such as Ithala Development Finance Corporation, ABSA and Standard Bank of South Africa aimed at facilitating access to finance by SMMEs and capturing those business loan applications that though viable, and the financial institution would have funded, but may not do so due to for example lack of collateral own contribution by emerging enterprises and in some cases credit records.
The rationale behind the funds is that viable business ideas and proposals must not be lost due to, for example, historical reasons that the Previously Disadvantaged Individuals have no collateral to offer as the assets they own carry less value because they are, for example, in the townships or rural areas. In the case of the two banks (ABSA and Standard Bank), the department entered into Risk Sharing Agreements.
For ABSA, a fund of R50 million was created after each party contributed R25 million each. In the case of Standard Bank, each party contributed R30 million to create a R60 million fund. The result of the above is that each part shares 50% of the risk of the outstanding balance should a funded small enterprise fails. To date 116 small businesses have benefited from these funds by a total amount of R83 425 760 financed through ABSA and Standard Bank only.
Programme Director, one of the major challenges facing prospective SMMEs is lack of access to funding as we all know. In the case of the Province of KwaZulu-Natal, for example, the uptake of the R180 million SMME Fund has not been as successful initiative as envisaged mainly due to:
- The poor state of readiness of applications and applicants,
- A gap that exists between financial institutions on the one hand and the Business Support practitioners on the other hand,
- The above results further lead to frustrations to the (often unprepared) small business loan applicants,
- The department therefore spends a lot of time guiding applicants towards a state of readiness/preparedness rather than the role of facilitating small enterprise finance.
In seeking solutions to these challenges we consulted widely towards the development of a training programme that will try to bridge this gap and create a pool of better prepared applicants prior to them approaching a financial institution. Financial institutions and Business Support organizations that were consulted contributed to the creation of the programme and they support it by conducting presentations during the training.
For instance the banks will highlight their criteria for funding and how they assess a business proposal for loan funding. SEDEA KZN was appointed a Service Provider as it is mandated to provide non-financial support to small enterprises.
The other reason SEDE KZN was utilized was that the Department did not want to duplicate and encroach into SEDA’s space. The training programme is aimed at both co-operatives and SMMEs. It is our vision that in future, the pre finance training programme be mandatory prior to accessing the loan funding facilitated by the department.
The small enterprise Pre-finance business support programme is available to prospective applicants of the KZN SMME Fund of which Standard bank of South Africa, ABSA and our own entity, Ithala are partners to the Fund.
Since the 2011/2012 financial year when the programme was initiated, the department has invested a total of R5 479 521 resulting in 960 prospective small enterprises being trained. About 436 prospective small enterprises are targeted to undergo this training in the current financial year.
Programme Director, the soon to be launched KwaZulu-Natal Small Business Development Agency provides further proof of KwaZulu-Natal’s seriousness about extending a helping hand to emergent entrepreneurs. In the coming months, we shall have established this agency which will be responsible for coordinating and providing integrated business support to SMMEs in the province.
Yet again, the establishment of the KZN Small Business Development Agency recognizes that the success of small enterprises is premised on a holistic, integrated and coherent business support system and value chain which will significantly reduce transactional costs for the entrepreneur
Programme Director and esteemed delegates, the material conditions from which we have to build and nurture SMMEs are different owing to the fact that we come from different parts of the world, with economies at different levels of maturity.
Notwithstanding this fact, the fundamental issue that SMEs are the bedrock of future sustainable, global economic growth is the same. We should therefore utilize this conference therefore to share best practices and improve our respective approaches to SMME growth in our respective countries. This we should do, understanding that the very future of the economy of the world lies with this sector.
The next few days of this conference may not make headlines on international news networks, but the outcome of this conference will determine the future world with respect to socio-economic conditions our nations have to create using stainable small scale businesses as a key instrument. Let us apply our minds diligently; engage robustly and chart a new way forward for the global economy.
I thank you.
