Speech by the Minister of Small Business Development, Ms Lindiwe Zulu, at Occasion of Sacci’s Annual Convention
Programme Director,
All Ministers present,
The leadership of SACCI,
Captains of industries,
Distinguished guests,
Ladies and gentlemen
It is indeed a great privilege and honour for me to address this important gathering. It is my fervent wish that at the end of this year’s Convention, you must all be able to respond to the fundamental question: What is it that we must do today to promote economic inclusion and urgently defeat the triple challenges of poverty, unemployment and inequality?
The South African Chamber of Commerce and Industry’s Annual Convention gives us an excellent opportunity to reflect on the road we have traversed towards building a future that is qualitatively better than our ugly past. This gathering also draws significance from the fact that it will contribute to the task of exposing empowerment opportunities offered by government, big business and parastatals.
As partners in the radical economic transformation of our society, we must continue to prioritize job creation and poverty eradication. This we must do, because joblessness and poverty constitute the obstinate remnants of the apartheid legacy we all seek to undo.
Together, we must do whatever it takes to promote access to economic opportunities for all historically marginalised people of our country in order to give practical meaning to the pledge we made during our struggle for liberation that we will never consider our mission complete and our liberation achieved, if the people of our country are still not freed from economic exclusion and deprivation.
Twenty years since our freedom, the participation of black people in the country’s economy is still less than adequate. This must worry all South Africans of goodwill. As government and the African National Congress, we have made a commitment to set the country on a path of radical economic and social transformation in order to accelerate our onslaught on the triple challenge of poverty, inequality and unemployment.
Through our targeted interventions, we will be able to unlock economic opportunities and thus achieve inclusive economic growth and sustainable employment, particularly for women, youth and people with people with disabilities.
As partners, we now have an opportunity to move with speed on the critical question of de-racializing the economy and opening up opportunities for women, youth and people living with disabilities. The time is now for us to intensify our efforts aimed at broadening participation in the economic mainstream of our country.
The Ministry of Small Business Development, which I have the honour and privilege of leading, was established as part of our recognition of the important role this sector plays in contributing to the social and economic development of the country. In fullfilling our mandate, we will seek to promote a co-ordinated and integrated support across government spheres and institutions for SMMEs. Government has a duty to create an enabling environment where businesses develop, grow and become profitable, resulting in expansions, exports and job creation.
Programme Director, our agenda is clear: We want to see enhanced support to Small Businesses and Cooperatives with an emphasis on programmes that will advance entrepreneurship and innovation amongst South Africans.
In order to overcome poverty, unemployment and inequality as outlined in the National Development Plan, my department will implement support mechanisms that include access to finance, business skills development, market access, competitiveness, easing regulatory environment, advancing localisation, leveraging on public and private sector procurement.
SMMEs contribute enormously to economic growth and job creation.
A healthy SMME sector has the potential to make a massive contribution to the economy by creating more employment opportunities and generating higher production volumes. In 2007, the contribution of SMMEs to GDP was 35%. Targets for future contributions to GDP range from 60% to 80% over the next 10 to 15 years. SMMEs have the potential to increase exports and introduce innovation and entrepreneurship skills.
The performance of the manufacturing sector in South Africa and its impact and importance for SMMEs, particularly for job creation is crucial. Key focus areas where SMMES contribute to the economy include: ‘green’ and energy-saving industries, agro-processing (linked to food security and food pricing imperatives), clothing, textiles, footwear and leather, bio fuels, forestry, paper, pulp and furniture, cultural industries and tourism. As a department, we are already designing support measures for the creative and cultural industries including music, broadcasting, arts and crafts.
The entrepreneurial climate in South Africa is dire, with fewer locals taking the risk of starting a business, or even thinking about doing so. Early stage entrepreneurial activity took a 20% knock in one year, dropping to 7.3% in 2012. The Global Entrepreneurship Monitor (GEM) 2012 annual survey highlights that entrepreneurship levels in the country are the lowest they have been in three years. Entrepreneurial activity is an important indicator of the future of SMMEs, since the small business owners of tomorrow are today’s entrepreneurs.
The report said the after effects of the World Cup have all but blown over as entrepreneurial activity is at its lowest levels since the build-up to the 2010 spectacle. In 2010, South Africa recorded total early stage entrepreneurial activity (TEA) of 8.9% which rose to 9.1% the following year. Looking at the prevalence of business start-ups within the population and using TEA as an indicator of early-stage entrepreneurial activity, the GEM paints a bleak picture for South Africa.
Less that 14% of South Africans plan to start a business in the following three years. This is 13% below the global average of efficiency-driven
economies category that South Africa falls into. Other countries that fall into the category include Malaysia, Argentina, Mexico and South Africa’s BRICS partners Russia and Brazil.
As a department, we want to make a significant contribution to the entrepreneurship eco-system. We have made contributions to the Human Resource Development Council’s work on entrepreneurship which would see primary and high schools receiving enterprise education as part of the curriculum. We are rolling out Centres for Entrepreneurship at Technical and Vocational Training and Education Colleges. We are enhancing entrepreneurial skills of students and community members in partnership with universities.
In Africa as well as in other less developed countries, SMMEs (and micro enterprises in particular which constitute their majority) have received mounting attention because of their labour absorptive capacity in times of both a shrinking public sector and private formal economy, and increasing numbers of new labour entrants.
In Africa, several African governments have developed entrepreneurial skills development programs in order to solve youth unemployment problem and ensure economic growth. In the case of Kenya for instance, the Government has created both a youth entrepreneurship fund and a female entrepreneurship fund with the belief that this will stimulate the creation of new business enterprises by Kenyan entrepreneurs.
Besides financial help, there is the need to invest in entrepreneurship education and training programs. It is argued that there could be more entrepreneurial opportunities in developing countries than in developed
countries which have not been tapped, hence the need for entrepreneurship education and training in many African countries.
The latest international measures find that while South Africa – the breadbasket of Africa – is a great place to start a business, it is lagging behind most of the world in early stage entrepreneurial activity. Ironically, it is exactly this activity that is the answer to many of the country’s socio-economic woes.
Small, medium and micro enterprise (SMME) development in South Africa is crucial to the alleviation of poverty and the huge unemployment challenge, especially amongst the youth. But according to GEM report of 2013, young people in South Africa are also falling behind. Compared with ten other sub-Saharan countries, including Ghana, Nigeria and Angola, only 39% of South African youth feel that there are entrepreneurial opportunities. This is contrasts with 70% of the other African countries.
Young people also scored low on their perceived capabilities to start a business. The pool of South African youth entrepreneurs is also 40% lower than the Sub-Saharan average of 60%. The latest Global Entrepreneurship Monitor (GEM) 2013 Global report, which revealed that Sub-Saharan Africa has the highest Total Early-stage Entrepreneurial Activity (TEA) rates globally.
Leading these figures are Zambia and Nigeria with 39.9% of the adult population involved in early-stage population activity, while South Africa, only has a TEA rate of 10.6%. However, although countries, such as Nigeria, have become a hub for investment opportunities, South Africa
remains Africa’s gateway to sustainable business and investment opportunities, due to the country’s infrastructure and economic structure.
Ultimately, factors such as investment in infrastructure, access to investment capital and investor security, play a vital role in the success of a business. While the rest of Africa is home to many growing and successful entrepreneurs, more developed and established business owners are prevalent in South Africa, due to the country’s developed infrastructure, investor security, as well as the established and successful international and local trade relationships.
The regulatory environment need focused attention. According to the World Bank, it takes an average of 19 days to register a new firm in South Africa, which is roughly a week longer than it takes in higher- income countries, but 10 days less than countries in Sub-Saharan Africa. My department has committed itself to cut the red tape that suffocates SMMEs.
We will work hard, in conjunction with Departments of Education of Basic and Higher Education, Technical and Vocational Training and Education Colleges, Universities, all Sector Education and Training Authorities (SETAs) and other key stakeholders, to build a nation of entrepreneurs and to ensure the success and sustenance of small businesses.
As we seek to find effective ways of building a thriving SMME sector, we must also confront unpalatable truths. The economy we inherited in 1994 was built on the deliberate exclusion of black people from opportunities in the labour market and direct ownership of businesses
and land. Limited investment in infrastructure and services in black communities, and black entrepreneurs added to these structural inequalities because they were also denied access to credit and industrial and retail sites, thus small business development opportunities. This resulted on the one hand in inadequate market infrastructure to support emerging producers, and on the other, a widespread lack of experience in starting and running enterprises.
Despite the socio-economic progress of the last 20 years, there are several structural features that constrain our ability to address these challenges. The structure of ownership and control established over centuries of colonialism and apartheid remains in place. Most sectors are dominated by a few large monopoly producers. The majority of households from where many small entrepreneurs come from, lack financial and productive assets. The legacy of an inherited inequality in education and skills development means that our country continues to struggle to produce the capabilities needed for a modern and diversified economy.
The poor quality of education available to many black students has limited their self-employment and entrepreneurial opportunities and thus impeded this country’s progress in transforming the economy. Successful black small businesses and enterprises will require broader access to financial services to fund growth in existing and new sectors.
Through our development finance institutions, we will provide increased access to affordable lending that supports diversification of the economy, broad-based black economic empowerment and investment in smaller businesses in the productive economy.
As the South African Chamber of Commerce and Industry (SACCI) has so clearly articulated, central to the task of economic transformation is the need to rebuild the inclusive industrial economy – and, as part of that process, to develop black entrepreneurs. The private sector accounts for 70% of production and provides 70% of jobs, but is not investing sufficiently to drive higher and inclusive growth.
Radical economic transformation must ensure faster, inclusive growth combined with much higher levels of (self) employment creation, reduced inequality and the de-racialization of the economy. A critical part of this programme is serious attention to small business development that will be able to, through innovation, take advantage of both private and public sectors’ broad-based procurement opportunities.
Government has set an ambitious target to buy at least 75% of goods and services from South African producers. We must speedily create business support services which will enable black producers to fully take advantage of these opportunities and deliver on volumes and quality specifications.
Together we will work hard to create an environment that supports regulatory efficiency in areas such company registration, tax compliance, access to municipal services etc. Together, we will improve consistency in legislation and regulations that affect business – and small business in particular. The government is currently creating capacity in the Presidency to conduct thorough impact assessments of new and existing legislation and regulations to ensure alignment with the National Development Plan.
We need to change the status of GEM report on South Africa’s low entrepreneurial activity by creating a dynamic and entrepreneurial class of black entrepreneurs. Small business development will not succeed without a more symbiotic relationship between big companies and small suppliers. This partnership needs to be an active agent in the implementation of the National Development Plan. This partnership needs to be a driver in its own right of radical socio-economic change.
We want to see self-initiated black entrepreneurs with good potential when it comes to enterprise creation. However, the country need to raise the skills level of business owners so that firms do not simply stumble along, and that their creative ideas could be turned into job-creating enterprises – and that is the vision that we will pursue.
With the country currently undergoing rapid transformation, business people find it increasingly difficult to operate in isolation and ensure survival. The chamber movement represented by the South African Chamber of Commerce and Industry (SACCI) and its almost 50 constituent chambers is a lifeline for business people. We have taken note of the fact that the SACCI membership comprises approximately 20 000 small, medium and large enterprises across the length and breadth of our nation and across all economic sectors. increasingly, we would like to see established Chambers empowering those based in the townships and rural areas.
Together with move South Africa forward through small businesses and co-operatives
I thank you.
