“Small business is big business,” Small Business Minister Lindiwe Zulu told the Global Entrepreneurship Congress in Milan last week. According to her spokesperson, she linked high unemployment, poverty and inequality to small business development and the need for “bold and far-sighted interventions”.  

Clearly interventions are needed. After her appointment as minister, Zulu consulted widely across the country and presented worrying statistics. Small businesses have a 37 percent chance of surviving for four years and only a nine percent chance of making it 10 years. In their first year, 70 to 80 percent of small businesses fail. 

“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 percent. Targets for future contributions to GDP range from 60 percent to 80 percent over the next 10 to 15 years. SMMEs have the potential to increase exports and introduce innovation and entrepreneurship skills,” Zulu said at the launch of Start-Up Nations South Africa, an initiative launched with Wits Business School. 

“Our point of departure is that small businesses can be the backbones of any economy and the main driver of economic growth, poverty reduction and job creation. However, the sad reality is that South Africa has one of the lowest rates of entrepreneurship activities in the world.”

According to the Global Entrepreneurship Monitor (GEM) report in 2012, entrepreneurial activity is worryingly low. It said fewer than 14 percent of South Africans plan to start a business in the next three years, 13 percent below the average of SA’s peers like Malaysia, Argentina, Mexico, Russia and Brazil. In one year, early-stage entrepreneurial activity dropped 20 percent to 7.3 percent.

Incubation manager at Awethu Project Gareth Taylor said there were many complications in starting a small business. “The number one issue is obviously cash flow. Cash flow is the life flow of your business and many entrepreneurs don’t have the financial management and cash management experience to manage their finances and they run into issues and their businesses close down.” Funding may be available but accessing it is also an issue as new businesses owners often don’t know how to put a business plan together or have a proven track record. Awethu has a successful incubation programme that offers business training, which helps build a track record and help entrepreneurs access funding.

Normally, small and medium sized businesses contribute between 50 and 60 percent of a country’s GDP and about 50 percent of employment, said Taylor, and Awethu is “trying to solve the problem of the missing middle”.  He said government is helping small business on issues like tax compliance, but labour law issues remain complex and continue to be a challenge, particularly when large strikes have a flow in effect.

Ntothuko Shezi, a young entrepreneur who has “started a few businesses” including a successful mobile car scratch repair company, says a challenge many new small business owners face is ensuring they have a model designed for a customer need. He left a well-paying corporate job to go into panel beating and said people need to look more to creating businesses in artisanal industries.

Shezi employs 28 people and says a key lesson was to learn to be patient. He said there was a disconnect between policy makers and small business owners. “It’s tough as an entrepreneur on the ground in South Africa.”

Shezi is also involved in an initiative that was called Buy Black, which later changed to Project Excellence, promoting another of government’s key aims – supporting local, black-owned enterprises. The project, which aims at linking and informing consumers of black-owned businesses for the goods and services they’re looking for, highlighted how few black businesses there are. “If we can channel that spending, we will be able to really transform the country,” said Shezi.  “We can fix everything thing behind the scenes… If one can have that comfort in South Africa then we will be truly free. Until then this freedom thing will be truly elusive.”

While Zulu has been making promising statements since her ministry was formed, it’s been hard to judge her level of success. She has announced and supported a number of initiatives focusing on giving South Africans the right skills and finances to start successful small businesses. But as Zuma this week pushes black industrialists, he must ensure the state follows through on comments that big business will benefit small, because it’s small business that will solve poverty, unemployment and inequality. DM

Photo: A street trader looks out from his store in Masiphumelele, Cape Town, South Africa 19 June 2012. EPA/NIC BOTHMA