Enterprise development (ED) refers to initiatives by the public and private sector to help to develop small or medium companies, which are the driving force of the South African economy (along with micro-enterprises). ED helps entrepreneurs to develop, scale and improve these businesses, which stimulates the economy and brings about positive social change.
In South Africa, the Broad-Based Black Economic Empowerment codes of good practice support and promote small businesses, and corporates are required to invest at least 3% of Net Profit After Tax towards the development of transformed businesses. Enterprise development (ED) is one of the priority elements of the Broad-Based Black Economic Empowerment (B-BBEE) Scorecard, along with supplier development (SD). This makes ED a business-to-black-business transaction, with ED beneficiaries at least 51% black-owned. The difference between ED and SD is that SD contributions are made to companies that are already part of the contributor’s supplier chain – the ED recipient could, however, become part of the supplier chain in the future.
ED contributions can be financial or non-financial – for example, corporates could assist entrepreneurs with training and mentorship, legal support, HR support, customer management, counselling, and assistance with a business strategy.
Enterprise development is considered one of the strategic roadmaps to overcoming the triple challenge of poverty, inequality, and persistently low unemployment in South Africa.
Prior to the pandemic, the country was working towards the National Development Plan’s (NDP) goal of creating 11 million new jobs by 2030. The NDP envisages that small businesses will create 90% of new employment opportunities and contribute between 60-80% of GDP by 2030. To achieve this goal, GDP growth would need to increase by 5% a year. However, in the wake of the pandemic, the International Monetary Fund has revised its GDP growth forecast for South Africa to 3%, 0.5% lower than its previous estimate.
With just over a third of the country’s adult population employed in the second quarter of 2020, and official unemployment for the third quarter at 30.8% (with the unofficial figure much higher), it is clear that drastic action will need to be taken to help the country recover from the pandemic – small businesses have been particularly hard-hit, with close to 43% closing during the first five months. Before Covid-19 reached our shores, it was estimated that there were around 700 000 formal businesses in South Africa, with hundreds of thousands of micro and small businesses located in the informal sector, according to Jennifer Cohen, Executive for Policy and Advocacy at the Small Business Institute (see page 117 of the Trialogue Business in Society Handbook 2020).
By November 2020, 17% of the workforce was classified as ‘self-employed’ (with less than 42% of those small businesses classified as employers in their own right), with paid employees constituting some 83% of the workforce.
The pandemic has proved a significant setback for entrepreneurship in a country in which 70-80% of small businesses have been failing within the first five years, even without the challenges of Covid-19. With only 15% of start-ups able to go the distance in South Africa, we do not have enough sustainable small businesses to create jobs and contribute to national income, let alone promote innovation, drive social change, and foster community development. ED should be an urgent priority for the public and private sectors – not only to help to create small businesses, but to ensure that those newly formed companies can provide employment, scale when they are ready to do so, and continue to operate in the long term.
Although the South African Government has invested heavily in ED and incubation programmes for entrepreneurs, the country lacks a truly enabling environment for these small businesses, which must contend with tough economic conditions, limited access to finance, poor access to markets, a dearth of skilled staff, and complex regulations. ED can help them to navigate some of these challenges, providing the necessary finance and skills transfer they need to grow and become sustainable.
Collective Value Creation contends that enterprise development in South Africa is different to enterprise development in other parts of the world, largely due to its intention. This online article explains how ED operates within the South African context.
The Allan Gray Orbis Foundation says a stronger entrepreneurial culture can only be fostered through greater collaboration among stakeholders. This emerged from a panel discussion hosted during Global Entrepreneur Week in November 2020.
Business for South Africa (B4SA) ran a campaign to urge corporates to commit to paying their small business suppliers within 30 days. With 98.5% of businesses in the country categorised as ‘small’, this initiative could have a large impact. Almost 40% of small businesses surveyed in April 2020 indicated that they would have survived the lockdowns had they been paid for what they had already delivered to their clients. More than 50 big companies are backing the #PayIn30 initiative.
This article points out that more formal support for social entrepreneurs is needed to allow them to run profitable, sustainable businesses. Many of them have good ideas but no formal training, which hampers their development.
Xero’s December 2020 report, RE:START 2020 – The state of South African small business, looks at the sector over the past five years and indicates six trends that will help to drive its recovery in 2021 and beyond.
This 2019 Mail & Guardian report asserts that any organisation concerned with addressing the devastating South African employment issue should have ED front of mind. It argues that the contribution of small business to employment and GDP is well over 85% in functional economies – something to aspire to if we can bounce back from the Covid-19 pandemic.
This article provides some tips corporates can use to help support struggling small businesses during the pandemic.