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Context: Enterprise Development in South Africa

Understanding Enterprise Development

Enterprise Development is a new concept to most South African businesses. Your company is rewarded for supporting another business. In terms of BEE the beneficiary has to qualify by being more than 50% black owned or more than 25% black owned provided that the enterprise achieves a BEE Level of six or better.

Support may be given in any way so long as it is quantifiable. This can include, but is not limited to, financial support, time in the form of mentoring and discounts on products or services. Even settling an invoice early can be seen as support as cash-flow is critical to business growth.

Listed support activities that qualify include; grants, investments, loans, guarantees, credit facilities, direct costs incurred supporting beneficiaries, overhead costs incurred supporting beneficiaries, favourable credit terms, mentoring and training.

The purpose of this section of the BEE Scorecard is to encourage the establishment and growth of BEE businesses. The high business failure rates around the world indicate that running a business is one of life’s greatest challenges. Few people are born with the knowledge and people management skills to run a successful business. Most of us have learned from training and observation as to what works and what does not and yet some of the most intelligent people still fail in business.


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Youth Entrepreneurship: The missing link in building the SA economy

“While South Africa is considered an entrepreneurial leader in sub-Saharan Africa, its weakest link in terms of its entrepreneurial ecosystem is start-up skills. This poses the question, what skills can local youth be taught, in order to improve their appetite for entrepreneurship?” 

Statistics South Africa’s Quarterly Labour Force Survey for the first quarter of 2017 showed that youth (ages 15 – 34 years) unemployment rate increased to 38,6%.

Kobus Engelbrecht, spokesperson for the 2017 Entrepreneur of the Year® competition sponsored by Sanlam and BUSINESS/PARTNERS, says that it is becoming increasingly important for entrepreneurship to be built into educational curricula, and related skills to be a key educational focus point for the younger generation.

“The youth are generally associated with start-up businesses – if we are to encourage the roll-out of more start-up businesses in the economy, then we need to equip the youth with the necessary skills to build these small to medium enterprises (SMEs) that are critical in our growth-strapped economy,” says Engelbrecht.

He points to the latest Global Entrepreneurship Monitor (GEM) South Africa report for 2016-2017, which shows that only 37.9% of South Africans perceive that they have the capabilities required to start their own business. “This is a decrease of 7.5% compared to the previous year – another clear indication of the lack of start-up skills present in the local economy,” he says. The same report states that 35% of South Africans (down from the 40,9% reported in the previous year) recognise entrepreneurial opportunities in and around their communities and Engelbrecht says that the weakening economy, as well as lack of start-up skills are both contributing factors to this waning level of confidence.

He encourages both the public and private sector, to look toward their local communities and consider hosting practical entrepreneurial / start-up workshops and seminars - aimed specifically at youth with a keen interest in starting their own businesses.

Engelbrecht explains that in the economic downturn, it is more important than ever to drive home the importance of the role of entrepreneurs in building sustainable economic growth. “We are fast losing pace with other entrepreneurial-driven economies, both globally and on the continent and, from a jobs perspective, we urgently need to course-correct. We can only expect more entrepreneurs to take up this challenge, if we are adequately equipping them to do so,” he concludes."

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The small, medium and micro enterprise sector of South Africa

This report presents a broad statistical overview of the Small, Medium and Micro Enterprises (SMMEs) of South Africa.

"The Department of Trade and Industry (dti) published a comprehensive report on the SMME sector of South Africa in 2008. Since then, the domestic, as well as global economy, changed significantly. The global financial crisis followed in 2008 and 2009, pulling the South African economy into recession. Domestic economic policies changed, interest rates were reduced significantly, a new political administration came to power and much more. All these factors of change impacted on the SMME landscape in South Africa, and we aim to identify those changes and evaluate the current situation. To do this, we used a two pronged approach. Firstly, we summarised some of the key issues from the latest literature on SMMEs. Secondly, we analyse and interpret the latest statistics on small businesses. In the literature study, we first set the scene by summarising the historical background of SMME policy in South Africa. This is followed up by a list of findings and lessons. We found that SMMEs are challenged by access to finance and markets, poor infrastructure, labour laws, crime, skills shortages and inefficient bureaucracy. In order to extract the latest statistical trends, we follow a similar methodology as the dti to estimate the number of SMMEs in South Africa over time. The statistical data should enable the reader and other researchers to take the next step and do an in depth analysis of specific topics on SMMEs.

To present the statistics, we table and graph the two major types of economic indicators that describe SMMEs. Firstly, we used demographic and geographic indicators to identify where SMMEs operate, who owns them, how educated their owners are and in which economic sectors they function. Secondly, we used financial indicators to compare the size of SMEs according to economic sector, their tax, wages, interest and rents paid.

We concluded that there is a significant distinction between the formal and informal sectors. The formal sector tends to be more educated, white, situated in Gauteng and the Western Cape, with a higher income generation. However, most SMMEs are black owned and operate in the informal sector, especially in the more rural provinces.

The main findings are that the growth in the number of SMMEs from 2008 to 2015 was lower than the economic growth rate. However, the contribution of SMMEs to GVA (gross value added) increased over the same period. Most SMMEs still operate in the informal sector. Provinces with larger economies tend to have the largest share of formal SMMEs. Though whites still own the largest portion of formal SMMEs, their share has declined. While the level of education of SMME owners improved during the last seven years, it did not seem to boost the number providing professional services. SMMEs in the informal sector provide a living for a great number of people in South Africa.

As expected, SMMEs are mostly found in those industries with a low start-up cost (low capital layout and ease of entry), namely trade and accommodation and other service-related sectors. Industries such as mining, with a large capital outlay, remain the territory of large enterprises."

Read the full report here

Source details:

BER Research Note 2016 No 1, University of Stellenbosch, Commissioned by The Small Enterprise Development Agency, ,http://www.seda.org.za


Enterprise development

In 2016, 27% of the adult population in South Africa was unemployed. According to The National Development Plan, 90% of the approximately 11 million jobs that need to be created by 2020 will be through small businesses. However, according to The Gordon Institute of Business Science, 80-90% of new businesses fail in the first two years, with some of the reasons for failure being lack of access to markets, capital and business skills. A panel discussion held at Trialogue’s 2017 Business in Society Conference unpacked some of the key elements needed to support enterprise development in South Africa.

Allon Raiz, founder of Raizcorp – a successful business start-up incubator – contextualised the discussion by highlighting that successful enterprise development means sustainable enterprise development. This means looking beyond individuals with the right qualifications, to those who will survive in the real world – people with resilience, flexibility, and grit, among other traits.

In South Africa, he explained, in addition to the traditional reasons for failure of start-ups, we have a culture of viewing failure as shameful, which explains why our entrepreneurial economy shows very low rates of re-entry after failure. We need to distinguish fear from shame. “We need to change the way that society views failure – it is a teacher, it is the thing that provides you with the knowledge to move forward.” 

The expert panel went on to discuss what makes businesses work, and how entrepreneurs can avoid failure.


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Youth and entrepreneurship

In May 2017, the Department of Basic Education formalised a 13-year blueprint to embed practical Entrepreneurship, Social Entrepreneurship and Employability Training into the National School Curriculum, from grades R to 11 (grade 12 learners will focus only on their matric exams). Furthermore, the Department is eager to work with non-profits that are currently supporting youth entrepreneurship to roll out this plan.

It was against this backdrop that a panel discussion on youth and entrepreneurship took place at Trialogue’s 2017 Business in Society Conference.

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Enterprise development: A tool for poverty alleviation

 "Economic growth is key to addressing unemployment, gender equality, health and other povertyrelated issues worldwide. Enterprise development (ED) is an important tool and essential element to economic growth.

Raizcorp in an article entitled Enterprise Development Made Easy, defines enterprise development as investing time, knowledge and capital to help Small and Medium Enterprises establish, expand or improve businesses including empowering modest incomegenerating informal activities to grow and contribute to the local economy.


Read more: Enterprise development: A tool for poverty alleviation