Vuyo Mahlati Africagrowth Conference, Cape Town 23 October 2008

1. SMME as a Driver of Economic Transformation in South Africa: Critical Analysis of Strategies, Programmes and Institutional Arrangements Vuyo Mahlati Africagrowth Conference, Cape Town 23 October 2008

2. TRANSFORMATION IMPERATIVE “Our country requires an economy that can meet the needs of all our economic citizens – our people and their enterprises – in a sustainable manner. This will only be possible if our economy builds on the full potential of all persons and communities across the length and breadth of this country. Government’s objective is to achieve this vision of an adaptive economy characterised by growth, employment and equity by 2014”. Source: DTI - South Africa’s Economic Transformation: A Strategy for Broad-Based Black Economic Empowerment

3. SMME DEFINITION "small business" means a separate and distinct business entity, including cooperative enterprises and non-governmental organisations, managed by one owner or more which, including its branches or subsidiaries, if any, is predominantly carried on in any sector or subsector of the economy mentioned in column I of the Schedule and which can be classified as a micro-, a very small, a small or a medium enterprise by satisfying the criteria mentioned in columns 3, 4 and 5 of the Schedule opposite the smallest relevant size or class as mentioned in column 2 of the Schedule; (vii) Source: NO. 102 OF 1996: NATIONAL SMALL BUSINESS ACT, 1996

4. NATIONAL SMALL BUSINESS ACT, 1996 • Draws from 1995 White Paper on National Strategy on the Development and Promotion of Small Business in South Africa • Main Problem - Primary objective (agency focused – not small business strategy). According to act: “To provide for the establishment of the National Small Business Council and the Ntsika Enterprise Promotion Agency; and to provide guidelines for organs of state in order to promote small business in the Republic; and to provide for matters incidental thereto”. • 2004 Amendment Establishment of Small Enterprise Development Agency

5. MAIN PROBLEM • Absence of/Incoherence/Poor clarity and consensus on: • Comprehensive Economic Policy or National Development Framework • Micro-economic Policy • Configuration of Institutional Mechanisms • Policy vs Implementation (National vs Province vs Local) • Public vs Private • Wholesale vs Retail • Finance vs Non-Finance Support • Generic vs Specialized (Sub-sector) • Developmental vs Commercial • Fragmented Supply Side Measures (Within DTI, among sector depts, Tiers of Gvt & Parastatals) • SMME alignment with Industrial Strategy and Economic Structure • Failure to foster Stratification and Graduation for targeted and effective support

6. Integrated Strategy on the Promotion of Entrepreneurship and Small Enterprises (2006) “Strategy covers the entire continuum of needed support from pre-start-up and start up assistance measures to growing enterprises and enterprises in distress” • 3 Strategic Actions: • Increase supply for financial and non-financial services • Creating demand for small enterprise products and services • Reduce Small Enterprise Regulatory Constraints

7. What is the Driving Imperative for SMME ? Are SMMEs a vehicle or instrument for: • Enterprise Development for Economic growth • Survival and Employment Creation • Economic Deracialization and Black Economic Empowerment • Poverty Relief ? OR SMMEs as an engine of economic growth and development and a strategic lever/catalyst for socio-economic transformation

8. Source: Sloman J. (1992)

9. SMME AND COMPETITIVENESS • Globalization of markets • Globalization of capital investment • Globalization of value chains • Increasing knowledge and skill intensity of competition • Value migration to the service component of the value chain Source Porter 2007

10. STRATEGIC LEVERS • Legislation (BBBEE, Preferential Procurement) • Progressive Policies and Programmes for increased access to: • Skills Training (Technical and Business Management) • Finance • Markets • Land • Water rights/access • Product Innovation

11. BUSINESS PYRAMID At the bottom of the pyramid businesses focus on survival as they struggle to make a decent profit Private Limited Co’s Public companies 0 0 0 0 0 0 0 0 0 0 Private Limited Co’s Few CC’s, Partnerships Big 0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 00 00 00 00 00 00 0 0 00 small/ medium 000000000000000000 00000000000000000000000000 000000000000000000000000000000000 000000000000000000000000000000000000000 CC’s, Sole propriety, Cooperatives Unregistered business Micro/ small Source: Dreamplus

12. DFI mandates - focus areas Institution NTSIKA/ SEDA NTSIKA DBSA NHFC NHFC NDA RHLF DBSA NDA bank IDC IDC RHLF IDT IDT KHULA bank Land Land KHULA Focus SECTORS SECTORS Agriculture Agriculture Housing Housing Mining Mining Manufacturing Manufacturing Retail Retail Tourism Tourism TYPE OF USE TYPE OF USE Housing Housing Infrastructure Infrastructure Business Finance Business Finance Other Other BUSINESS SIZE BUSINESS SIZE Micro/Small Micro/Small Medium Medium Large Large Source: Deloitte 2006

13. TWO ECONOMIES OF SOUTH AFRICA TODAY • Regulatory Environment: well developed and state supported • Legal instruments: well developed and are fully accessed by the institutions • Institutions/agencies: serve primarily the well-off and employed • Skills and HRD training Clear career tracks from secondary school to management • Resource base: massive available resources with substantial backing from the state • Business culture: promoted by private sector 100% Corporate Sector UPPER CLASS Mainly White Males Standard Bank First National Bank ABSA Nedbank Etc. IDC DBSA Landbank Khula Etc. 92% <R8000p.m. <100 Empl. Medium MIDDLE CLASS All Races 78% <R3500p.m. 74% <R2500p.m. LOWER MIDDLE CLASS Mainly Black Small Mainly Urban COMMERCIAL BANKING COVERAGE PARASTATAL COVERAGE Turnover R150000 <10 Employees • Regulatory Environment: Hardly exists • Legal instruments: Poorly developed and inhibits development of CBOs and NGOs • Institutions/agencies: Almost non-existent • Skills and HRD training No career opportunities • Resource base: Very poor and almost no state backing • Business culture: Non-existent and ignored by private sector 48% <R800p.m. Micro POOR LOWER CLASS Mainly African Deregulated Commercial Lending Industry 35% <R400p.m. UNBANKED Mainly Rural NGO Financial Initiatives Source: WDB Survivalists No Employees 14% No income POOREST OF THE POOR Mainly African Female Social Responsibility Social Grants 0% BusinessCommunities Financial Services

14. Value Proposition • Critical : Clarity on driving imperative drawn from a Comprehensive Overarching National Development Framework • Coordinated Planning and Implementation • Maximize the Procurement potential in both public and private organizations Action Steps • Joint Visioning based on adequate assessment and analysis of existing Initiatives and Gaps • Segmentation and Stratification of Interventions to suit identified opportunities and challenges • Defined and monitored outcomes and benefits

15. A MODEL FOR ENTREPRENEURSHIP SUPPORT Prof Nieman Entrepreneurial orientation Culture Role models Education Work experience Personal orientation Enterprise culture Supportive Environment Infrastructure Finance Laws Training Policy framework Co-operative Environment Institutions which are actively involved and assist with new org development Entry of entrepreneurs + Acquired abilities Inherent abilities Products / Services Results of entrepreneurship • Economic growth occurs • Incomes increase • Living standards improve • Investment opportunities arise • Tax base is enlarged by a greater number of new firms • Technological development occurs • Job opportunities arise Prof Nieman

16. Group portfolio

17. Customer value delivery system Source: South African Post Office

18. South African Post Office SMME Opportunity Diverse Sub-sectors – Business Unit and Value Chain Based that include: • Letterbags • Refurbishment of mini containers • Refurbishment of roll containers • Refurbishment of locks • Signage • Post boxes • Construction and related trades • Cleaning • Security services • Catering • IT roll –out and maintenance • Stationery • IT Consumables • Recruitment • Clothing, textile and interior décor • Events management • Value-adding service industry

19. SAPO SMME DEVELOPMENT PROGRAMME Manufacturing Support 2007-2011 Source: SAPO

20. Thank You!vuyo@sisekose-afrika.co.zaFor SAPO Opportunities Call 012 401 7000cookie.naidoo@postoffice.co.za The critical link for competitive and equitable economic performance 011 603 2500