Department of Small Business Development

1. Department of Small Business Development Role of smmes in skills development and economic growth national skills conference and awards 2019 15 march 2019

2. Presentation Outline • Background • Role of smmes in the economy • Small business ecosystem • The nexus between business and skills ecosystem • Provision of skills for the small business sector • Incubation programme • National skills development plan • Conclusion

3. background “While there is a broad range of critical work being done across government, this evening I want to address the five most urgent tasks at this moment in our history. These tasks will underpin everything that we do this year. Working together, we mist undertake the following tasks: • Firstly, we must accelerate inclusive economic growth and create jobs. • Secondly, our history demands that we should improve our education system and develop the skills that we need now and into the future. • Thirdly, we are duty bound to improve the conditions of life for all south Africans, especially the poor. • Fourthly, we have no choice but to step up the fight against corruption and state capture. • Fifthly, we need to strengthen the capacity of the state to address the needs of the people.”

4. Role of smmes in the economy • According to the World Bank report (2019), SMMEs employ between 50-60% of South Africa’s labour force and they contribute around 34% to the GDP • SMMEs are estimated to be around 5,78 million of which only 14% are formalised • The proportion of SMMEs in urban areas increased from 62% in 2008 to 69% in 2017. This correlates with urbanisation • Black ownership has been decreasing from 79% in 2008 to 76% in 2017, while white ownership increased from 12% to 16% during the same period • Female ownership declined from 48% in 2008 to 38% in 2017 • Therefore: • “True transformation of the economy we need to develop black entrepreneurs through various entrepreneurship programmes like black industrialists”, Dr Rob Davies • If we are to reach those ambitions of NDP we need to support SMMEs so that we can address the triple challenges of poverty, unemployment and inequality • We need to act and act fast as a collective to offer both soft and technical skills, market access, infrastructure, reduce red tape and access to finance

5. Ecosystem: SMME Perspective Research commissioned confirmed the need to establish a sound Ecosystem to support entrepreneurs and that all elements of the entire ecosystem must be mobilised to resolve the challenges faced by SMMEs and Coops

6. Ecosystem: DSBD Perspective DSBD approached its mandate, to mobilise and coordinate support for SMMEs and Cooperatives, from its own perspective of the Ecosystem based on the levers in its control as a National Department National Departments Provincial Departments Business Advisors & Mentors Education & Training providers Civil Society

7. Building a sound Small Business Ecosystem In addition to the impact of championing the DSBD mandate on government policy decisions, as reflected in earlier slides, the Department has both mobilised and disrupted the existing ‘big business ecosystem’ Organised Business Formations: Multiple meetings with individual organisations and invitations to address the events of these structures, culminated in a Ministerial Consultative Forum with organised business, creating the platform for a social accord Academic and Research Institutions: The main outcome of three Roundtables with academia, resulted in consensus and a commitment to strengthen entrepreneurship in tertiary education BUSINESS ADVISORS: Research confirms that SMMEs exposed to business advisors have a far greater chance of success than those who do not have this exposure. Hence the department co-hosted the Inaugural International Conference on business advising: the outcome of this is that the 50 000 strong community of business advisors, consultants and mentors, used by the entire government system, has now requested that the department lead the regulation of professionalization of this cadre.

8. the nexus between business and skills ecosystem

9. the nexus between business and skills ecosystem • The Oxford Handbook of Skills and Training, 2017 defines the skills ecosystem as regional or sectoral social formations in which human capability is developed and deployed for productive purposes. • In this paradigm business, skills and economic performance are not considered in isolation, but rather as intersecting elements. The reality is that changes in skills levels alone would be inadequate. The hybrid organisational form facilitated mode of knowledge creation and diffusion which constitutes the epicentre of innovation and business formation processes is an essential ingredient of high growth businesses. (e.g. Silicon valley). • We note with interest that whilst the key features of this connection between the business and skills ecosystem are now acknowledged, the standard practice and the collective effort amongst role players have not been without any controversy. There are questions concerning the coherence in business advisory, skill formation and the quality of offerings. Hence the department is currently looking to reform the BDS.

10. Provision of skills for the small business sector • Although the SMME sector has many positive attributes, there are however persisting challenges that continue to negatively affect this sector • The high failure rate amongst SMMEs is mostly attributable to the fact that entrepreneurs or owners are not able to turn their businesses into sustainable/competitive ventures. • In order for SMMEs to have a good performance and sustain high level of growth, these businesses need to be able to access the pool of qualified, skilled and motivated employees which if often very difficult to source and attract. • Literature has also shown that formal education is a key factor driving SMME performance. • It is critical therefore, to address the quality and relevance of curricula for entrepreneurship development in particular through an integrated and coherent effort, understanding the roles and responsibilities of various players in the ecosystem.

11. Provision of skills for the small business sector • The self-employed and those employed in the informal sector require a broad range of skills which the formal education system does not adequately provide. • According to the HSRC Report, 2017 which suggests that the formal education foundation for small business and the informal sector is relatively weak, and that skills development initiatives targeting these enterprises need to take this into consideration when designing curricula. • Differentiation of firm size, characteristics and level of development across sectors suggests heterogeneity within the SMME spectrum. Thus, skills development interventions ought to be designed according to the type of firm and stage targeted. • However, it is important to understand that skills development only form a component of a wider policy framework aimed at facilitating the development of SMMEs hence a reflection of a revision on other legislative mandate is necessary.

12. Provision of skills for the small business sector • The limited extent to which skills are applied across firm suggests a role for higher education in terms of the provision of business skills to SMME owners or potential entrepreneurs. • There is a need therefore, to have an overarching framework that serves both DHET, and the DSBD as all parties are partners in the entrepreneurial empowerment of communities. • We depend on the entrepreneurship centres in Universities and TVET Colleges and the research that students from these institutions undertake to get solutions to problems currently facing the country which in turn could possibly results in the establishment of viable businesses. • There is a need draw contributions from different stakeholders on how entrepreneurial education must be broadened and promoted resulting in the production of learners that are able to identify business opportunities, drive the commercialisation and be innovative entrepreneurs.

13. Provision of skills for the small business sector • South Africa is lagging behind in terms of entrepreneurial activity • This is why the stimulation of entrepreneurship is extremely important as, research has shown, it is those nations that are highly innovative and have quality of entrepreneurship, that are successful. It is for this reason that there is an emphasis on entrepreneurship and innovation throughout the world, so that the young people who come out of institutions are ready to exploit opportunities. • The fourth industrial revolution is our trigger in accessing technology therefore remains critical, youths should be consequently encouraged to be creators of knowledge and participate within the innovation space. • This calls for different components of the ecosystem to be directed towards a common vision • This require joint planning, program design and resource mobilisation

14. Incubation programme • Commitment: The incubation programme currently consists of a network of 51 technology business incubators, 10 enterprise supplier development incubators and 14 rapid youth incubators. As part of the expansion of this programme, township digital hubs will be established, initially in four provinces with more to follow. • DSBD Response: • Ensure that incubators feature in the 30 percent preferential procurement spend from the projected government spend of R1.2 Trillion and R 2 Trillion from State Owned Enterprises over the MTEF period. • The Fourth (4th) Industrial Revolution gives a name to a gathering of global trends that have been building toward a deep transformation of both business and technology in global terms. We have entered a technological revolution that will fundamentally alter the way we live, work and relate to one another. • In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before. Trending hype that surrounds major new technologies like the Internet of Things (IOT), Augmented Reality (AR), Additive Manufacturing (3D&4D), Big data, Block chain and cloud computing has forced Seda to look at how to scale it 5 Tech Hubs for the future. • It has become important for Seda to support SMME’s and Co-operatives to embraces this radical reshaping of the relationship between technology capabilities and business opportunities.

15. Incubation programme • Commitment: The incubation programme currently consists of a network of 51 technology business incubators, 10 enterprise supplier development incubators and 14 rapid youth incubators. As part of the expansion of this programme, township digital hubs will be established, initially in four provinces with more to follow. • DSBD Response: The Fourth Industrial Revolution’s new technologies empower business model level disruptions, has creating a new type of opportunity where it is possible to reinvent entire industry ecosystems. And as Seda in partnership with the Departments of Small Business Development (DSBD) and The Department of Telecommunication and Postal Services (DTPS) have started a conversation to develop the biggest Tech Hub in Africa, a 1000 seater Incubation hub fully equipped with test labs, coding and programming academy, co-working and co-creation spaces. • The Silicon Valley Model hub, a first of its kind in Africa will drive South Africa’s New Economic Vision and is earmarked for completion in the next 3 years. • The biggest Technology Incubation Hub In Africa - “Softstart 4th Industrial Revolution Hub”, Midrand Gauteng Located in the Biggest Tech Cluster in SA; • 4 new ICT Hubs with Coding Labs in 4 Provinces (North West, Eastern Cape, Limpopo and Free State). This in order stimulate innovation and entrepreneurship and bridge the digital divide that exist in these previously disadvantaged areas. • The aim is work and collaborate with Local Municipalities and Institutions of Higher Learning as these are critical in any innovation eco-system. • Budget : DSBD together with Seda has allocated R210.1 million for 2019/20 financial year

16. National skills development plan • The NSDP will focus on addressing skills priorities aligned to government policies to support economic growth, employment creation and social development whilst also seeking to address systemic considerations. • To understand demand DHET will support and guide SETAs to use the analysis to verify occupations, in collaboration with employers and labour, across various groups that are in high demand • The NSF will be responsible for skills development aligned to national development strategies and priorities, including building linkages within the skills system and providing funds for government strategies such as youth programmes, building small businesses and cooperatives, and rural development • DSBD Response: • We acknowledge the role of both TVET colleges and SETAs in producing the required skills that are needed for the development of both the economy in general and more specifically small businesses • We are currently working with TVETs through Centres for Entrepreneurship : this intervention is aimed at providing enterprise development assistance to TVET and University graduates and communities surrounding TVETs and Universities (8 TVETs are Ekurhuleni West, Gert Sibande, Esayidi, False Bay, Vaal University of Technology-Upington, Durban University of Technology, Orbit and Vhembe • We already have agreements with some of the Setas like Services, Merseta and W&R Seta

17. conclusion • Skills development is a key enabler to inclusive growth. Skills development is a key component of the SMME Ecosystem. These include both Generic Basic and operational business skills as well as Technical skills • SETAS, SEDA, SEFA need to cooperate in advancing the skills development revolution that will lead us to a growing economy that we need so much • SG – emphasized that the number are saying the youth and especially women are the most hard hit and we need to focus on them • Towards excellence and quality – here I think the ADG can emphasize the importance of SMMEs and Cooperatives being capacitate to be able to provide quality services and products. While we work with SABS on this process we are appealing to partner with the SETA. • Collaboration and partnership between the departments, national skills fund, etc