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 Are entrepreneurs doing their part in South Africa's development?

 

 When a quarrelsome bunch like economists agree on something, one can be pretty certain of its universal truth. There are few topics that generate such consensus among economists as the importance of entrepreneurs and small and medium enterprises (SMEs) to economic development, says David Morobe, regional general manager of Business Partners Limited (BUSINESS/PARTNERS).

Morobe uses the terms “entrepreneur” and “SME” interchangeably. He says although entrepreneurial types can be found in large corporations and even in government, it is in small and medium businesses that they come into their own, and are able to give full expression to their innovative urges and energy.

The belief in their economic potency has spread so widely that often SMEs are seen as a kind of a cure-all for the problem of unemployment, says Morobe. It is an oversimplification that perhaps stems from the fact that people don’t generally understand why or how they contribute to economic development.

Their contribution to job creation is undeniable and generally acknowledged. Over 60 percent of all new jobs in South Africa are reportedly created by SMEs, and more than half of all formal salaries and wages in South Africa are paid by SMEs. This shows that support of SMEs is one of the surest ways in which the main target of the government’s National Development Plan – increased equality through inclusive economic growth – can be met by 2030.

But Morobe believes that the failure to understand how entrepreneurs enable economic development can easily lead to policies and decisions by the other sectors – government, civil society and labour – that hurt entrepreneurs, or create conditions that do not allow them to grow optimally.

Morobe lists four ways in which entrepreneurs and SMEs are contributing to the NDP goals.

First, they create new businesses. As South Africa moves towards a green economy, for example, it is usually the large investments such as the opening of a big solar panel plant that will make the headlines, but the real driving force that spreads the solar panels throughout South Africa are the thousands of SMEs that sell them to households and businesses, often in far-flung under-serviced areas of the country.

The impact of a solar-panel installer in a rural area is a good example of how SMEs stimulate other businesses. Communities and households hobbled by the lack of reliable and affordable electricity can use solar panels to power income generating activities. Suddenly there are opportunities for handymen, self-taught or formally trained, to service and maintain those millions of solar panels for years to come, and suppliers of electrical equipment also have a whole new market opening up for them.

Morobe points to the tourism industry, one of the priority industries identified by government, as another example of how SMEs drive economic development through business creation. Many towns in South Africa that would never stand a chance of having a large hotel group setting up shop there have been turned into tourist meccas by pioneering small bed-and-breakfast businesses, small tour operators and events companies. The cascading effect is well documented – the tourists whom they attract spend money on local crafts, food and services.

Every dollar that an SME entices from a tourist’s pocket, every solar panel that is sold, every transaction done by the new businesses created by SMEs all add to South Africa’s Gross Domestic Product (GDP). Morobe identifies this as second way in which SMEs contribute to economic development. South Africa’s GDP growth would be so much shallower if it depended only on big business and government. The taxes generated by new SMEs mean more resources to go into government’s redistributive and development projects such as education.

Thirdly, entrepreneurs and SMEs bring about social change by pioneering new and better ways of doing things. The radical effect that start-ups such as Google and Uber have had on the world are well known. Locally, innovations driven by SMEs may be on a smaller scale, but have a no less dramatic effect on the lives of South Africans. For example, BUSINESS/PARTNERS has recently invested in a tech start-up that developed a way of selling electricity via mobile phones, changing the lives of many rural households.

The fourth way in which SMEs drive economic development is by changing the culture of the communities in which they operate through the example they set. They show, merely by virtue of what they do, that it is possible to self-start, to solve problems, to create wealth through service, to impart knowledge to the workers they train. Incrementally, they are moving South African communities away from the idea of dependency on handouts and dead-end jobs, to one in which self-employment is a real and even the preferred alternative.

In theory, therefore, the case for supporting entrepreneurs and SMEs in order to stimulate the economy is clear. And in practice, Morobe points to a set of figures that bears out the theory: Research shows that BUSINESS/PARTNERS helps to create on average nine jobs every time it invests in an SME. Over the past 35 years, with a total of R16 billion invested in 70 624 deals with SMEs, more than 600 000 jobs have been created.

With evidence like this, no wonder the importance of SMEs is one of the few things economists agree on.

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