It’s a rarity that economists agree on a single outlook or opinion – but when it comes to the importance of the role of entrepreneurs and small and medium enterprises (SMEs) in the economic development of the country – there can be no argument.
Although entrepreneurial individuals can be found in large corporations and even government, it is in SMEs that they 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 ‘cure’ for the problems of unemployment. But this oversimplification is likely to stem from the fact that people don’t generally understand why or how entrepreneurs contribute to economic development.
More than 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 – their contribution to job creation is undeniable and generally acknowledged.
These figures show that support for SMEs is one of the surest ways in which the main target of the government’s National Development Plan (NDP) – increased equality through inclusive economic growth – can be met by 2030.
The failure to understand how entrepreneurs enable economic development can easily lead to policies and decisions by government, civil society and labour that hurt entrepreneurs, or create conditions that prohibit optimal growth.
There are four ways in which entrepreneurs and SMEs contribute to the NDP goals. Firstly, they create new businesses.
As South Africa moves toward 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 the country are the thousands of SMEs that sell them to households and businesses, often in rural and under-serviced areas of the country, which in turn stimulates other businesses.
Communities and households hobbled by the lack of reliable and affordable electricity can use solar panels to power income generating activities. Subsequently 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.
The tourism industry, one of the priority industries identified by government, is another example of how SMEs drive economic development through business creation.
Many small towns in South Africa, where large hotel groups won’t invest, have instead been turned into tourist meccas by pioneering small bed-and-breakfast businesses, small tour operators and events companies. The cascading effect is well documented as the tourists whom they attract spend money on local crafts, food and services.
Secondly, SMEs fill the gaps. Every dollar that an SME entices from a tourist’s pocket, every solar panel that is sold, every transaction created by SMEs all add to South Africa’s GDP. The taxes generated by new SMEs also means more resources flow into government’s redistributive and development projects, such as education.
Through pioneering new and better ways of doing things, entrepreneurs influence social change in their communities. 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 they have a similar effect on the lives of South Africans.
SMEs inspire entrepreneurial culture development. Through their example, SMEs show communities that it is possible to self-start, to solve problems, to create wealth through service, and 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.
When one considers all these different aspects in which entrepreneurs contribute positively to the growth of the economy, the case for them in order to drive growth is clear. In practice research shows that BUSINESS/PARTNERS helps to create, on average, nine jobs for every SME it invests in. Over the past 35 years, with a total of R16 billion invested in 70 624 transactions with SMEs, more than 600 000 jobs have been created.”
David Morobe is regional general manager of Business Partners. His views do not necessarily reflect those of IOL.