SMMEs are key to South Africa’s economic growth, but they need to jack up their act. SLINDILE KHANYILE reports

SMMEs are key to South Africa’s economic growth, but they need to jack up their act. SLINDILE KHANYILE reports

DELIVERING the keynote address at the Progressive Business Forum breakfast in Nasrec last month, the minister of the Department of Small Business Development, Stella Ndabeni-Abrahams, said the National Development Plan (NDP) says between 60% and 80% of future economic value would be created through SMMEs.

She emphasised that this sector would also provide a solution to the high unemployment rate in the country.

According to Statistics South Africa, the current unemployment rate stands at 32.9%, the majority of whom are the youth.

“The micro, small and medium enterprise sector is also our jobs driver. It is now widely recognised that large companies while strategic in forming the industrial backbone of the economy, will not give us the jobs we need as a country.

“Again, the NDP is clear that almost 90% of the 11 million jobs we need to create by 2030 (now 13 million after the COVID-19 outbreak) will have to come from SMMEs. To achieve this, we have to more or less double the number of SMMEs in the country, in other words, establish an additional 4 million SMMEs by 2030,” said Ndabeni-Abrahams.

It is a challenge that lies ahead for those who want to start businesses and those who have set up entities. Just like big businesses, SMMEs have to identify opportunities to thrive in the same stagnant economy.

According to the Medium-term Budget Policy Statement, the economy is expected to grow by 1.9% in this year and 1.6% in the next three years.

Despite all this, experts say not all is lost, but there is a lot that SMMEs can do to grow their enterprises.

Owen Nkomo, the founder of Inkunzi Wealth Group, said the starting point was for SMME owners to sort out their corporate governance structures by creating a board of directors.

“Create the client service element of a professional, quality and reliable service. Most black businesses don’t do this yet it’s the best sales driver. They must stay very close to their finances, costs and top of the line. Do away with offices and work from home or pay-as-you-go offices,” said Nkomo.

One of the common challenges facing SMMEs is cashflow management and lack of access to finance because it is difficult for many to borrow from the banks. However, there are other options to attract investors.

Heather Lowe, the head of SME Development at FNB, also stressed that compliance was key, adding that this requirement extended beyond being VAT registered and owning a bank account.

“The issue is complicated by the fact that there is not one type of funding. Each business, at each stage of its lifecycle, is going to attract a certain type of investment. These investment types can differ significantly in their requirements. The general principle involved in successfully attracting funding is that you need to be able to demonstrate the condition of your business, how that funding will be used, how it will enhance your business’s sustainability or growth, and how you (will) pay back the loan,” she said.

She added that potential funders had to be convinced that you understand the market, your competitors, its dynamics and nuances, and trends that influence it.

“For example, your business needs to have a product or service that the market wants. It needs to be identifiable and unique to have a competitive advantage – price competitiveness alone is not a sustainable competitive differentiator.”

Lowe agreed that a proper corporate governance structure was crucial.

“Who is your executive? What is your operating model? Of course, you’ll need to explain your finance function (in detail) and its suitability to your business model. (After) you’ve explained the context, you still need to explain how your circumstances are going to adapt if you receive the funding. What is your growth strategy? What is your marketing strategy?

Lowe said even if your funding application is unsuccessful, this exercise would assist you to understand your business better and identify growth opportunities.