The essential role of small businesses in South Africa’s economy
|Published
By Didi Onwu
Small and Medium-sized Enterprises (SMEs) are the backbone of South Africa's economy, playing an important role in job creation, economic growth, and innovation.
The contribution of SMEs extends far beyond their size, making them indispensable to the nation's economic health.
According to the International Council for Small Business, SMEs constitute nearly 90 percent of all businesses, generate over two-thirds of employment opportunities and are becoming hubs of innovation across the African continent.
SMEs offer significant present value to the South African economy.
The Small Business Institute of South Africa reports that 90% of businesses in the country are classified as SMEs, highlighting the sector's significant role in the economy due to its substantial contribution to the GDP and employment of millions.
The institute says that SMEs in South Africa employ between 50% and 60% of the workforce and contribute approximately 34% to the GDP, underscoring their critical function in fostering job creation, innovation, and economic growth.
SMEs serve as catalysts for innovation, introducing new products and services that can disrupt markets and drive economic growth.
Their agility and adaptability allow them to respond quickly to changing market conditions, fostering a dynamic and competitive business environment.
These enterprises are the driving force behind South Africa's economic growth. Their ability to create jobs and contribute to poverty reduction is unparalleled.
More importantly, SMEs can be jobs generative on an effective rate, particularly in sectors such as manufacturing, retail, and services.
Their growth and expansion often lead to the creation of new employment and economic opportunities, contributing to poverty and inequality reduction, and social upliftment.
Furthermore, SMEs serve as incubators for future entrepreneurs, providing valuable experience and skills that can be used to start new businesses. This enterprising spirit fuels economic growth and job creation on a sustainable basis.
Despite their significant contributions, SMEs face numerous challenges, including limited access to finance, a complex regulatory environment, and infrastructure constraints.
Addressing these challenges is essential to unlocking the full potential of SMEs and ensuring their continued growth. It is important to support SMEs for the benefit of South Africa's economic development.
The country needs to commit to creating an enabling environment that fosters their growth and provide them with the necessary tools and resources.
However, opportunities also abound.
The rise of digital technologies and e-commerce has created new avenues for SMEs to reach broader markets and reduce costs. Government initiatives aimed at supporting SMEs, such as access to funding and training programs, can also play a vital role in fostering their growth and development.
There is also an interesting conversation to be had about the growing need to teach entrepreneurship. Young people can be taught entrepreneurship to prepare them for enterprising careers, instead of being job seekers themselves.
They should be encouraged to pursue entrepreneurship in the same way as traditionally inspired careers such as engineering, medicine or accounting. Investing in this population group through entrepreneurship education can set them up for entrepreneurial success which should make a significant contribution to the country’s economy and confronting the plight of unemployment.
There are many examples of notable young people who are doing incredibly well in their enterprising journeys and deserving of support. Twenty-year-old Lebone Applegreen from Alexandra township in Gauteng set up Lumos Coffee Café offer a unique social experience in her neighbourhood. The coffee shop defies the ordinary and brightens up the township.
Unlike common businesses such as bars and bottle stores, the establishment offers a cozy place for people to relax and socialise. The menu includes hot and cold drinks, and non-coffee options paired with tasty pastries.
Research shows a clear correlation between youth-led businesses and job creation.
This is because when young people are faced with difficult economic conditions, they can produce solutions.
Twenty-two-year-old Ntobeko Mafu’s Madame Clucks A Lot was born out of necessity. Madame Clucks A Lot is a sustainable farm specialising in non-GMO broiler chickens and organic crops.
The farming enterprise sells between 250 and 600 chickens a month and specialise in the farming and sale of kale, spinach, mustard, cherry tomatoes and other leafy greens.
The company has a training and development program that teaches and trains people on sustainable and eco-friendly agricultural practices.
The Anzisha Prize has a keen interest in young entrepreneurs transforming and disrupting industries through green initiatives.
Another such example is a farming business founded by 26-year-old Mahlatse Matlakana from Limpopo.
Her business, Wozilex is an agri-business that produces and sells vegetables (e.g. cabbage, peppers, spinach and tomatoes). It has been running since 2017 and supplies large quantities of pre-packaged vegetables to wholesalers.
The business currently provides most of their products to South African customers, but exports tomatoes to Mozambique. Currently, Wozilex provides over ten vendors and wholesalers with over 300 units of produce monthly.
It is these feats that prove that investing in the SME sector is, in fact, investing in the future of South Africa.
By addressing their challenges and leveraging the opportunities presented by the digital age, we can ensure a more inclusive and prosperous future for all. SMEs are indispensable to the South African economy, providing present value through innovation and supply chain integration, and driving job creation through their growth and development.
By addressing the challenges faced by SMEs and using the opportunities presented by the digital age, South Africa can further strengthen the role of these vital economic actors and ensure a more inclusive and prosperous future for all.
Didi Onwu is the managing editor at the Anzisha Prize.
BUSINESS REPORT