To create jobs, start at the bottom of the economy, not at the top


By Miguel Da Silva

Statistics South Africa recently confirmed that the unemployment rate in South Africa is at an all time high.

As we move through the 14th month of this pandemic, the unemployment rate is not surprising and represents one of the greatest risks for the country, alongside poverty and inequality, which in turn are fueled through unemployment.

The solution doesn’t lie in big projects and promises of large-scale infrastructure deployments, although these certainly help. The surest way to create jobs is to start from the bottom, not the top.

It is not something new. The government itself knows this and has developed a document that spells out the potential of small and medium-sized enterprises (SMEs) to make significant inroads into the country’s unemployment rate. The national development plan (PND) boldly aspires to 90% of jobs created by SMEs by 2030. Nice vision, but we are terribly behind in achieving this goal.

But why SMEs? We have all come across various statistics from different sources that tell a story that 98% of businesses registered in South Africa are SMEs, but they produce less than 60% of all jobs. If so, why bother to whip the horse of small business?

To answer that question, let’s look at what the International Labor Organization wrote in 2019: “Micro, small and medium-sized enterprises (SMEs) are responsible for more than two-thirds of all jobs in the world. They also represent the majority of job creation.

The ILO writes further: “In many countries, over 90% of all enterprises can be classified as SMEs, and a large part of these can be classified as micro enterprises, with less than ten employees. Although they may be small individually, new data from the ILO shows that micro and small businesses, as well as self-employed workers, account for 70% of the world’s employment.

The ILO also asserts that, globally, SMEs are the engines of economic growth and social development. Of great relevance to South Africa, the ILO writes: “SMEs are also more likely to hire groups that are less likely to find employment, such as young people, older workers and workers. less qualified.

It is quite clear that SMEs are vital to prospects around the world, not just South Africa. If we get it right, we can also talk about statistics like this – where SMEs in this country drive economic growth and social development, and they produce over 70% of jobs.

When Retail Capital was launched ten years ago, it all started with a simple premise on a napkin: supporting SMEs so that they can grow. It’s that simple. We should not confuse simple and easy. No one said solving one of this country’s biggest challenges would be easy.

The stakeholder that everyone turns to first for direction is government. As we have already seen, at the national level there are great aspirations and great plans. Time and time again this is backed up by special initiatives and funds, but frankly they miss the mark because they are either administered inefficiently or they complicate something that should be straightforward.

The Covid-19 pandemic provides a good case study of how the SME sector in South Africa is constantly left in limbo. At first, the bold proclamations of support programs were widely approved. In reality, however, the government and the banks fueling their initiatives have excluded the vast majority of companies under R10million because the requirements were too onerous. Instead, large or medium-sized businesses received the bulk of the small portion of the support that ultimately went out.

That the green shoots, the new businesses the country desperately needs, remain invisible to the general public is a tragedy, but also provides enough impetus for the private sector to take the bulls by the horns.

Providing profitable financing on acceptable terms that takes into account fluctuations in the turnover of microenterprises is only one, and perhaps the first, in a series of interventions that are and should be led by the sector. private.

Another is the digitization of the economy. Partnerships, where payment providers, lenders, insurers and more can serve the so-called informal economy and digitize it, are essential. Fintech is known for its ability to financially include the unbanked and underserved.

The straightforward process of authorizing digital payments and straightforward accounting creates a digital footprint that forms the basis for lenders to measure risk and lend responsibly. This is something that traditional banks simply cannot do yet.

If a small business owner has a business that is less than a year old, it may as well not exist in the eyes of traditional lenders. It is time for those who can, to support the jockey.

The availability of working capital to invest in machinery or equipment, or to purchase inventory at a preferential rate, will literally pull micro-organizations out of their monthly survival rut. Once they grow up, they hire.

The same goes for more established SMEs. By having the ability to fund things like setting up e-commerce platforms and investing in digital marketing, they can boost their competitiveness and growth. Again, when they grow up, they hire.

It’s not idealism as far as the eye can see, we see it every month, where smart digital investments during the pandemic have seen businesses grow impressively.

This is what we mean when we say that the solution to supporting the SME sector and its potential for economic growth and job creation is simple. Remove the chains and deliver what small businesses need to grow. An SMME with five employees barely makes a dent. 100,000 SMEs with five employees hire half a million people. When they grow up, that number grows with them.

Our call to the government is clear and precise: to find more money in the tax system to support one of the most important segments of almost every sector of the economy – small businesses. Cut red tape, encourage progressive regulation, continue to promote the attractiveness of buying local and become a government that encourages entrepreneurship.

Our appeal to our colleagues in the private sector is just as clear and precise: wherever we can, let’s continue to find innovative ways to support the growth of SMEs. We are in 2021; the time for posture is long gone. Our collective future is largely tied to the prospects of small businesses in South Africa.

Miguel Da Silva is the Managing Director of Retail Capital.

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