The South African government has implemented many policies and programmes to promote job creation and entrepreneurship, particularly amongst the alarmingly high numbers of unemployed youth. The focus of these policies and programmes has been on the creation of start-up businesses.
Despite the vast resources committed to these programmes, their success at reducing unemployment is almost negligible.
Given that South Africa is resource strapped, does this focus on start-up creation represent the most effective policy stance towards small business? And if not, what policy measures should the government be focusing on instead?
Job creation power
The importance of small businesses overall in terms of employment is unquestionable. The Adcorp Employment Index for March 2012 shows that, in South Africa, 68% of employees are employed by small businesses employing less than 50 people, with two-thirds working at businesses that have less than five employees.
South Africa’s start-up business rate of 5.2%, as per the GEM 2011 Report, is notably higher than its new business rate of 4.0%, indicating that start-up firms dominate the country’s total early-stage entrepreneurial activity.
The GEM 2005 Report found that less than 4% of start-up businesses (defined as functioning for less than three and a half years) take on any staff. Mike Herrington, executive director of the Centre for Innovation and Entrepreneurship at the UCT Graduate School of Business, points out that this means that for every 100 new small businesses, only about 10 additional jobs will be created.
On the other hand, further evidence from GEM shows that established small businesses, those that have survived for three and a half years or longer, are the ones that create jobs. The GEM 2011 Report states that these businesses create 3.2 jobs on average, and further states that established small businesses create 32 times the employment opportunities that start-up businesses do.
The GEM 2011 Report indicates that South Africa has an established business ownership rate of 2.3%, which is substantially lower than the average of 7.2% for all participating efficiency-driven countries. In terms of established business activity, South Africa ranked 52nd out of 54 countries.
This suggests that to create more jobs government policy should focus on supporting established small businesses rather than start-ups.
Interventions for sustainable job creation
While the government’s New Growth Path (NGP) targets for job creation appear ever more unlikely to materialise, it is essential to identify the interventions that are most likely to lead to sustainable job creation.
Focus on established businesses with potential for considerable growth
Most often it is the operation that employs around 10 people that is ready to cope with expansion. These are the businesses that should be receiving the bulk of our support services in the form of incentives, grants, export assistance, access to new markets, mentorship for the processes of business expansion, and even subsidies for selected essential services such as financial and HR consulting.
Agencies such as the National Empowerment Fund (NEF) and the Industrial Development Corporation (IDC) should actively court these small businesses and provide them with proposals for expansion. Private sector agencies and banks should aggressively target this sector. In addition, giving procurement preference to this sector would assist suppliers with capacity building.
Relax labour policies
A working paper published by the African Development Bank in October 2012 states that:
Firm level surveys indicate that the single greatest impediment to the more rapid growth of outward-oriented manufacturing in South Africa is the high level of real wages relative to productivity levels. […] Labour market regulation – in particular the “extension provision” which requires collective bargaining agreements to be extended to all firms in an industry, regardless of size – is inhibiting investment and growth.
Small businesses cannot currently hire staff in confidence, because it is so difficult to fire people who are not performing. The Global Competitiveness Report 2011-2012 ranked South Africa 139th out of 142 countries in terms of rigid hiring and firing practices.
While laws to protect employees against exploitation and abuse are needed, there has to be a balance that makes it easier for companies to choose and retain the best person for the job. Relaxing the current dismissal regulations for the discretionary probation period would go a long way towards addressing this matter.
The existing regulations are counter-productive. Thousands of small businesses in South Africa, in fear of the arduous and costly dismissal process, are resorting to using temporary staff or hiring people only on short-term contracts.
The Adcorp May 2012 Employment Index notes that since 2000, permanent employment has fallen from 11.0 million to 9.1 million workers, a decline of 1.9 million workers or 18.7% of the workforce. In the same period, the number of temporary workers has increased by 2.6 million workers or 187.5%.
For the people in these jobs there is no job security; neither is there an incentive to strive to become a valued member of the workforce.
Related: Africa’s Got the Talent
Import needed skills
The concern that foreign workers will take jobs away from local people is misdirected – a lack of skills inhibits job creation because without a skilled workforce the economy cannot grow. When intellectual capital flows freely, it supports growth; yet current policies deny South Africa the benefit of an influx of skills, further stifling our economy.
Brazil, which has the world’s sixth largest economy, has traditionally had a permissive immigration policy. Its booming economy is now attracting growing numbers of Portuguese speaking immigrants from job-starved Europe.
Entrepreneurship is flourishing in Brazil– its Global Entrepreneurship Week in 2010 attracted 50 000 entrepreneurs, compared with the 8 000 who attended South Africa’s.
Open up access to African markets
Intra-African trade is tiny relative to what it could be. Given a giant market on our doorstep (up to 30% of Africans are now middle-income earners)South Africa fails to compete with suppliers from abroad. Indian, Chinese and South American products are flooding into Africa– where are the South African goods?
Our potential exporters are hampered by old trade monopolies, cumbersome Forex regulations, corruption, cross-border nightmares and a lack of infrastructure.
Government is not working hard and fast enough with its African trading partners to ease the trading environment, improve capacity at border posts, and clear the obstacles to a smooth movement of goods. South Africais ranked as 115th out of 185 economies for ease of trading across borders in The World Bank’s Doing Business Guide 2013. This is a regional problem that is stifling cross-border trade: Sub-Saharan Africa on average ranks 137th.
Focus on entrepreneurial education rather than start-up financing
Contrary to popular opinion, lack of access to finance is not the primary obstacle to small business growth. More money won’t solve the problem. A bigger concern should be entrepreneurial skills development and education.
A Development Bank of Southern Africa working paper published in 2011 summarises the South African government’s youth entrepreneurship programmes as follows:
The NYDA is responsible for overseeing and monitoring these interventions for young people, including the provision of loans for young entrepreneurs, business development services, potential support for youth cooperatives and the introduction of youth entrepreneurial training in schools. However, the number of young people accessing these services in 2010 was almost negligible. Hence, there is a major gap in youth entrepreneurial training, which needs to be addressed if self-employment is to provide a pathway into employment for young people.
Emerging entrepreneurs urgently need to learn to understand the concept of a commercially viable business. A legacy of our failed education system and the previous deliberate marginalisation of black entrepreneurs is that the majority of emerging entrepreneurs have not had exposure to the complexities of building a viable and sustainable business.
They also often have no experience in identifying viable opportunities and developing these into sustainable ventures.
Banks would love to lend more money if it meant that they could get a competitive return on their investment. There is a great deal more money chasing good ideas than there are good ideas trying to get funding. Again, the solution is to give targeted support to those businesses that have the right potential, and the funding would follow.
Here, the private sector could make a strong contribution in the short-term by deploying skilled personnel (even for a few hours a month) to mentor smaller companies within their supply chains.
Whatever the problems in the small business sector, South Africans are enterprising. With the correct support directed at high potential established small businesses, a lighter corporate governance load and entrepreneurially friendly legislation, entrepreneurship can be the solution to reducing poverty and increasing job creation.
We Need To Unite For A Better Entrepreneurial Future!
Here are my key entrepreneurial tips from The Passport Showcase.
In our modern world, where nationalists walk the street and xenophobic beliefs are on the rise, as a Zimbabwean serial entrepreneur and motivational speaker, I’ve identified that we need to bridge this division and unite us all through celebrating our diversity.
We need to come together not because it’s the right thing to do, but because united, we can work towards a profitable future. However, before this can happen, we need to change the global mindset. That’s why I transformed my book The Passport into a showcase in which performers from across the continent took part and showed off their talents.
While preparing for the show I noted some important lessons that I learnt along the way. Here are my key entrepreneurial tips from The Passport Showcase.
Success can’t happen in a vacuum!
Setting up The Passport Showcase took a lot of collaboration. As an entrepreneur and a believer in a united Africa, I’ve learned you can’t operate a successful business if you’re not willing to work and deliver services to everyone. It’s for this reason I invited fashion designers, artists, and dancers, to come together and educate us about the dangers of xenophobic beliefs through their art forms.
We need to be able to blend skills and overcome our preconceived notions, in business and the arts, so that we can achieve great things.
Education is the key to every problem
It’s a part of starting any business; educating the public about your company and quickly converting them into consumers. Arguably the same was true of the showcase, creating a truly unique experience to inform the public about celebrating diversity.
Helping individuals understand that acceptance is key for a better future is critical for business expansion. If any of us want to expand our businesses, we need to be able to engage with different markets – who won’t chase away the unknown.
Identifying a new opportunity is one of the fundamental building blocks for a new business. Finding unique solutions is a truth that echoes across corporate industries and the arts. But change can cause concern and adverse reactions.
On our continent, ideas that disrupt the norm are needed to catapult our brothers and sisters to a brighter future. But this can only be achieved when we celebrate our diversities and collaborate.
9 Ways To Elevate Your Small Business To The Next Level
The South African economy is strongly supported by the nation’s entrepreneurial spirit, which encourages a culture of growth and development in communities.
With the unemployment rate currently at 27.71%, people of all ages and backgrounds are looking for an opportunity to work.
Although many entrepreneurs have enjoyed great success on their small business journeys, choosing to start your own business comes with many risks. One of these risks is the financial burden it can bring. While there are various challenges faced by small businesses, it is possible to overcome these and jumpstart your business with these useful tips from FedEx Express, the world’s largest express transportation company.
1. Connect with customers
As a small business owner, it is important to know who your customers are, where they spend their time, what they are looking for and how your business can meet their needs. Times have changed and waiting for customers to come to you is no longer a feasible business strategy. In today’s evolving business environment, entrepreneurs need to be approaching their customers and building strong relationships with them to form a lasting impression. If your small business cannot grow its customer base, it cannot grow profits.
Attending networking events will allow you to find professionals and other small business owners who offer services your business may require. Many small business owners get this critical aspect of starting a new business wrong by networking purely to gain customers, not realising that networking with other business can assist you in acquiring the services you need to continue the growth of your business. Small businesses have a lot to gain through networking at the right time and at relevant events.
3. Use social media
There are a number of social media networks and social networking platforms that can drastically grow your business, however, it is important to understand your customers and identify the channels they prefer to communicate on. By implementing a comprehensive social media strategy, you can ensure social media works as a driver of new business that positively promotes your service offerings.
4. Build customer loyalty
Building customer loyalty begins with great customer service. Great customer service starts with a positive customer experience and first impressions are vital in this regard. If a customer has an enjoyable experience when using your services, it is likely they will return and use your services on an ongoing basis. By ensuring your business has a user friendly website and informative brand collateral, new business prospects will increase and those who have experienced quality customer service from your business are likely to refer you to friends and colleagues.
5. Ask for help
All small businesses face challenges, particularly in the early operational stage. This is why asking for help from your peers/mentor who may be more experienced than you is critical. Tapping into the mind of someone with more experience and a broader knowledge base will ensure you learn and acquire the skills needed to make a success of your business. The FedEx Small Business portal offers business owners useful advice that will assist you on your small business journey. Visit www.smallbusiness.fedex.com for tips and success stories that will inspire and help you to grow your small business.
6. Hire the right people
Each person that forms part of your business needs to share the same vision with you that will drive growth. Your workforce will be responsible for the success of your business therefore, ensuring your staff remains motivated is important. When hiring a new employee, implement a check list that includes traits that you feel are imperative to the culture of your business.
Asking out-of-the-box questions in the interview will also assist you in determining if the potential employee is a suitable candidate to fill the open position.
7. Manage cash flow well
Many small businesses close due to cash flow problems. Managing money spent versus money earned is critical as it provides you with a clear indication of whether your business is running at a loss or whether you are excelling. If your small business is losing money, you can implement a strategy to iron out the issues that are contributing to this and identify ways that will ensure your business generates profits.
8. Work to build success
Work to make a success out of your business with your employees by being involved in the everyday activities that are critical to your businesses success. Being involved will ensure employee morale remains high while allowing you to identify areas that need improvement.
9. Find inspiration
There will always be someone who has been in your current position, even if it is a different business to yours. Learning how they made a success of their business during hard times will provide you with the knowledge you need to succeed as a business owner. Starting your own business is a learning experience made easier by speaking to others who inspire you.
A business can safeguard its success if it continues to innovate. For example, e-commerce has changed the way the world conducts business, and the rise in technology has made it easier to interact with customers quickly and across borders. With economies becoming more interconnected, companies large and small are now able to access markets that were previously unattainable. E-commerce will assist small businesses in establishing their territory in the market and as a result, guarantee growth and longevity,” concludes Higley.
How Algorithmic Forecasting Can Improve Business Efficiency In Challenging Economic Times
Harnessing the power of predictive analytics, in-memory computing, and artificial intelligence to forecast risks will help entrepreneurs stay ahead.
The ability for businesses to accurately predict risk and develop insights has traditionally involved manual drudgery, spreadsheets, and been confined mainly to the finance department.
With the advent of new technologies such as predictive analytics, in-memory computing, and artificial intelligence (AI), smart Chief Finance Officers (CFOs) are harnessing their power to automate the process, free up human capacity, and get deeper, more accurate insights.
The success of any business, from small start-up to large enterprise, depends on how accurately they can predict future performance, as well as recognise and respond to warning signals.
Deloitte recently launched a report titled Forecasting in a digital world, the sixth in its Crunch Time series for CFOs, which delves into the advantages of algorithmic forecasting and why it will change and challenge the way businesses look at and consume data.
There is a shift away from having people gather, compile and manipulate data, to handing over the menial work to the machines – which employ data-fuelled, predictive algorithms to sift through historical data and use statistical models to describe what is likely to happen in the future.
It is a process that relies on warehouses of historical company and market data, statistical algorithms chosen by experienced data scientists, and modern computing capabilities that make collecting, storing, and analysing data fast and affordable.
Algorithmic forecasting is a well-oiled machine, with more than 80 percent of the work happening automatically. Every piece of financial data a decision maker could want is available on their device and all they need to do is ask—literally.
How it change the workforce
While it seems like the machines are taking over, humans are not left entirely out of the process. The success of algorithmic forecasting depends on collaboration with the machines and among people from different teams, including finance, data analytics, and business.
The business finance talent model should evolve to keep up with changes in how work gets done and that will likely require a different mix of people than what organisations have in place today.
However, once they hit their stride, these teams can move across the range of forecasting needs, embedding capabilities in the business and driving integration. These teams are integral to establishing an algorithmic solution that can work for the business, bring insights to life within the organisation, and support continued business ownership of the outcomes.
How it changes the workplace
The new teams required for algorithmic forecasting to succeed and the pulling of human resources from other departments will need the workplace to evolve into a more collaborative space, banishing outdated silos.
Forecasting is not limited to finance but all functions, from marketing to supply chain to human resources – basically all functions that need to predict the future to drive important decisions.
While CFOs may not lead function-specific forecasting, they should help shape these forecasting initiatives since finance will inevitably use the outputs they generate.
A shared forecasting infrastructure — even a physical Centre of Excellence (CoE)—can help improve collaboration and coordination while providing efficiencies in data storage, tool configuration, and knowledge sharing.
The beauty of algorithmic forecasting is that once the work is done to solve one specific problem, the same process and capability can be extended and applied in other areas.
Algorithmic forecasting doesn’t create anything out of thin air and it doesn’t deliver 100% precision. However, it is an effective way for getting more value from planning, budgeting, and forecasting efforts.
A commitment to algorithmic forecasting is both cultural and statistical. Making it happen involves people working with technology – neither is enough on its own. Every company will make its own unique journey from its current approach to planning and forecasting to an improved approach.
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