The role of small business in promoting growth and development has shot to the top of the agenda this year with both President Ramaphosa in his inaugural SONA and Minister Malusi Gigaba in his budget speech highlighting the critical role of this sector of the economy.
Globally, SMMEs are recognised as one of the key drivers of economic growth and job creation – and it is clear that the small business sector has led the world out of several global recessions – but in South Africa, the sector is under-performing.
Entrepreneurs need help to become sustainable
Recent data from the Global Entrepreneurship Monitor shows that South African entrepreneurship lags behind that in similar economies. And for every 1.5 people who were engaged in early-stage entrepreneurial activity in SA in 2016, one was exiting a business.
According to Mark Graham Associate Professor in Accounting at the University of Cape Town, typical reasons for business failure include: insufficient start-up funding, incorrect pricing for products or services, growing too quickly or prematurely, and inadequate cash flow.
“We need entrepreneurs to run their businesses successfully so that they can be sustainable,” he says. “Most of these issues can be addressed through a proper understanding of financial and accounting principles and concepts to help entrepreneurs run their businesses better.”
A growing understanding of financial principles
Graham, who runs the Finance for Non-Financial Managers programme at the UCT Graduate School of Business (GSB), emphasises that finance and accounting terms are really just a language that uses numbers to tell a story about a business.
“If you understand the fundamentals of financial principles you will be able to analyse what is happening in any organisation,” says Graham.
“Concepts like profit and cash flow are basic to business. However, people are often surprised to find that while a business can be extremely profitable, there may be a cash flow problem that will soon bring it to its knees.
Most people don’t know the basics of financial reports, what the right capital structure (i.e. the mix of debt and equity) might be. By getting to grips with concepts like working capital management and cash flow vs profit, business owners and managers can give themselves the best chance of success.”
Financial literacy is key to entrepreneurial success
Jannie Rossouw, head of Sanlam’s Business Market, agrees that financial literacy is key to entrepreneurial success and has argued that it should be integrated into the school curriculum so that future business owners can understand critical concepts like the time value of money.
“It is imperative that SA starts to spend significant time and resources to address the need for access to quality education aimed at those who want to pursue entrepreneurship and business ownership. We shouldn’t only start teaching these skills at the tertiary level,” says Rossouw.
And it is not just entrepreneurs that would benefit from a better grasp of the basics of finances, says Graham. All businesses should invest in developing the financial skills of their people – especially those in managerial roles.
“It is important for everyone working in business to understand the basic language of business and demystify the jargon – which is one of the things that the course I run at the GSB seeks to do,” he says.
“Feedback from previous course participants shows that people really appreciate being able to see how the numbers are telling a story about the health – or lack thereof – of a business and that this helped them make better business choices.”
Financial tools are needed to optimise businesses
“Sustainable small businesses have big potential to make a significant contribution to the SA economy and put a dent in the unemployment figures. So when Gigaba said that by enabling new businesses with new ideas to emerge and thrive, ‘we are radically transforming patterns of production in the economy’ he is not wrong.
But unless serious steps are also taken to equip owners and managers with the financial tools to optimise their companies, we will find that despite more proactive government policies and funding, the small business sector will still not thrive.”
Africa’s Top 10 Tech Start-Ups Selected For #Africa4Future Accelerator Programme
Airbus and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) have announced the top 10 African tech start-ups that will take part in the latest Airbus Bizlab #Africa4Future accelerator programme. They were selected after an open public pitch event in front of experts, potential investors, the media and other stakeholders in Kenya’s capital city.
#Africa4Future is a joint business accelerator initiative of Airbus and GIZ’s Make-IT in Africa initiative together with the Meltwater Entrepreneurial School of Technology (MEST), a non-profit seed fund and pan-African organisation that brings together startups, entrepreneurs and the tech community, and Innocircle, the South African-based innovation consultancy.
The top 10 start-ups were selected from 314 entries representing 19 African countries that were received when the challenge was opened last October. These were assessed by a panel of Airbus and other independent experts.
The programme aims to encourage and support entrepreneurship in Africa. The continent’s young and increasingly techno-savvy population is likely to be the driving force behind Africa’s socio-economic development. The competition identifies Africa’s own pool of talented entrepreneurs using innovative aerospace based solutions to tackle the continent’s most pressing challenges such as transportation, agriculture and healthcare.
As a global aerospace accelerator, Airbus BizLab is ideally suited to help African startups transform innovative ideas into viable and valuable businesses. In doing so, it increases the aerospace industry’s engagement with hardware and software innovators and entrepreneurs in Africa while helping to nurture the establishment of competitive entrepreneurial ecosystems on the continent.
The Nairobi event kicks off an intensive 6-month business incubation and accelerator programme involving technical, commercial and mentorship activities in France, Germany and South Africa. This includes workshops and coaching sessions with Airbus experts, GIZ’s Make-IT in Africa, MEST and Innocircle coaches.
The programme will culminate with Demo Day events at the biennial Paris International Airshow and a special event in Germany from 19-26 June, when finalists will launch their products, define their collaboration with Airbus and announce their investment commitments in front of representatives from across the aerospace industry.
1. Astral Aerial (Kenya) – using drones for humanitarian cargo transport, surveillance and emergency response.
2. Cote d’Ivoire drone (Ivory Coast) – locally-manufactured drones for various applications.
3. Elemental Numerics (South Africa) – applies computational fluid dynamics techniques to the design of machines and components, ranging from aircraft to heart valves.
4. Lentera Limited (Kenya) – applying remote sensors to monitor and transmit environmental data to enable more efficient and smarter farming.
5. Maisha ICT Tech PLC (Ethiopia) – deploying locally built drones for delivering medicines, blood and healthcare items to remote and rural areas.
6. MamaBird (Malawi) – provides a platform to help Governments, NGOs and other organisations deliver vital life-saving supplies to remote communities.
7. Map Action (Mali) – a solution offering real-time online urban mapping to identify problems affecting water supplies, hygiene and sanitation.
8. MobiTech Water Solutions (Kenya) – an online real-time water monitoring solution that allows businesses, homes and water-service providers to manage their available water using an app-based dashboard and instant messaging.
9. Track Your Build (Nigeria) – a novel infrastructure management tool for construction and operations.
10.WiPo Wireless Power (South Africa) – offers reliable and convenient wireless power chargers for businesses, conference centres, airports, restaurants and other venues for the charging of mobile devices, laptops and drones.
Related: 21 Steps To Start-Up Success
Top Sectors For SMEs In 2019
“As such, SMEs in the construction, communications and electrical fields are all likely to benefit from supply and sub-contracting agreements over the coming years.”
While the South African economy has been underperforming for a number of years, the first positive signs of turnaround started to become visible by the second quarter of 2018, and by the end of the third quarter, data supplied by Statistics South Africa showed that the economy had indeed grown by 2.2 percent, compared to the previous quarter. This uptick is expected to have a positive effect on business confidence in 2019.
This is according to Jeremy Lang, regional general manager at Business Partners Limited (BUSINESS/PARTNERS), who says that certain business sectors have already seen an increase in opportunities for small businesses and start-ups.
“While these sectors will not be without challenges, the following four industries are likely to offer the best opportunities for small and medium enterprise (SME) owners to grow their enterprises in the coming year.”
The World Travel and Tourism report 2018, revealed that the direct contribution of the travel and tourism sector to South Africa’s GDP has been projected to rise from R136bn in 2016 to R197.9bn by 2028 – set to make up a total of 3.3 percent of the country’s total GDP, says Lang.
“Although this sector experienced some setbacks in 2018, such as the drought in the Western Cape and stricter visa regulations for children entering the country, both the water restrictions and visa regulations have been relaxed and the sector is once again poised for growth,” he says.
Statistics South Africa has credited this industry with being the biggest driver of growth in the country’s GDP, having expanded by 7.5 percent in September 2018, says Lang. “To bolster this, Government has made a concerted effort to stimulate small business growth in this area with initiatives such as the Black Industrialist Programme and the SA Automotive Masterplan.”
He adds that businesses in the manufacturing sphere could therefore likely see significant opportunities in the form of outsourcing contracts and new partnerships with large corporates.
“The debate around land expropriation has occupied most of the discussions surrounding the agricultural sector in 2018, with some questioning growth prospects of this sector. However, this industry has a lot of growth ahead of it, as demonstrated by its 6.5 percent growth over the last three months of 2018,” explains Lang.
“Further to this, the industry is also already taking significant advantage of seven climatic regions in South Africa, with the export of a wide variety of high quality fruit and vegetables increasing substantially,” he points out. The recent outbreak of foot and mouth disease that has resulted in the suspension of the country’s FMD-free status will however significantly impact meat exporters.
In terms of opportunities for SMEs, he says that these may most likely be found in the rural and underdeveloped regions, where the need for resources like efficient transport, state-of-the-art cold storage, better irrigation and private power generation will be key to making agriculture projects more productive and competitive in the export market.
Data and information technology
Connectivity and information technology infrastructure are both crucial to business and employment growth in South Africa, says Lang.
“With many municipalities and the Western Cape government committing to providing all of its residents with free data as part of a plan to expand public Wi-Fi network access, it is clear that this is also becoming a high priority on a state level.”
It has also been reported that South Africa is awaiting the arrival of three international data centres, and large players in the communications sphere, including Vodacom, Telkom and Vumatel, are making huge strides in drastically growing the country’s fibre optic backbone, he adds. “As such, SMEs in the construction, communications and electrical fields are all likely to benefit from supply and sub-contracting agreements over the coming years.”
In conclusion, Lang says that as South Africa’s economic growth has started to turn around, business owners should keep their ears to the ground as 2019 is highly likely to be a year of opportunity.
Herman Mashaba To Talk On City Of Jo’burg Job Creation Initiative
Herman Mashaba to talk on City of Jo’burg job creation initiative at 2019 Business Day TV SME Summit.
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