Initial thoughts on governments role in creating a viable small business and entrepreneurial sector in South Africa

1. Ebrahim-Khalil Hassen
http://zapreneur.com
Economic Development Department Panel on
Government’s Role in Supporting Small Business
29 May 2012
Centurion

2. FREEDOM CHARTER
THE PEOPLE SHALL SHARE IN THE COUNTRY`S WEALTH!
THE NATIONAL WEALTH OF OUR COUNTRY, THE HERITAGE OF SOUTH AFRICANS, SHALL BE
RESTORED TO THE PEOPLE;
THE MINERAL WEALTH BENEATH THE SOIL, THE BANKS AND MONOPOLY INDUSTRY SHALL
BE TRANSFERRED TO THE OWNERSHIP OF THE PEOPLE AS A WHOLE;
ALL OTHER INDUSTRY AND TRADE SHALL BE CONTROLLED TO ASSIST THE WELLBEING OF
THE PEOPLE;
ALL PEOPLE SHALL HAVE EQUAL RIGHTS TO TRADE WHERE THEY CHOOSE, TO
MANUFACTURE AND TO ENTER ALL TRADES, CRAFTS AND PROFESSIONS.

3. The Small Business Debate
Agency Structural
• Less Red Tape, More • Monopoly Capital – squash
Deregulation little guys like bugs
BOTH APPROACHES FIND RESONANCE IN POLICY
IMPLEMENTATION ?
Issue One – Understanding SMME Sector
Issue Two – Economic Deconcentration

4. Motivations to Start Business
40
Work with the small 35.8
34.2
35
businesses we have
30
• Large numbers of 25
25.1
own account 20
16.6
workers 15 14
8.9
• But,
10
7.3
5 2.9
1.9 1.8
understanding 0
differentiation
very important
FINSCOPE 2010, Authors Calculations

5. Number of Jobs by owners motivation
100%
90% 22.4
80% 43.0
70%
60%
50%
40% 77.6
30% 57.0
20%
10%
0%
Opportunity Lost Job/ Unemployed
Own Account Worker More than one Job
FINSCOPE 2010, Authors Calculations

6. Jobs in Small Business By Activity
0 1 2 3 4 5 6 or more
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

7. Registration Status By Net Profit
Less than 25K 25k to 100 K 100K to 1 Million More than 1 Million
98.9
100.0
90.0
80.0 76.5
70.0
60.0
50.0
40.0
30.0
20.0
11.9 10.2
10.0
1.5 0.7 0.4 0.0
0.0
Registered Not Registered

8. Lesson One
WORK WITH THE SMALL BUSINESSES
WE HAVE. UNDERSTAND THEM AND
FIND WAYS TO SUPPORT OPPORTUNITY
BASED AND EMPLOYMENT CREATING
INITIATIVES. WHAT ABOUT NECESSITY
DRIVEN BUSINESSES?

9. Lesson Two
ALLIANCE WITH THE LITTLE GUY

10. We must have a different kind of
market economy — one based
on a decentralised alliance
between the little guy and the
government.
Roberto Mangabeira
Unger, 2001

11. The Number One Problem Facing
Small Business
DEMAND FOR PRODUCT
Across all surveys that were reviewed
WHY IS THIS?
LACK OF UNCOMPETITIVE
ENTREPRENEURIAL ECONOMY
EDUCATION

12. ECONOMIC CONCENTRATION
• The picture that emerges is of a landscape inhabited by
lumbering giants – corporates, parastatals and
conglomerates – that can easily squash any smaller
species that do not find a way of hanging on and
moving with them.
• Small Business Project, 2011

13. Concentration Reflected in the State
Budget
• Less than 1% of economic budget allocated to
small business (2009 paper available)
• Strong focus on IPAP, New Growth Path and
Industrial Development Zones
• R 350 billion to R 700 billion on nuclear
• State Budget reflects and supports economic
concentration

14. Examples
• Nuclear energy
• Dam building linked to large scale mining
• Strong SOE support for aluminium sector and
iron ore sectors
• Limited legislative agenda focussed on
• Frontier industries (Internet) virtually
ignored, yet South Africa can create 150 000
jobs in the next two decades

15. Responses Needed
• Economic Deconcentration Act
– Large oligopolistic nature of the economy is a
structural fault line (#ows). They are too big too
fail.
– US and other countries actively reducing the
largeness of firms.
– Incentives for linking small and larger businesses
– Introduction of stronger venture capital fund role
for government
– Stronger support for franchising