AN IMPACT ANALYSIS OF SOUTH AFRICA’S NATIONAL CLEMENT STANLEY CHALERA

AN IMPACT ANALYSIS OF SOUTH AFRICA’S NATIONAL  CLEMENT STANLEY CHALERA
University of Pretoria etd – Chalera, C S (2007)
AN IMPACT ANALYSIS OF SOUTH AFRICA’S NATIONAL
STRATEGY FOR THE DEVELOPMENT AND PROMOTION OF
SMMEs
CLEMENT STANLEY CHALERA
(Student Number: 2339623)
2006
University of Pretoria etd – Chalera, C S (2007)
AN IMPACT ANALYSIS OF SOUTH AFRICA’S NATIONAL
STRATEGY FOR THE DEVELOPMENT AND PROMOTION OF
SMMEs
by
CLEMENT STANLEY CHALERA
Submitted in fulfilment of the requirements for the degree
PHILISOPHIAE DOCTOR (PhD)
In the
DEPARTMENT OF MARKETING AND COMMUNICATION
MANAGEMENT
FACULTY OF ECONOMIC AND MANAGEMENT SCIENCES
At the
UNIVERSITY OF PRETORIA
PROMOTER: PROFESSOR RONÉL RENSBURG
Pretoria
May 2006
University of Pretoria etd – Chalera, C S (2007)
ACKNOWLEDGEMENTS
This research report, to reach this final form, is built on the experiences,
knowledge and sacrifices of many people. It will indeed be difficult for me to
mention them all, but I would like to mention those who had gone the extra mile
with me:
Thulani Nkwananzi, Morwesi More, Sunday Mahlangu and Mzwandile Masina
from the Department of Trade and Industry.
Keabecoe (KB) Motlhoioa, Phinnah Mukwevho and Sibongile Msibi from Ntsika
Enterprise Promotion Agency.
Sizwe Tati and Tello May from Khula Enterprise Finance Limited.
Dann Morgan, Lemmy Mduli, Annoinette Baepi and Stan Mathabatha from
Gauteng, Mpumalanga, North West and Limpopo provincial SMME desks
respectively.
Kanyo Gqulu, Tshepo Tjatjie and Sibongile Dlamini from the Department of
Minerals and Energy (DME).
Sipho Mseleku, Patrick Silo and Vusi Nthlapo from National African Federated
Chamber of Commerce.
Virginia Banda (Gerina) for her assistance in the coding and analyzing of the
study’s questionnaire and for undoubted support when I needed it most.
My promoter, Professor Ronél Rensburg, for her guidance during the entire
period of the study.
University of Pretoria etd – Chalera, C S (2007)
All the owners of the small black economic empowerment mining companies who
participated in the study by responded to the study’s questionnaire.
May the good Lord bless them all.
University of Pretoria etd – Chalera, C S (2007)
DEDICATION
I dedicate this research study to two special people in my life: my mother,
Naphumisa and my son, Tiyamike.
It is my mother who, since my childhood, implanted into me the realization of the
power of knowledge and perseverance.
Omai, ku Matenje kale-kale, munanena kuti, “Mwana wanga, limbikila
sukulu, tsiku linatu amenewa adzakugwadirani”.
It is because of those powerful prophetic words and whatever you have provided
me physically, mentally and morally since that day you brought me into this
world, I dedicate this work to you, Wokwathu!!!
To my son Tiyamike: “I failed you dismally as a parent during the time I was
conducting this study. It is for your courage and uncompromising love and trust
you have in me as a father that I also dedicate this work to you, Tiya!!!”
University of Pretoria etd – Chalera, C S (2007)
AN IMPACT ANALYSIS OF SOUTH AFRICA’S NATIONAL
STRATEGY FOR THE DEVELOPMENT AND PROMOTION OF
SMMEs
Abstract
This study explores the effectiveness of the South African National Strategy for
the development and promotion of small businesses in South Africa, where it first
evaluates the effectiveness of the instructional framework created under the
government’s National Strategy i.e. Centre for Small Business Promotion, Ntsika
Enterprise Promotion Agency and Khula Enterprise Finance Limited for the
attainment of the government’s National Strategy’s objectives of job creation,
income generation and economic growth from an economic point of view. It also
investigates the government’s National Strategy’s effectiveness with regard to
services provision by both the financial service providers and non-financial
service providers including the recipients of such services i.e. the SMMEs
themselves from a business management perspective with regard to the success
factors of functional areas of management.
The study also evaluates some
government departments which are not incorporated in the government’s
National Strategy’s institutional framework and other business organizations all of
which are engaged in small business development initiatives. The study further
evaluates some parastatal organizations and provincial SMME desks in relation
to the government’s National Strategy. Lastly the study evaluates the impact the
government’s National Strategy has had on the small black economic
empowerment mining companies as a sector, specifically if the government’s
National Strategy has created an enabling environment for them to succeed in
their small-scale mining operations.
University of Pretoria etd – Chalera, C S (2007)
Job creation and growth of the small business sector will remain one of South
Africa’s most urgent needs. Most severe social and economic ills result directly
from inadequate progress in both these domains. Since the first democratic
elections of 1994, an intensive process had been undertaken to address the
urgent need for job creation and income generation, particularly among the
majority black population. From these processes, policies were formulated,
institutions created and funds allocated in the quest for these goals.
While opinions may differ widely on the most effective measure to achieve steady
progress, one factor has not been placed in doubt, namely that the richest source
of job creation may come, not from the country’s big business sector, but from
the small and medium enterprise sector. This reality is hardly unique to South
Africa alone, but a proven fact in virtually every country developed and less
developed alike.
According to the study there seems to be a consensus that job creation ranks
among the country’s most urgent priorities, along with AIDS, crime and
education. High unemployment remains the obstacle to the country’s long-term
social, economic and political stability. The government’s National Strategy was
meant to address all these issues as it is a web that links many economic and
social sectors of the country. Job creation in the all-important small business
sector is not just an “industry” issue; it cuts across many different policy areas,
from individual livelihoods, economic development, political empowerment,
human resource development, market development and physical infrastructure.
The government’s National Strategy, according to the study, is not perceived as
a “strategy” as such, which would imply an integrated national plan linking all
programmes at the national and regional level to achieve defined goals. It is
however, seen as an array of independent, largely uncoordinated programmes,
aimed at a common set of social and economic goals.
University of Pretoria etd – Chalera, C S (2007)
A critical flaw in the government’s National Strategy, the study had also shown, is
its failure to “segment its market”, namely to realistically differentiate its support
among its two principal target groups - micro/survivalist enterprises and
small/medium
businesses
-
each
with
distinctly
different
needs.
The
government’s National Strategy also appears to have suffered from several
internal contradictions especially with regard to the institutions created under its
institutional framework.
With regard to the implementation of the government’s National Strategy, the
study has noted that the National Strategy seems to be leaderless and not
effectively coordinated. The National Strategy also seems to have spawned an
explosion of programmes and service providers, frequently duplicating other
national and regional programmes. The Centre for Small Business Promotion
within the DTI seems not to be playing the role it was intended to play while
Ntsika’s centralised/standardised mode of operation makes adaptation of training
to diverse local groups and needs very difficult and Khula’s programmes seem to
have fallen short of their objectives, despite an effective and professional internal
organization.
Contrary to its design, provinces and municipalities do not play a major policy or
operational role in the government’s National Strategy yet these are typically
most informed and connected to local businesses and often have better
understanding of the needs and success factors.
With regard to the small black economic empowerment mining sector, the study
has revealed that the government’s National Strategy has not been utilized
effectively by this sector and because of this the government’s National Strategy
has not played a pivotal role in creating an enabling environment for small-scale
miners to fully succeed in their small-scale mining operations.
University of Pretoria etd – Chalera, C S (2007)
TABLE OF CONTENTS
Chapter 1: INTRODUCTION
Page
1.1
Introduction
1
1.2
Background to the study
2
1.3
Purpose and objectives of the study
9
1.3.1
Purpose of the study
9
1.3.2
Objectives of the study
11
1.4
Problem statement
14
1.5
Delimitation of the study
16
1.6
Research design
17
1.6.1
Type of study
18
1.6.2
Propositions/assumptions
19
1.6.3
Research methodology
19
1.6.4
Sample design of the study
20
1.7
Possible findings of the study
21
1.8
Structure of the study
22
1.9
Summary
24
University of Pretoria etd – Chalera, C S (2007)
Chapter 2: SOUTH AFRICA’S POLITICAL BACKGROUND AND
ITS LEGACY
2.1
Introduction
25
2.2
Political background
25
2.3
Discriminatory measures
26
2.3.1
Land reservation
26
2.3.2
Job reservation
28
2.3.3
Education
30
2.4
Legacy of discrimination
32
2.4.1
Inequality
32
2.4.2
Economic growth
33
2.5
The impact of the legacy on the small business
sector
2.6
2.7
34
The government effort to address the apartheid’s
legacy
35
Conclusion
36
Chapter 3: THE SMME SECTOR IN SOUTH AFRICA
3.1
Introduction
37
3.2
Main functions of SMMEs
38
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3.3
Structural features of the South African economy
and its implications for SMME growth
39
3.3.1
The apartheid legacy
39
3.3.2
International experience in dealing with such legacy
40
3.3.3
Way forward for South Africa
41
3.4
Can SMME resolve the unemployment problem? –
a theoretical consideration
42
3.4.1
Capital, productivity and demand for labour
42
3.4.2
Labour markets, wage rates and productivity
43
3.4.3
Role of the high productivity in labour markets
43
3.4.4
Role of the micro-enterprises and the SME sector
44
3.5
Size, profile and performance of South Africa’s
SMME economy
48
3.5.1
Introduction
48
3.5.2
Numbers of SMMEs in various size categories
49
3.5.3
Sectoral structures of South Africa’s SMMEs
51
3.5.3.1
Current sectoral profile
52
3.5.3.2
Sectoral dynamics
54
3.5.4
Ethnic structure of South Africa’s SMME
59
3.5.4.1
“Black business”
59
3.5.4.2
Racial discrimination by sector
60
3.5.4.3
Cross-racial partnerships
60
3.5.5
Geographical location of South Africa’s SMMEs
61
3.5.5.1
Rural and urban SMMEs
61
3.5.5.2
Evidence of untapped potential in rural areas
63
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3.5.6
SMMEs’ contribution to the economy
64
3.5.6.1
SMMEs’ contribution to employment
64
3.5.6.2
SMMEs’ contribution to the GDP
67
3.5.6.3
SMMEs’ contribution to investment
69
3.5.7
Statistical data on SMME – conclusions and
recommendations
70
3.5.7.1
Direction for data collection
71
3.5.7.2
Direction for data presentation
72
3.5.7.3
Direction for data analysis
73
3.6
Conclusion
74
Chapter 4: INTERNATIONAL, REGIONAL AND LOCAL
EXPERIENCES IN SMME DEVELOPMENT
4.1
SMMEs as major employment creators – evidence
from industrialized countries
4.2
SMMEs as major employment creators – the
experience in Africa
4.3
76
Employment creation through SMMEs – South
Africa’s debate
4.3.1
78
Government’s perspective: SMMEs as a vehicle to tackle
the problem of unemployment
4.3.2
75
78
Government initiative: Supply-side policy to promote
79
SMMEs
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4.4
Conclusion
81
Chapter 5: SOUTH AFRICA’S STRATEGY FOR THE
DEVELOPMENT AND PROMOTION OF THE SMME SECTOR
5.1
The evolution of the SMME policy framework
5.2
The development of institutions to facilitate SMME
development
5.2.1
82
86
Department of Trade and Industry and its related
87
institutions
5.2.1.1 Centre for Small Business Promotion
89
5.2.1.2 Ntsika Enterprise Promotion Agency
90
5.2.1.3 Khula Enterprise Finance Limited
92
5.2.1.4 Provincial SMME desks
94
5.3
95
Conclusion
Chapter 6: SOUTH AFRICA’S MINING INDUSTRY OVERVIEW
6.1
Introduction
96
6.2
Structure of the mining industry
97
6.2.1
The private sector
98
6.2.1.1
Black economic empowerment mining companies
99
6.2.1.2
Chamber of mines
102
6.2.1.3
South African Mining Development Association
103
6.2.2
The government
103
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6.3
South Africa’s mining industry strengths
105
6.4
Minerals exploration
107
6.5
Communication, infrastructure and labour
108
6.6
The industry’s role in national economy
110
6.7
Mineral production and sales in 2004
112
6.8
Mineral beneficiation
114
6.9
South Africa’s imports of mineral products
115
6.10
Forecast of minerals exports for 2004 to 2009
116
6.11
Regional co-operation – (SADC)
118
6.12
Conclusion
120
Chapter 7: TYPE OF STUDY
7.1
Introduction
121
7.2
Qualitative data of the study
121
7.3
Qualitative data analysis of the study
122
7.4
The interactive nature of the study process
124
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7.5
Conclusion
124
Chapter 8: PROBLEM STATEMENT, RESEARCH OBJECTIVES
AND PROPOSITIONS
8.1
Introduction
125
8.2
Problem statement
126
8.3
Objectives of the study
128
8.4
Research propositions
131
8.4.1
Testing the effectiveness of the institutions created within
the framework of the government’s National Strategy
8.4.2
Testing the effectiveness of the government’s National
134
Strategy
8.4.3
Testing of other institutions influencing small business
136
development
8.4.4
Testing of parastatal organizations and provincial SMME
137
desks
8.4.5
8.5
132
Testing of small black economic empowerment mining
companies
139
Conclusion
142
Chapter 9: RESEARCH METHODOLOGY
9.1
Introduction
144
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9.2
Research design
146
9.2.1
Assessment of the institutions created within the framework
of the government’s National Strategy
147
9.2.1.1
Centre for the Small Business Promotion
148
9.2.1.2
Ntsika Enterprise Promotion Agency
149
9.2.1.3
Khula Enterprise Finance Limited
150
9.2.2
Assessment of the effectiveness of the government’s
152
National Strategy
9.2.3
Assessment of other institutions influencing small business
155
development
9.2.4
Assessment of the role of parastatal enterprises and
provincial SMME desks
156
9.2.4.1
Parastatal organizations
156
9.2.4.2
Provincial SMME desks
157
9.2.5
Small black economic empowerment mining companies
158
9.2.5.1
Assessment of small black economic empowerment mining
companies
158
9.3
Scope of the study
160
9.4
Research methodology of the first phase of the
study
163
9.4.1
Objectives
165
9.4.2
Population and Sample
168
9.4.2.1
Centre for Small Business Promotion
168
9.4.2.2
Ntsika
169
9.4.2.3
Khula
169
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9.4.2.4
Financial service providers
169
9.4.2.5
Non-financial service providers
170
9.4.2.6
Small, medium and micro enterprises
171
9.4.2.7
Other institutions influencing small business development 171
9.4.2.8
Parastatal organizations
172
9.4.2.9
Provincial SMME desks
172
9.4.3
Information required
172
9.4.4
Sampling
173
9.5
Research methodology of the second phase of
the study
174
9.5.1
Objectives
175
9.5.2
Population and sample
175
9.5.3
Information required
175
9.6
Conclusion
176
Chapter 10: RESEARCH RESULTS AND ANALYSIS
10.1
Introduction
178
10.2
Research frame work
178
10.3
Research findings of the first phase of the study
178
10.3.1
Centre for Small Business Promotion
178
10.3.1.1
Analysis of mission and objectives of the CSBP
178
10.3.1.2
Analysis of the structure and activities of the CSBP
181
10.3.1.3
Analysis of the performance of CSBP activities
182
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10.3.1.4
Related observations and findings
184
10.3.1.5
Research proposition with regard to the CSBP
185
10.3.1.6
Study findings with regard to the CSBP
186
10.3.2
Ntsika Enterprise Promotion Agency
187
10.3.2.1
Analysis of Ntsika’s objectives and mission
187
10.3.2.2
Analysis of the structure of Ntsika
189
10.3.2.3
Ntsika’s success in meeting its programme objectives
191
10.3.2.4
Ntsika’s monitoring and evaluation
201
10.3.2.5
Related observation and findings
203
10.3.2.6
Research proposition with regard to Ntsika
207
10.3.2.7
Study findings with regard to Ntsika
207
10.3.3
Khula Enterprise Limited
210
10.3.3.1
Analysis of Khula mission and objectives
211
10.3.3.2
Analysis of Khula’s programmes and their performance
214
10.3.3.3
Related observation and findings
220
10.3.3.4
Research proposition with regard to Khula
222
10.3.3.5
Study findings with regard to Khula
223
10.3.4
Analysis of the effectiveness of the National Strategy
225
10.3.4.1
Summary of the findings
226
10.3.4.2
Research propositions with regard to the effectiveness
of the government’s National Strategy
10.3.4.3
Study findings with regard to the effectiveness of the
government’s National Strategy
10.3.5
10.3.5.1
233
234
Analysis of other institutions influencing small business
development
237
Overall findings
237
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10.3.5.2
Awareness of the government’s National Strategy and its
243
institutions
10.3.5.3
Perceived strengths and weaknesses of the government’s
National Strategy and its institutions
10.3.5.4
Effects of the government’s National Strategy on the operations
250
of these organizations
10.3.5.5
Collaboration with the government’s National Strategy’s
251
institutions
10.3.5.6
Research propositions with regard to other institutions
influencing small business development
10.3.5.7
253
Study findings with regard to other institutions influencing
small business development
10.3.6
245
254
Analysis on the role of parastatal organizations and provincial
SMME desks
255
10.3.6.1
Observation on parastatal enterprises
257
10.3.6.2
Observation on provincial SMME desks
261
10.3.6.3
Research propositions with regard to parastatal enterprises
264
and provincial SMME desks
10.3.6.4
Study findings with regard to parastatal enterprises and
264
provincial SMME desks
10.4
Study of the small black economic empowerment
mining companies
10.4.1
267
Study findings with regard to small black economic
empowerment mining companies
10.4.2
Research propositions with regard to small black economic
270
empowerment companies
10.4.3
267
Testing the propositions of the of the study with regard to
small black economic empowerment mining companies
xi
271
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10.5
Conclusion
274
Chapter 11: CONCLUSIONS AND RECOMMENDATIONS
11.1
Introduction
275
11.2
Centre for Small Business Promotion
275
11.2.1
Principal conclusion
275
11.2.2
Principal recommendation
277
11.3
Ntsika Enterprise Promotion Agency
278
11.3.1
Principal conclusion
278
11.3.2
Principal recommendation
279
11.4
Khula Enterprise Finance Limited
282
11.4.1
Principal conclusion
282
11.4.2
Principal recommendation
283
11.5
Effectiveness of the National Strategy
284
11.5.1
Principal conclusion
284
11.5.2
Principal recommendation
284
11.6
Other institutions influencing small business
development
286
11.6.1
Principal conclusion
286
11.6.2
Principal recommendation
287
11.7
Parastatal enterprises and provincial SMME desks 289
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11.7.1
Principal conclusion on parastatal enterprises
289
11.7.2
Principal conclusion on provincial SMME desks
289
11.7.3
Principal recommendation on parastatal enterprises
290
11.7.4
Principal recommendation on provincial SMME desks
291
11.8
Small Black Economic Empowerment mining
companies
293
11.8.1
Principal conclusion
293
11.9
Overview conclusion of the study
296
11.9.1
Introduction
296
11.9.2
SMME policies as part of a wider framework
297
11.9.2.1
Macroeconomic policy and its impact on SMME growth
297
11.9.3
The labour market and SMMEs
299
11.9.3.1
Labour regulation and employment dynamics
299
11.9.3.2
Flexibility of labour
300
11.9.3.3
Future research on labour and SMMEs
300
11.9.4
Capital markets and future intermediation
301
11.9.4.1
Some policy framework guidelines
301
11.9.4.2
Future research needs
302
11.9.5
Trade and market structures
305
11.10
Conclusion
306
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FIGURES, TABLES, REFERENCES, APPENDIXES AND
ABBREVIATIONS.
Page
8
LIST OF FIGURES
xvi
9
LIST OF TABLES
xvii
10
REFERENCES
308
11
APPENDIXES
11.1
Appendix One: Questionnaire
325
11.2
Appendix Two: Ntsika’s non-financial service
providers interviewed
332
11.3
Appendix Three: Khula’s financial service providers
interviewed
333
11.4
Appendix Four: SMMEs interviewed
334
11.5
Appendix Five: Provincial and Financial Affairs
departments interviewed
336
11.6
Appendix Six: Provincial Public Works departments
interviewed
337
11.7
Appendix Seven: Parastatal enterprises
338
11.8
Appendix Eight: Provincial SMME desks
339
11.9
Appendix Nine: List of small mining companies
340
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11.10
12
Appendix Ten: Proposed job structure and small
business promotion
341
GLOSSARY OF ABBREVIATIONS
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LIST OF FIGURES
Page
Figure 5.1:
Institutional framework of the Government’s
National Strategy for the development and
promotion of SMMEs
87
Figure 6.1:
Commodities associated with small black
economic empowerment mining companies
(2003)
101
Figure 6.2:
Geographical distribution of small black
economic empowerment mining companies
(2003)
102
Figure 6.3:
South Africa’s mining industry: Employment
by sector, 2003
111
Figure 6.4:
South Africa’s mining industry: Remuneration
by sector, 2003
112
Figure 9.1:
Scope of the research process
161
Figure 9.2:
Final research framework followed in the
study
163
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LIST OF TABLES
Page
Table 3.1:
Different indicators for the size of the SMME
sector
50
Table 3.2:
Ntsika statistics on the sectoral distribution of
South Africa’s enterprises
53
Table 3.3:
Primary, secondary and tertiary economy
depending on enterprise size
54
Table 3.4:
Sectoral distribution of start-ups and new
firms compared to the total distribution of
South Africa’s enterprises
58
Table 3.5:
Registration and de-registrations of CC’s and
Pty’s by sector (1990-2000)
58
Table 3.6:
PDI share according to various studies
60
Table 3.7:
Racial distribution of firm ownership by
Sector
61
Table 3.8:
Distribution of SMMEs according to location
(Ntsika)
62
Table 3.9:
Distribution of SMMEs according to location
(GEM)
62
Table 3.10:
Untapped potential of “opportunity
entrepreneurship”
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Table 3.11:
Contribution to employment by firm size –
overview
65
Table 3.12:
Contribution to GDP by size – overview
Table 3.13:
SMMEs contribution to nominal gross fixed
capital formation, 2000
70
Table 10.1:
Opinion on government’s provision of the
necessary support for small business on
1 to 10 point scale
269
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GLOSSARY OF ABBREVIATIONS:
ARM: African Rainbow Minerals
BBSEE: Broad Based Socio-Economic Empowerment
BBSEEC: Broad-Based Socio-Economic Empowerment Charter
BDS: Business Development Services
BEE: Black Economic Empowerment
BONI: Business Opportunities National Initiative
BONIs: Business Opportunities National Initiatives
BRAIN: Business Referral and Information Network
CBO: Community Based Organization
CC: Close Corporation
CCs: Close Corporations
CET: Contractor Entrepreneurship Training
CGIC: Credit Guarantee Insurance Corporation
CSBP: Centre for Small Business Promotion
CSDF: Corporate SMME Development Forum
CSIR: Council for Scientific and Industrial Research
DBSA: Development Bank of Southern Africa
DET: Department of Education and Training
DME: Department of Minerals and Energy
DTI: Department of Trade and Industry
EMIA: Export Marketing and Investment Assistance Scheme
EEZ: Emerging Enterprise Zone
FRD: Foundation for Research Development
GA: Get Ahead
GCC: Gold Crisis Committee
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GDP: Gross Domestic Products
GEAR: Growth, Employment and Redistribution
HDSA: Historically Disadvantaged South African
HDSAs: Historically Disadvantaged South Africans
IDC: Industrial Development Corporation
IDT: Independent Development Trust
ILO: International Labour Organisation
ISS: Institutional Support Services
JSE: Johannesburg Securities Exchange
LBSC: Local Business Service Center
LBSCs: Local Business Service Centers
MAC: Manufacturing Advisory Centre
MACs: Manufacturing Advisory Centers
MDB: Mineral Development Branch
MED: Management and Entrepreneur Development
MMD: Matrix Marketing Databanks
NAFCOC: National African Federated Chamber of Commerce
NEPA: Ntsika Enterprise Promotion Agency
NGO: Non Governmental Organization
NGOs: Non Governmental Organizations
NMC: New Mining Corporation
NPC: National Population Census
NSBA: National Small Business Act
NSBC: National Small Business Council
NSC: National Steering Committee
OECD: Organization of Economic Co-operation and Development
PDI: Previously Disadvantaged Individual
PDIs: Previously Disadvantaged Individuals
PhD: Philisophiae Doctor (Latin)
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PGMs: Platinum-Group Metals
RBSA: Reserve Bank of South Africa
RDP: Reconstruction and Development Programme
RFI: Retail Finance Intermediary
RFIs: Retail Finance Intermediaries
SABS: South African Bureau of Standards
SACOB: South African Chamber of Business
SADC: Southern African Development Community
SAR: South African Receiver of Revenue
SBDC: Small Business Development Corporation
SBEEM: Small Black Economic Empowerment Mining
SME: Small Medium Enterprise
SMEs: Small Medium Enterprises
SMME: Small, Medium and Micro Enterprise
SMMEs: Small, Medium and Micro Enterprises
SSA: Statistics of South Africa
SSP: Skills Support Programme
TAC: Tender Advice Centre
TACs: Tender Advice Centres
TPMAC: Technopreneur Programme and Manufacturing Assistance
Centre
TPMACs: Technopreneur Programme and Manufacturing Assistance
Centres
UIF: Unemployment Insurance Fund
USA: United States of America
VAT: Value Added Tax
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CHAPTER 1
INTRODUCTION
“Small, Medium and Micro-Enterprises (SMMEs) represent an important
vehicle to address the challenges of job creation, economic growth and equity
in our country. Throughout the world one finds that SMMEs are playing a
critical role in absorbing labour, penetrating new markets and generally
expanding economies in creative and innovative ways. We are of the view that
– with this appropriate enabling environment – SMMEs in this country can
follow these examples and make an indelible mark on this economy. The
stimulation of SMMEs must be seen as part of an integrated strategy to take
this economy onto a higher road – one in which our economy is diversified,
productivity is enhanced, investment is stimulated and entrepreneurship
flourishes” (RSA, 1995).
1.1
Introduction
The government’s National Strategy for the development and promotion of the
small business sector in South Africa was formally endorsed by parliament in
early 1995. The Strategy established several important objectives for the
development of the small, medium and micro enterprises (SMMEs) sector
over a ten year period.
To achieve these objectives, the South African government established
institutions and programmes designed to improve the access of the SMME
sector to critical resources, including finance, infrastructure, training and
counseling, information, markets and technology. It also called for efforts to
strengthen the SMMEs’ associations and chambers as well as efforts to
improve the legislative and regulatory environment for the small business
sector.
University of Pretoria etd – Chalera, C S (2007)
South Africa’s integration into the global economy in 1994 provokes the
question about its potential for building competitive advantage and prosperity
at the local level in the context of an increasingly global economy. According
to Timmons (1994), the experience of prospering localities in industrialized
countries, in particular, Western Europe and Japan, suggests that the small
and medium-sized enterprise (SME) sector is at the largest forefront of local
economic development. Small and medium enterprises (SMEs) are reported
to resolve the persistent problems of insufficient employment growth while
being highly efficient in flexibly serving increasingly segmented consumer
markets (Kesper, 2000).
The small business sector discussions had been taken up in South Africa,
where, according to Rogerson (1994), SMMEs hold a numeric majority.
SMMEs are expected to function as a driving force both in South Africa’s
social and economic transition if supported by supply-side measures targeting
enterprises’ constraints. Some studies on South African SMMEs reveal,
however, a mismatch between reality and the model of the SMME sector used
by South African policy makers. According to Kesper (2000), the South
African SMME sector is far from homogeneous and would require a fine-tuned
set of interventions rather than the generic assistance currently provided.
Kesper (2000), also suggests that only the few, more dynamic SMMEs show a
potential to contribute to rapid employment creation, while survivalist activities
(as a result of “enforcement self-employment”) constitute the vast majority of
the South African SMMEs economy and grow in number but not in size.
1.2
Background to the study
A brief look at the historical development in South African political economy in
addressing the problem of white people in the 1920s will help us understand
that economic empowerment is not a new concept in South Africa. According
to Qunta (1995), it has been there backed by legislation for white people.
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According to Qunta (1995), the government began addressing the problem of
white people in 1922 after the white workers’ strike in protest to the number of
black people who were starting to compete for employment.
The Industrial Conciliation Act of 1924 excluded black people from the
definition of “employee” (Qunta et al., 1995). This was followed by the Wage
Act of 1925, which increased wages for white workers and also improved their
standard of living. The private sector was subsequently subsidized to offer
employment and acceptable wages for white people and according to Human
(1993), these labour policies resulted in the retrenchment of 13 000 black
workers by 1933. The most devastating legislation that was passed was the
separate education system introduced in 1948 (Qunta et al., 1995). Leaders
such as Dr. H. F. Verwoerd stressed that the upliftment of white workers could
only occur effectively if they were protected against “non-white competition”
(Madi et al., 1997).
With this brief scenario one would be essentially naive to believe that the
current government in South Africa will not “look out” for its colleagues in a
country that has for so long catered for a few. This will force the government
to offer sensible and practical support in the form of appropriate legislation, for
example, the National Small Business Act (NSBA), No. 102 of 1996. The
government hoped that this Act would give impetus to the efforts of promoting
the small business sector into the mainstream of the South African economy
(RSA, 1995).
Since 1994, the democratically elected South African government has been
faced with the challenges of re-integration into world markets as a global
economy, while at the same time positioning itself to realize the high
expectations of its populace regarding a successful transition towards a more
democratic order. To achieve the objectives of economic growth through
competitiveness on the other hand, and employment generation and income
redistribution as a result of this growth on the other, South Africa’s small
business economy has been actively promoted since 1995 and according to
Kesper (2000), since then there is still little clarity as to whether the
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government’s National Strategy to develop and promote the small business
sector has indeed created an enabling environment for that sector to the
attainment of its objectives of poverty alleviation, economic growth and job
creation.
Job creation and growth of the small business sector will remain one of South
Africa’s urgent needs for years, if not decades, to come. Many of the country’s
most severe social and economic ills, according to Qunta (1995), result
directly from inadequate progress in both these domains.
Much has been written about the need to address South Africa’s burgeoning
unemployment crisis. Everybody presents almost the same statistics.
According to Magali Malherbe (2003), unemployment was running at about
49%, an increase of over fifty points from 1999 when it was only 32%. The
same report indicates that at a sectoral level the long-term trends are even
more disconcerting as between 1994 to 2003 the manufacturing sector had
shed 22% of its jobs, construction had declined by 35% and mining by 47%.
South Africa’s economy, according to the same report, needed 400 000 jobs a
year to just absorb net new entrants into the labour force. What is more
worrying still, as per the same report, is that the majority of the unemployed
(about 65%) have never worked before.
Much too has been mentioned of the need for job creation and reforming
South Africa’s labour markets. Job Summits have come and gone, with little
change. What South Africa needs, one would assume, is a business
environment in which one is able to do business, get a return on investment
and employ people.
While opinions may differ widely on the most effective measures to achieve
steady progress, one factor has not been placed in doubt, namely that the
richest source of job creation will come, not from South Africa’s big business
sector, but from the small business sector. This reality is hardly unique to
South Africa, but a proven fact in virtually every country, developed and lessdeveloped alike (Kesper, 2000).
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Small, medium and micro-enterprise (SMME) development was identified by
the South African government as a priority in creating jobs to solve the high
unemployment rate in South Africa. Presently South Africa’s unemployment
figure stands at 37% (Gideon Nieman & Marius Pretorius, 2004). In other
words 6.9 million people out of 18.8 million economically active people are
unemployed. According to them (2004), about 400 000 people join the labour
market per year and that there are about 100 000 job losses per year owing to
downsizing, reengineering and re-organization. They (2004) also point out that
the growth of South African’s labour force is about 2.8% per annum and that
an average real economic growth rate of approximately 6% per annum is
required to keep pace with the labour force growth.
South Africa’s first democratically elected government moved quickly to attack
the source of the problem. Decades of apartheid and disempowerment of the
majority led to the new government to formulate an integrated national plan,
based on many of the lessons from other countries. As a result, South Africa
launched itself on a new, untried and ambitious experiment, called the
National Strategy for the development and promotion of small business,
designed to forge a wide-ranging of public-private initiatives to develop and
promote small businesses rapidly throughout the country. This was indeed the
first attempt by government to put together an integrated framework for
attacking the problems of joblessness in the country. The government’s
National Strategy is meant to fill a policy vacuum that has been felt for many
years.
The government has got very high marks especially from the majority of the
black population for the processes it undertook to develop the National
Strategy and its forth-right efforts to confront these challenges. As of this year
(2005), implementation of the government’s National Strategy for the
development and promotion of the small business sector will be underway for
ten years. Institutions and programmes were developed without the benefit of
history or sound precedents. It is also, however, very important to note that
the government’s National Strategy could encounter enormous difficulties and
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growth pains in achieving its objectives because of South Africa’s dearth of
entrepreneurial tradition and culture among the previously disadvantaged
populations, as well as lack of basic education and management experience
needed to run successful businesses. These factors alone may mean that
progress will be slow, regardless of the resources committed to these efforts.
However, the South African’s National Strategy for the development and
promotion of the small business sector is an integrated institutional
framework, which needs to be viewed and analyzed in totality to assess as to
whether it has indeed played a pivotal role in facilitating an enabling
environment for success for small businesses in this country.
Pressure to achieve measurable progress in these areas is reaching a critical
point, as joblessness and economic disparities grow. Like the old government
elected in 1994, the government elected in 1999, was also committed to the
implementation of the institutional framework for the government’s National
Strategy. This institutional framework requires a close review from
government and private sectors, most especially because its objectives of job
creation and wealth creation (economic growth) are of national importance, as
they will affect every citizen of this country.
The small business sector encompasses a very broad range of firms, from
established traditionally family businesses employing many people (mediumsized enterprises) down to the survivalist self employed from the poorest
layers of the population (informal micro enterprises). While the upper end of
the range is comparable to the small and medium-sized enterprises (SMEs)
population of developed countries, statistics reveal that an immense majority
of small, medium and micro enterprises (SMMEs) are concentrated on the
very lowest end (RSA, 1995). These are black survivalist firms.
According to the explanatory memorandum attached to the Bill (1995), the
government’s National Strategy arose from the White Paper on National
Strategy for the development and promotion of small business in South Africa,
where it identified the necessity for the creation of a more enabling legal
framework which would give formal recognition to government’s involvement
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in small business support. This commitment by government, in the form of
national legislation, was also welcomed in the context of the macro-economic
blueprint detailed in the ‘Growth, Employment and Redistribution (GEAR)
Strategy document (RSA, 1995). The National Small Business Act (NSBA)
should then be seen in the context of the GEAR Strategy and the White
Paper, where the history of the small business person and entrepreneurs in
South Africa is acknowledged as heroic by any standards. While black
entrepreneurs have borne the brunt of discrimination through the limiting of
the scope of business activities, all small business owners and entrepreneurs
have waged daily battles against a hostile environment of bureaucratic red
tape and institutions indifferent to their needs.
The extent to which these difficulties are minimized, is the benchmark the
study will use in determining whether the government’s National Strategy for
the development and promotion of the small business sector spearheaded by
the National Small Business Act is ‘an instrumental building block’ to underpin
the government’s commitment to facilitate a more enabling environment for
the small business sector in this country.
It should however, be clearly understood that the National Small Business Act
does not represent concrete support measures to the small business sector in
the form of financial assistance, tax incentives, special export programmes
and other supply side measures. It simply puts in place a broad framework
from which such initiatives can be implemented.
The vision of the government’s initiative in creating this National Strategy is
clearly illustrated in Nelson Mandela’s words when he commented on the
Employment Equity Act (No. 55 of 1996):
“The primary aims of affirmative action must be to redress the imbalances
created by apartheid. We are not asking for handouts for anyone nor are we
saying that just as white skin was a passport to privilege in the past, so black
skin should be the basis of privilege in the future. Nor is it our aim to do away
with qualification. What we are against is not the upholding of standards as
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such but the sustaining of barriers to the attainment of standards; the special
measures that we envisage to overcome the legacy of past discrimination are
not intended to ensure the advancement of unqualified persons, but to see to
it that those who have been denied access to qualification in the past can
become qualified now, and that those who have been qualified all along but
overlooked because of past discrimination, are at last given their due. The first
point to be made is that affirmative action must be rooted in the principles of
justice and equality” (October 1991).
According to Ntsika’s and other agencies’ statistics (Ntsika’s Annual Review,
2002:6; Stats SA (2003), Financial Statistics of Manufacturing, 2003:13) it can
be estimated that there are between 1.6 to 3 million small, micro and medium
enterprises involved in the standard economic activities in this country. It is
then logical to conclude that a study in this huge sector would be a mammoth
and time consuming task if one had to conduct the study on the entire sector
and also considering that each sub-sector within the entire SMME sector has
its own characteristics and unique dynamics. For this reason, this study will,
after evaluating the effectiveness of the government’s National Strategy’s
institutional
framework,
only
investigate
and
report
the
impact
the
government’s National Strategy has had on the small black economic
empowerment mining (SBEEM) sector in the hope that it will give a general
perspective of the entire SMME sector.
The mining sector was chosen for its sustainability considering the estimated
mineral reserves as per the estimations by the Department of Minerals and
Energy (South Africa’s Minerals Industry Annual Review, 2003/2004). The
mining sector is also attractive considering its national contribution to the
Gross Domestic Production (GDP). According to the Department of Minerals
and Energy (South Africa’s Minerals Industry Annual Review, 2003/2004), the
mining sector in 2003 contributed about 8% (about R81 billion) to the GDP of
the country.
The reason for selecting the small-scale mining sector to be used in the study,
even though the South African mining industry is dominated by big
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companies, is because the study wants to assess the impact the
government’s National Strategy has had on small businesses and since smallscale mining sector falls within the small business sector category, it is
assumed that the findings of the study will be in line with what the study wants
to assess. The other reason why the small-scale mining sector was chosen is
because the South African government has identified small-scale mining as
one of the vehicles for stimulating rural economies and job creation as a
contribution towards sustainable livelihood, especially in rural areas. This
initiative is in line with the broader macro-economic framework that promotes
the small, medium and micro enterprises (SMMEs) in the national economy.
The government’s objective is to bring about commercially viable and
environmentally sustainable small-scale mining projects in South Africa in an
effort to enhance the developmental aspects of small-scale mining and its
potential towards rural development.
According to the Department of Minerals and Energy (2004), it is estimated
that about 1 000 jobs can be created for every 7 to 10 sustainable small-scale
mining projects assisted. A holistic approach in addressing major issues and
constraints in the small-scale mining sector is the key to facilitate the
promotion of the small-scale mining sector in this country.
1.3
Purpose and objectives of the study
1.3.1
Purpose of the study
There is still an apparent lack of accuracy on the information with regard to
the economic impact the government’s National Strategy has had on job
creation and economic growth on the SMME sector in South Africa
(Rogerson, 1997; Kesper, 2000; Ntsika, 2004). Basic text books with regard to
SMME sector development in particular are scarce as one mainly finds
journals and papers on the subject. The range of textbooks on SMMEs is also
limited. A thorough literature review and analysis is necessary to place the
SMME sector in its proper context. The argument is that SMMEs as
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contributors to South Africa’s employment creation and economic growth
should be analyzed and contextualized.
The significance of the direct contribution made to employment levels and the
economy by rapidly growing small firms can easily be demonstrated. Storey
(1994:158) has found out that rapidly growing firms constitute a tiny proportion
of the small firm population, but that they make a major contribution to job
creation over a ten-year period.
Recognizing that most programmes created under the government’s National
Strategy for the development and promotion of the small business sector in
this country have been operating for ten years to date, it is clear that
undertaking an analysis of their economic impacts on the small, medium and
micro-sized businesses should produce a representative perspective on the
impact of the government’s National Strategy.
This research study is then, deemed necessary as a means of developing a
‘warning’ system, which could assist both the concerned government and
private sector structures incorporated in the government’s National Strategy to
make both major adjustments in approach as well as fine-tuning of existing
programmes if necessary.
In essence the study is expected to provide an independent assessment of
the impact of the government’s National Strategy in relation to its key
objectives of employment generation and economic growth in this country,
and the impact it has had so far on the small black economic empowerment
mining companies and the effectiveness and efficiency of the utilization of
resources allocated to the implementation of the government’s National
Strategy. The study then, will review the institutional framework created by the
government’s National Strategy, the programmes created by these institutions
and the utilization of their resources.
In summary, the study is intended to provide a frank and practical assessment
in order for any interested parties to make efforts in making the government’s
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University of Pretoria etd – Chalera, C S (2007)
National Strategy more effective in meeting the critical objectives of job
creation, income generation and economic growth in this country.
1.3.2
Objectives of the study
The main objectives of this study is to evaluate the impact the South Africa’s
National Strategy has had so far on the small business sector in general and
specifically on the small black economic empowerment mining sector. The
main focus areas can be summarized as follows:
•
Analysis of the institutional framework created within the government’s
National Strategy spearheaded by the Department of Trade and Industry.
•
Analysis of the effectiveness of the government’s National Strategy
through the provision of services by service providers (both financial and
non-financial) created under the government’s National Strategy and
SMMEs who have received those services.
•
Analysis of some government’s departments not incorporated within the
government’s
National
Strategy’s
framework
but
having
SMME
developmental programmes themselves and other business organizations.
•
A primary investigation of some parastatal organizations and provincial
SMME desks.
•
A study of the impact of the government’s National Strategy through a
structured questionnaire on small black economic empowerment mining
companies.
Against this background, the objectives of this study are twofold: the provision
of a more comprehensive understanding of the structure of the government’s
National Strategy’s framework and the challenges at stake if any in order to
highlight them to give future SMME policies a firm grounding i.e. an
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explanation of the impact of the policy thus far and whether the policy has had
any significant positive impact on the small black economic empowerment
mining sector. It will also put forward some new suggestions regarding the
direction that the government’s policy should take.
In detail, the study will attempt to:
Revisit the rationale of the SMME policies
While there is a general consensus on the importance of SMMEs in South
Africa, their economic rationale has not been well argued nor rigorously
investigated. In particular, there is a lack of clarity on how the SMME sector
fits within the industrial policy framework and with regard to other objectives of
government (Kesper, 2000).
Propose some goals for policy
According to Rogerson (1997) optimizing the SMMEs’ contribution to
employment and economic development could be translated into the following
broad objectives:
•
Raising the rate of formation of new SMMEs with growth potential since
these SMMEs will contribute to investment, employment and income
generation.
•
Encouraging
new
SMMEs
arising
from
previously
disadvantaged
background, since these start-ups can contribute to redistribution of
economic ownership and income, as well as a more participatory
economy.
•
Increasing the rate of graduation of micro-enterprises into the SME
category, since only then the legacy of apartheid can be overcome.
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University of Pretoria etd – Chalera, C S (2007)
•
Raising the performance of existing SMMEs with a view to increasing both
their competitiveness and their ability to fulfil a role in society.
•
Decreasing the undesirable mortality rate of SMMEs that could be viable
undertakings.
Main areas of intervention required
Achieving these broad objectives typically requires policies, which focus on:
•
Increasing the supply of the entrepreneurial talent and opening
opportunities.
•
Providing support to existing SMMEs – micro-enterprises in particular – at
no higher than its social opportunity costs.
•
Providing incentives for formalization of enterprises, including cultural
bridging.
•
Assisting SMMEs (where necessary) to use the resources as efficiently as
possible.
Within the context of the overall macro-economic performance, the ideal
policy package for SMME support in South Africa should allow this sector to
maximise its contribution to the economy’s overall performance in terms of
growth, employment and income distribution (RSA, 1995). This is likely to
involve making more resources available to the sector as well as raising the
efficiency with which it uses the resources already available.
Evaluation of policies to date
With policy initiatives already under way, the study aims to disentangle the
reasons for SMME sector growth (low or high), and why it has made or not
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University of Pretoria etd – Chalera, C S (2007)
made a more significant contribution to employment and overall economic
growth in South Africa. By doing so, the study aims to assist the government
in reconsidering its current SMME policy as an integral part of its industrial
developmental strategies.
The impact of the government’s National Strategy on small black
economic empowerment mining companies
Apart from interviews with the institutions created under the government’s
National Strategy, services providers (financial and non-financial), other
government institutions not created under the National Strategy and business
institutions but involved in SMME developmental programmes, and other
secondary data in relation to the SMME sector, the study will attempt to
investigate the government’s National Strategy’s impact on the small black
economic empowerment mining companies.
1.4
Problem statement
The current literature and statistics with regard to the structure of the small
business sector is inconclusive (Kesper, 2000). There is a lot of conflicting
assessment between different agencies’ statistics including that of Ntsika. In
addition, no literature or any research study was found (both from the private
and public sectors) which analyzed the impact of the government’s National
Strategy on South Africa’s small businesses.
This thesis will therefore serve as a seminal first step in evaluating the impact
the government’s National Strategy (designed in 1995) has had on the SMME
sector with regard as to whether it has created an enabling environment for
small businesses to achieve the government’s National Strategy’s objectives
of job creation and economic growth.
The dearth to the unemployment crisis in South Africa is continuously posing
major challenges to the South African government in both social (crime) and
economic (income generation) circles. On the global arena, South Africa is
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University of Pretoria etd – Chalera, C S (2007)
also faced with challenges of re-integration into the world markets, while at the
same time positioning itself to realize the importance of addressing the local
challenges. The international and local challenges, one would assume, will
pose conflicting strategic priorities within the government’s overall macroeconomic strategy which are aimed at addressing both the local and
international challenges.
It is a result of such challenges that forced the government to move quickly to
launch the new and untried National Strategy for the development of the small
business sector in this country. The National Strategy was structured to forge
a wide range of participants in both the private and public sectors hoping that
it would address the local challenges (job creation, poverty alleviation,
economic growth) while also being globally competitive at the same time.
The government’s initiative could, one would also assume, face enormous
difficulties and pains to achieve its objectives because of the country’s
apartheid legacy which has created South Africa’s dearth of entrepreneurial
tradition and culture, lack of business skills and finance most especially
among the targeted group (blacks). These factors may mean that progress to
the attainment of the objectives of the government’s initiative would face
tremendous difficulties.
Since it is believed that job creation does not exist in the entire small medium
and micro enterprises (SMMEs) but only in small medium enterprises (SMEs),
the small black economic empowerment mining sector was chosen to
compare the findings of the government’s National Strategy’s impact by an
evaluation of the National Strategy’s instructional framework and other related
institutions to the extent the small black economic empowerment mining
sector has benefited from the government’s National Strategy and whether the
Strategy has created an enabling environment for that particular sector.
The small black economic empowerment mining companies’ database from
the Department of Minerals and Energy is not updated on a regular basis and
that created problems when conducting interviews with the small-scale mining
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University of Pretoria etd – Chalera, C S (2007)
companies. Most of the companies in the current database no more exist or
have changed locations and contact particulars.
1.5
Delimitation of the study
As a first step in the development of the government’s National Strategy’s
impact analysis some limitations in this study will occur. The following aspects
need to be noted:
•
As an exploratory study, the study may encounter problems because of
lack of well documented literature and statistics on the impact the
government’s National Strategy has had on small, medium and micro
enterprises sector. The popular source of well documented statistics on
SMMEs is that of Ntsika’s ‘The State of Small Business in South Africa’.
However, Ntsika’s statistics also fall short of detail and clear elaboration on
the impact the government’s National Strategy has had on the SMME
sector.
•
Understanding the impact of the government’s National Strategy and the
attainment
of
its
objectives
require
well
researched
statistics.
Unfortunately, there is a lot of conflict on the literature and statistics
available on SMME (especially Ntsika’s and other agencies’ sources) with
regard to the size and structure of the sector. This may be because
different agencies use different sources when conducting their studies.
•
The major challenge to this study is that information on micro-enterprises,
which is believed to constitute the largest part of the SMME sector, is hard
to find as most of them operate without being properly registered.
•
The small black economic empowerment mining companies’ database has
other companies in it well above the definition of the SMME sector (for
example, African Rainbow Minerals Ltd, Mvelaphanda etc). Therefore, the
Department of Minerals and Energy’s database on small black economic
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University of Pretoria etd – Chalera, C S (2007)
empowerment companies would be misleading as other big black
companies are listed as such in the database.
•
The information in the small-scale mining database is not regularly
updated, so the interviews conducted on the small black economic
empowerment mining companies was limited to the available updated
information by the Department of Minerals and Energy, which also had a
lot of misrepresentation especially with regard to their existence and
contact particulars.
•
When conducting the interviews with most small-scale mining companies,
a lot of convincing had to be done to them to participate in the study, since
most of them had doubts that the information sourced from them was
required for study purposes only.
1.6
Research design
This thesis is an exploratory study to the extent that it could lead, through
more continuous and perhaps comprehensive studies in both government and
private circles in assessing the impact of the government’s National Strategy
for the development of small businesses in this country.
The approach was to start with investigations of the institutions created under
the government’s National Strategy i.e. CSBP, Ntsika and Khula. Secondly
the effectiveness of the government’s National Strategy through interviewing
service providers (both financial and non-financial) and recipients (i.e.
SMMEs) of those services. Thirdly, other government departments and
business organizations, though not part of the institutional framework of the
government’s National Strategy but who are also involved in SMME sector
developmental initiatives were also interviewed. Fourthly some parastatal
organizations and provincial SMME desks were interviewed and lastly, a
random sample of twenty-two (22) respondents of a population of all small
black economic empowerment mining companies which are forty-four (44) in
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total, according to Department of Minerals and Energy’s database for 2005,
were interviewed.
1.6.1
Type of study
This research study is a qualitative study. Unlike quantitative studies it is
based on the following:
•
Meanings expressed through words.
•
Collection of results in non-standardized data which was classified into
categories.
•
Analysis was conducted through the use of conceptualization.
While number depends on meaning (Dey, 1993: 28), it is not always the case
that meaning is dependent on number. Dey (1993: 28) also points out that:
“The more ambiguous and elastic our concepts are, the less possible it is to
quantify our data in a meaningful way”. Qualitative data are associated with
such concepts and are characterized by their richness and fullness based on
the opportunity to explore a subject in as real a manner as is possible
(Robson, 1993). A contrast can thus be drawn between the “thin” abstraction
and description which results from quantitative data collection and the “thick”
or “thorough” abstraction associated or description associated with qualitative
data (Dey, 1993; Robson, 1993).
The nature of the qualitative data in this study therefore, had implications for
both its collection and analysis. To be able to capture the richness and
fullness of the data in this study, it had to be collected in a non-standard way,
unlike that of quantitative study. The non-standardized and complex nature of
the data in this study was classified into categories during analysis before it
could meaningfully be analyzed; otherwise the most that could result was an
impressionistic view of what it means. While diagrams and statistics are used
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University of Pretoria etd – Chalera, C S (2007)
to show frequency of occurrence in other categories of data, the way the
qualitative data is analyzed in this study is through the creation of a
conceptual framework.
1.6.2
Propositions/assumptions
Most of the literature on the impact of the government’s National Strategy for
the development and promotion of the SMME sector in South Africa points out
that the National Strategy has not had a significant positive impact on the
SMME sector so far (for example, Levy, 1992; Cattell, 1993; Rilley, 1993;
TaskGro, 1993; Eichler, 1994; Hischowitz, 1994, Manning and Mashigo, 1994,
Horn 1995; Sawaya, 1995, Rogerson and Reid, 1997). With this background
the assumptions of the study are as follows:
•
The South Africa’s National Strategy has not created an enabling
environment for the development of the small, medium and micro
enterprises for the attainment of its objectives.
•
From the background of the above assumption, it can then be concluded
that the government’s National Strategy has not created an enabling
environment in the small black economic empowerment mining sector and
therefore the entire SMME sector as a whole.
1.6.3
Research methodology
The methodological framework used in this study was as per the following
stages:
•
An investigation into the institutions created under the institutional
framework of the government’s National Strategy by conducting interviews
with the Centre for Small Business Development (within DTI), Ntsika and
Khula.
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•
An evaluation of the effectiveness of the government’s National Strategy
through interviews with service providers (both financial and non-financial)
and the services recipients (SMMEs).
•
Investigation into other government and business institutions not
incorporated in the institutional framework of the government’s National
Strategy but having SMME developmental programmes as their
institutions’ initiatives.
•
Investigation into some parastatal organizations and provincial SMME
desks.
•
Investigation into a random sample (through a questionnaire) in the small
black economic empowerment mining sector to assess what the
government’s National Strategy’s impact has had on the sector. This study
was in an effort to cross-check the outcome of the study in the first phase
of the study with regard to the institutional framework of the government’s
National Strategy.
1.6.4
Sample design of the study
The first phase of the study focused on the evaluation of the institutional
framework of the government’s National Strategy and comprised of the
following:
•
The Department of Trade and Industry (DTI) through its Centre for Small
Business Promotion department in Pretoria was interviewed. The Centre
for Small Business Promotion was selected because it was conceived as
the central policy making, coordinating and performance monitoring group
of the government’s National Strategy.
•
Ntsika Enterprise Promotion Agency (NEPA) in Pretoria was interviewed.
Ntsika was selected because under the government’s National Strategy for
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SMME development and promotion, it was given the mandate to provide a
wide range of non-financial services to local service delivery groups.
•
Khula Financial Enterprise Limited in Johannesburg was interviewed.
Khula was selected because under the government’s National Strategy, it
was given the mandate to improve access to finance for the SMME sector.
•
Twelve financial services providers, twelve non-financial providers and
twelve service recipients (SMMEs) were interviewed i.e. three respondents
in each category in the four provinces the study was conducted were
randomly selected. The provinces were selected for the study because the
author was conducting business in those regions.
•
Other government departments not incorporated in the institutional
framework of the government’s National Strategy including other business
organizations were also interviewed. These were chosen on the basis that
they have their own SMME developmental programmes.
•
Other parastatals and the four provincial SMME desks in the targeted
provinces were also randomly selected and interviewed.
The second phase of the study through a structured questionnaire interviewed
22 (50%) of the existing 44 small black economic empowerment mining
companies as per the Department of Minerals and Energy’s database. The
sample of twenty two respondents was randomly selected.
1.7
Possible findings of the study
Most agencies who report on SMME development in South Africa point out
that the government’s SMME development initiative has not yet played a
pivotal role in creating an enabling environment for SMME development.
Against this background the possible findings of the study are as follows:
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•
The South Africa’s National Strategy has not had any significant impact in
creating of an enabling environment for SMME sector development.
•
Following from the above possible finding, it follows that the government’s
National Strategy has not had any significant impact on the small black
economic empowerment mining sector and therefore the entire SMME
sector.
1.8
Structure of the study
This study is developed in eleven chapters:
Chapter 2:
South Africa’s political background and its legacy
This chapter will attend to discuss the political background of South Africa and
its legacy. It starts from the 17th century when the Dutch colonized this country
and through the 18th century when the British arrived. The chapter also points
out the impact that political legacy has had on entrepreneurship in South
Africa.
Chapter 3:
The SMME sector in South Africa
The chapter will give an overview of the South Africa’s SMME sector with
regard to its size, profile and performance in the country’s overall economy.
Chapter 4:
International, regional and local experiences in SMME
development
This chapter will attend to discuss the international, regional and local
experiences with regard to SMME developmental initiatives.
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Chapter 5:
South Africa’s Strategy for the development and promotion
of the SMME sector
This chapter will discuss the evolution and the structure of South Africa’s
National Strategy’s institutional framework for the development and promotion
of the SMME sector in this country.
Chapter 6:
South Africa’s mining industry overview
Since the study will investigate the impact the South Africa’s National Strategy
has had on the small black economic empowerment mining companies, this
chapter will give an overview of South Africa’s mining industry.
Chapter 7:
Type of study
This chapter discusses in detail on the type of this study and specifically how
data was collected and analyzed.
Chapter 8:
Problem
statement,
research
objectives
and
hypotheses/propositions
This chapter discusses in detail on the problem statement, research
objectives and the hypotheses/assumptions of the study.
Chapter 9:
Research methodology
The study’s design, process and implementation will be discussed in this
chapter.
Chapter 10: Research results and analysis
This chapter will present the findings of the study.
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Chapter 11: Conclusions and recommendations
In this chapter a final discussion on research conclusions, the implications of
the study and recommendations will be offered.
1.9
Summary
The study aims to contribute to the analysis of the impact of the government’s
National Strategy, since its inception in 1995, as to whether it has indeed
achieved its objectives of job creation, income generation and economic
growth in general, and specifically its impact on the small black economic
empowerment mining companies in South Africa based on the findings of the
study.
The descriptive findings on their job creation, income generation and
economic growth will confirm unambiguously whether or not the present
institutional framework of the government’s National Strategy for the
development and promotion of small businesses as a whole has been
successful in tackling the problem of employment and economic growth in this
country.
The following chapter will discuss South Africa’s political background and its
legacy and the impact such legacy has had on entrepreneurship in this
country.
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CHAPTER 2
SOUTH AFRICA’S POLITICAL BACKGROUND AND ITS
LEGACY
2.1
Introduction
This chapter will attend to discuss the political background of South Africa and
its legacy. It starts from the 17th century when the Dutch colonized the country
and through the 18th century when the British arrived. The chapter also points
out the impact of this political legacy on entrepreneurship in South Africa.
2.2
Political background
South Africa was colonized by the Dutch in the 17th century and then by the
British from 1806 onwards (Qunta et al., 1995). They found the indigenous
Africans (including the Khoi and San) who archaeologists conservatively
estimate to have been here since at least 770 AD.
Almost as soon as the Dutch arrived, trouble developed between them and
the Khoi, who, though at first hospitable, gradually realized that their land and
liberty were under threat. The armed clashes that ensued between the Dutch
and later the British settlers on one hand and the indigenous people on the
other hand started in 17th century and continued for close on to two centuries
(Human et al., 1993). Africans in the Cape bore the brunt of the colonists
thrust, as eight wars of resistance were fought in Eastern Cape alone. The
last major war was fought between the British settlers and the Zulu speaking
Africans in 1879. The last to loose their independence were the Venda people
in 1878.
The two important issues that these wars revolved around were land and
labour. Control of either or both ensured wealth for the victor and poverty for
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the loser. From the early days of colonization, labour was in short supply.
According to Qunta (1995), initially the Dutch imported slaves from Malaysia
and Java, and also enslaved the Khoi. As they expanded their control over the
country and began to farm, their labour needs increased.
Diamonds were discovered in 1867 near the Vaal and Orange rivers and three
years later in Kimberly (Browning et al., 1989). Gold was discovered in the
Witwatersrand area in 1886. The discovery of diamond and gold transformed
the economy of the country from a largely agricultural one to an industrial one
with mining and mining related manufacturing activities. As a result, the need
for skilled and unskilled labour increased dramatically. The problem that the
Dutch and the British had had from the beginning (how to get Africans off land
and onto White farms and mines) now increased. So did their efforts.
When the British had disputes with Africans, they conducted what they
referred to as “pacification campaigns”. Such campaigns were usually
accompanied by widespread burning of crops and looting of livestock. The
historian Bernard Magubane refers to these as “scorched earth campaigns
that were meant to deprive the Africans of their entire independent livelihood”.
According to Magubane (1979), in the war of 1851 with King Kreli of the
Gcaleka people, the British invaded his land and confiscated 37 000 head of
cattle, 14 000 goats and a few horses. Kreli’s headquarters were burnt down
and a further 10 000 head of cattle were taken.
2.3
Discriminatory measures
2.3.1
Land reservation
The land that had not been seized through warfare was taken through
legislation, namely the notorious Native Land Act of 1913. According to Qunta
(1995), the effects of the Native Land Act were to reserve 13% of land for
Africans and to leave the rest for Whites. The land reserved was largely
inhospitable and unproductive and was situated in what was later to be known
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as “Bantustans”. The Native Land Act was like a legislation mopping-up
operation after most of the land had already been lost through warfare.
The absence of Africans in the main stream of the economy has its origins not
only in the loss of vital wealth producing resource such as land, but also in the
array of legislative measures adopted by successive white governments from
the time the first colonists arrived. It is clear that discriminatory labour
legislation had their origins not in the coming to power of the Nationalist
government in 1948 but much further back. The National Party built upon what
had already existed, and implemented these measures with a religious zeal.
One of the earliest Acts was the Vagrancy Act of 1809. According to Adams
(1993), the effect of the Act was to declare all black people who were not
working for whites, Vagrants. Anyone who was a vagrant was breaking the
law. In addition, Africans were required to carry a pass and they could only
obtain it once they had a labour agreement with a white farmer. If they did not
have such an agreement they could be arrested under the Vagrancy Act. The
Court could then assign them to work for local farmers as part of their
punishment. Anyone who did not have a "fixed abode" or a "visible" means of
support could be classified as a Vagrant.
The Vagrancy Act of 1867 was also meant to curtail the "idleness" of the
indigenous people. It covered all those who were "without sufficient or visible
lawful means of support, wanderers and loiterers". Those who fell foul of this
law were sent to prison or were sentenced to work in the municipality, public
works, divisional council or for any private person.
Another technique used by the British to get Africans away from subsistence
farming and onto White farms and mines was to impose arbitrary taxes on
them. According to Qunta (1995), through the Glen Grey Act of 1894, a labour
tax was introduced, which every African farmer had to pay. Given that they
were not involved in a cash economy, the Africans were forced to go to the
mines to earn the money to pay the tax. Cecil John Rhodes justified the tax by
saying that the Act "removed the natives from the life of sloth and laziness
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teaching them the dignity of labour, and made them to contribute to the
prosperity of the state and give some returns for the wise and good
government". In light of such sentiments, Zimbabwean historian Tendai
Mudenge (1988) was perhaps not overstating matters when he called Rhodes
"Africa's greatest racist".
Poll taxes were introduced and failure to pay constituted a criminal offence. It
was resistance to one such poll tax that gave rise to the last armed uprising by
Africans in the 1900s. According to Madi (1997), that uprising was called the
Bambata uprising, after the name of the leader who refused to pay the poll tax
that the British had imposed in Natal.
The earliest legislation that controlled Africans who were in the employ of the
colonists was the Master Servant Ordinance. Ostensibly it was meant to
regulate the relations between employers and employees. The Ordinance was
promulgated in the Cape in 1841. A harsher version was enacted in 1856,
after the Cape had been granted representative government by the British.
The Native Labour Regulation Act of 1911, according to Madi (1995), had the
same effect as the Master and Servant Act but was applicable to the mining
industry only, and like the earlier Act, applied only to African workers. Leaving
employment without notice was a criminal offence, as was refusing to obey a
command of the employer.
2.3.2
Job reservation
As more and more Africans were forced off their land, they moved into mines
and developing industries. White workers, especially the unskilled ones, saw
African workers as a threat because they had to compete with them for
employment. The skilled workers also feared being undercut by African
artisans. According to Browning (1989) the first official colour bar relating to
jobs came into being in 1893 with the stipulation that only whites could
become engine drivers.
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The first job reservation legislation was the Mines and Works Act of 1911 and
according to Browning (1989), it made racial discrimination, in the form of
hiring on the basis of race, official. It set aside 32 types of jobs in the
Transvaal and Orange Free State for which only whites could be recruited.
Thousands of black people, including the "coloureds", were prevented from
getting wages as carpenters, or other skilled workers. But the Act did not keep
skilled black people out entirely, since paying them unskilled wages for skilled
labour was cost-effective for the mine owners. According to Browning (1989),
black miners earned about a tenth of the wages of their White counterparts.
The 1922 strike by white workers came as a result of mine owners trying to
replace some white workers with black workers in order to save costs (Madi
1995) and according to Madi (1995) it was the biggest and most violent strike
by white people in the history of this country. On the insistence of White
workers, who demanded more protection from the competition with black
workers, the Mines and Workers Act of 1926 was passed to more effectively
enforce the colour bar. It provided that no Africans or Indians should work in
jobs that required certificates.
The Apprenticeship Act of 1922, which was amended in 1944, provided for
apprenticeship as an entry requirement for certain specified trades. An
educational requirement of standard six was also prescribed. This effectively
excluded black people who through lack of educational opportunities very
rarely reached standard six and who would in any case find it difficult to obtain
an apprenticeship.
The 1951 Native Building Workers Act removed Africans from the ambit of the
Apprenticeship Act and defined the areas they could work (Browning, 1989). It
provided for their training and control. It also prohibited anyone in an urban
area outside the "Native" reserves from employing Africans in the building
industry and in other allied occupations. The minister concerned had the right
to decide how many learner builders were to be trained each year. Thus not
only were skilled Africans removed from the major urban centers and away
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from competing with white tradesmen, but the number of people who could be
trained each year was restricted.
The Factories Act of 1941 enforced segregation in the place of work by
requiring different work areas and separate facilities (canteens and toilets
among other things) for different racial groups (Browning, 1989). The cost of
satisfying these requirements discouraged employers for employing more
than one group and they usually settled for white people. After 1924, the job
reservation became an integral part of the South African economy, despite the
fact that it was inefficient and costly for employers.
The National party continued this trend started by the British. By the time the
pass laws, which were at the heart of the influx control, were abolished in
1986, millions of Africans had received convictions and had their lives
disrupted.
2.3.3
Education
The most powerful tool in ensuring white domination was an education system
for blacks specifically designed to be inferior to that of whites. It is useful to
quote Dr. H. F. Verwoerd's now famous words: "When I have control over
native education, I will reform it so that the natives (i.e. blacks) will be taught
from childhood that equality with Europeans is not for them" (Nkwanazi and
Rall, 1994).
Verwoerd remained true to his promise. The syllabi and examinations used in
black schools were different from those used in other races. Different
education departments saw to it that differences were maintained. The subject
material was kept different, aimed at keeping black education inferior. A
cursory glance at the sums that were spent on an African child and White
child is instructive. Nkwanazi and Rall (1994) recorded that in 1990, R3 083
was spent on a White child and only R 764 was spent on an African child.
Thus four times as much was spent on a White child.
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According to the Race Relation Survey (1993/1994), African teachers were
not adequately trained. In 1992, 14% of the teachers at the Department of
Education and Training (DET) schools in the "non-independent Bantustans"
did not have a teaching qualification, and 57% were under-qualified, i.e. did
not have a matric with three more years of teaching training.
Furthermore, African schools have been overcrowded; facilities such as good
libraries and laboratories were virtually non-existent. It is therefore not
surprising that there was such a vast discrepancy in the matriculation pass
rate between African and White pupils. According to the Race and Relation
Survey (1993/1994), in 1991 matriculation examination, only 41% of African
pupils passed and 11% obtained matriculation exemption, as opposed to 95%
of White pupils who passed and 42% who gained exemption. In 1992 the
percentage of Black pupils who passed matric was 44% whilst 98% of Whites
passed.
Those few Blacks that managed to pass were limited in their choice of
University. They were barred from attending White Universities unless they
obtained a special permission from the Minister of Education. He would give
such exemption only where the desired course was not available at the
various ethnic Universities. These Universities were usually referred to as
"bush colleges", not on account of their location but because of the type of
education provided there. None of them had facilities of medicine, business or
engineering, for instance. Students mostly studied arts related courses.
There is a vital absence of Africans in the technical fields on account of these
policies. According to Leadership Magazine (1994), in 1991 there were only
30 African engineers as against 17 840 White ones; 31 pharmacists as
against 731 White ones. In 1994, there were only 60 African chartered
accountants out of 14 036 in the country and fewer than 20 architects out of a
total of 2 650.
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2.4
Legacy of discrimination
2.4.1
Inequality
Discrimination (i.e. Apartheid) has left a legacy of inequality. In the labour
market the disparity in the distribution of jobs, occupation and income reveals
the effects of discrimination against black people. These disparities are
reinforced by social practices, which perpetuate discrimination in employment
against this disadvantaged group (blacks), as well as by factors outside the
labour market, such as lack of education, medical care and transport.
Black people have suffered as a result of job reservation and education and
lack of skills under apartheid. This discrimination sometimes takes the form of
direct and conscious decision, based on the prejudice or stereotypes, to
exclude certain groups from jobs or promotions. For instance, some
employers, believing that black people are not assertive enough to manage or
supervise other employees will not consider them in any senior position.
Whereas South Africa is not poor by international standards, it is infamous for
having the most unequal distribution of income in the world. According to
Country Review (1996) the International Labour Organisation (ILO) concluded
that South Africa had the highest levels of inequality than any country in the
world.
The Labour Commission notes that the country's skewed income distribution
is reflected in the fact that the bottom 20% of income earners captures a mere
1.5% of the national income, while the wealthiest 10% of the households
receive fully 50% of the national income. Further, poverty is overwhelmingly
concentrated in the African and Coloured population: 95% of the poor are
Africans. The Labour Market Commission notes that roughly 33% of Coloured
population lives in poverty, compared to 20% for Asians and 0.7% for Whites.
This racial inequality is also reflected in the situation with respect to
unemployment in the country. According to Wingrove (1995), in 1994,
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unemployment stood at 41% among Africans, among Coloureds was 23%,
whilst among Asians 17% but was only 6.4% amongst Whites.
The Green Paper on Employment and Occupational Equity (1996) pointed out
that amongst the employed, a third of the Blacks earn below R500 per month,
compared to fewer than 5% of Whites. The Green Paper also noted that a
white male South African was five thousand times more likely to be in top
management position than an African woman. These apartheid-induced
inequalities are reflected in the current distortions within the occupational and
professional structures of the labour force. A survey of some 107
organisations by the Breakwater Monitor in 1996 indicated that in the top
managerial ranks of most companies, Africans constituted only 2.9%,
Coloureds were 0.43%, Asians 0.21% whilst Whites were 96.38%. The same
study found out that for the lowest grades Whites constituted 1.85%, Africans
89.01%, Coloureds 7.94% and Asians 1.20%. There is, in short, little
correlation between the composition of the workforce at technical,
professional, and managerial levels and the overall demographics of South
Africa.
2.4.2
Economic growth
The World Competitiveness Yearbook (1997) rated South Africa last out of 46
countries with respect to competitiveness of its workforce. A skilled labour
force increases a country's competitiveness. Racial discrimination in
education and access to employment, coupled with the constant denial of
opportunities to blacks has led to the very poor overall skills levels to be found
in South African labour market. Inequalities led to market distortions, which in
turn resulted in the inadequate utilization of resources. It follows that the
reduction in inequality in society is therefore a way of promoting economic
growth and job creation.
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2.5
The impact of the legacy on the small business sector
The legacy of apartheid constitutes an important factor in the inability of blackowned or –controlled small business to face business development
constraints. According to the White Paper on National Strategy for the
development and promotion of small business in South Africa (Notice No. 213
of 1995), for decades, if not centuries, the majority of South Africans were
deprived of viable business opportunities in the following ways:
•
Bantu Education restricted opportunities for the acquisition of technical and
professional skills by black people.
•
There was total absence of entrepreneurial education or sensitizing for
young people in a way that could encourage them to enter business and
acquire a culture of entrepreneurship.
•
Apartheid confined the majority of the African people to homeland areas
which were not only poorest in terms of living standards and business
opportunities, but also lacked a dynamic business environment.
•
Even outside the homelands the system of apartheid made it impossible
for
black
would-be
entrepreneurs
to
participate
in
business
apprenticeships and partnerships with more established (non- blackowned/controlled) enterprises.
•
Racially segregation residential areas, enforced through the Group Areas
Act, not only uprooted millions from the places of residence and business,
but also led to large capital losses and virtually destroyed the fabric of
black small businesses.
•
The drastic curtailment of property ownership rights of blacks made it
impossible for them to acquire assets that could serve as collateral for loan
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financing; it also excluded blacks from the long-run process of capital
accrual and growth through rising property values and share prices.
•
Apartheid left no real space for the business involvement of black women;
marriage laws reduced women to unions with no contractual capacity at
all; even though marriage laws have changed, customary law remains
intact and there are cultural, behavioural and attitudinal constrains which
affect women’s participation in business, particularly in rural areas. There
are also restrictions in terms of access to land.
2.6
The government efforts to address the apartheid’s legacy
According to the White Paper on National Strategy for the development and
promotion of the small business sector in South Africa (1995), due to
apartheid’s legacy, the government’s small business support policies will for a
considerable time also have to focus on the particular needs of black
enterprises and ways to overcome the remaining consequences of the
apartheid legacy. The White Paper also points out that this does not imply that
policies should only focus on black-owned or –controlled enterprises or
business-infrastructure facilities in formerly black-reserved towns, but that
policy differentiation will have to include affirmative support.
The new South Africa’s government (elected in 1994) came up with many
policies in an effort to trying to completely swipe out the apartheid legacy in
the country. One of these policies named the National Small Business Act
(No. 102 of 1996) is the government’s effort to develop and promote the small
business sector mostly involved by the black majority, thereby trying to
readdress the prevailing apartheid legacy in the country.
The overall objective of the government’s National Strategy was to create an
enabling environment for SMME growth in the country as a way of addressing
basic inequalities in the economy. The mechanism for small business support
outlined in the White Paper became constitutional through the National Small
Business Act, which also provides the first comprehensive definition of
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SMMEs. The Act legalized the establishment of new institutions, affirmative
procurement reform and the formation of an advisory board to review SMMEs’
legal and regulatory environment.
2.7
Conclusion
This chapter discussed South Africa’s political background and its legacy
focusing on the impact of such legacy on small business sector and the
government’s efforts to address that legacy.
In the following chapter, the South African SMME sector will be discussed.
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CHAPTER 3
THE SMME SECTOR IN SOUTH AFRICA
3.1
Introduction
Although the statistical base of SMMEs in South Africa is still poor, there can
be little doubt about their relative significance. The small business sector is
highly diverse in this country, with structures, problems, growth potential and
access to support differing widely between segments. These differences
relate as much to the economic sectors – retailing, manufacturing, mining, etc.
– as they relate to stages of growth of enterprises, viz. start-up, expanding or
stagnating.
From a broad strategy perspective the most important distinction is between
survivalist activities, micro-enterprises, small enterprises and medium-sized
enterprises, with the general term “small business” and the abbreviation
“SMMEs” widely used to contrast this sector with big(ger) business. Due to the
similarity of some of the obstacles facing them, survivalist and microenterprises are often lumped together.
This chapter begins with a general outline as to why a dynamic SMME sector
is important in an economy. It attempts to provide a theoretical perspective as
to how it can specifically be linked to the unemployment and productivity
problem in South Africa. It aims, with a level of abstraction, to understand how
an economy with typically South African characteristics functions, specifically
with regard to productivity and unemployment. The chapter also sketches the
main functions of SMMEs and the theoretical conditions necessary for their
attainment. It will also describe the current state of the South African SMME
economy with regard to its structures, and the effect of economic reforms. It
will specifically investigate the potential impact that the SMME sector can
have on employment, considering the micro-enterprises on one hand, and
small medium enterprises (SMEs) on the other.
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3.2
Main functions of SMMEs
SMMEs as enterprises have some economic roles to fulfill as they contribute
to a country’s national product by either manufacturing goods of value, or
through the provision of services to both consumers and/or other enterprises.
This encompasses the provision of products, and to a larger extent, services
to foreign clients, thereby contributing to the overall export performance.
From an economic perspective, however, enterprises are not just suppliers,
but also consumers, which have an important role to play if they are able to
position themselves in a market with purchasing power: their demand for
industrial or consumer goods will stimulate the activity of their suppliers, just
as their own activity is stimulated by the demand of their clients. Demand in
the form of investment plays a dual role, both from a demand-side (with
regard to the suppliers of industrial goods) and on the supply-side (through
the potential for new production). In addition, demand is important to incomegeneration potential of SMMEs, and their ability to stimulate the demand for
both consumption and capital goods.
Most importantly, and from a South African context, SMMEs have, at least in
theory, the potential to generate employment and upgrade human capital.
Economic historians have demonstrated the importance of this phenomenon
in Europe’s industrialization and the subsequent development of other
emerging economies. As technological progress in agriculture liberated the
agrarian labour force, this unskilled excess labour force was absorbed into
small manufacturing industries and exposed to business experience, thereby
encouraging a “learning-by-doing” effect. This combination of employment of a
vacant labour force, and the improvement of their skills through business
exposure, strongly characterized the process of industrialization and
development (Kesper, 2000).
South Africa’s current economic situation is comparable to the above
scenario: the excess labour force is “released” not so much from the
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agricultural sector, but rather large enterprises in the secondary and tertiary
sector (Kesper, 2000). Generally, these enterprises are not necessarily facing
economic recession, but rather are growing and transforming themselves in
such a way that their demand for unskilled labour is decreasing. This results in
an abundant pool of unskilled labour, which SMMEs can possibly employ and
upgrade.
From a different viewpoint, it has been suggested that, in cases of “jobless
growth” and a mismatch between the demand and supply of unskilled labour,
a shift in both the sectoral composition of the economy and the occurrence of
growth in different categories of firms may be an important avenue for the
generation of both employment opportunities and growth. The question here is
whether a more robust SMME growth strategy in South Africa will bring about
such changes. This in turn depends on whether SMMEs are more labourintensive and therefore likely to employ unskilled labour, and whether they are
able to provide a “skills upgrading process”.
With these categories of functions defined from a theoretical perspective, the
following section examines the structure of the South African economy to see
whether SMMEs can, in their current position, fulfill these roles.
3.3
Structural features of the South African economy and its
implications for SMME growth
3.3.1
The apartheid legacy
In comparison with many other developing countries, the contribution of South
Africa’s SMMEs to employment and economic growth is low (Manning, 1996).
This relatively poor performance is often associated with the racial distortions
in education, income and economic empowerment inherited from the previous
white regimes. Nevertheless, there is a danger in ascribing all the
responsibility
for
the
underdevelopment
of
SMMEs
to
political
disenfranchisement, since the corollary to this argument is that the new
economic order provides a sufficient condition for revitalization of the SMME
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economy. According to Kesper (2000), the removal of apartheid, although
necessary, has been insufficient in the unraveling of the full potential of the
SMME economy, because the inherited structures contribute to the following:
•
A high dualistic economy not only characterised by a high productivity
(modern) and a new low productivity (informal) sector with little interaction
between them, but also a division along racial lines.
•
A transition phase marked by political uncertainty and considerable crime
and violence, both impacting negatively on local and foreign direct
investment in the modern sector.
•
A recent shift in individual policy to liberalization of trade and finance, and
a rapid technological change reflecting a comparable process at the global
level.
•
Low levels of education and training among the participants in the
traditional sector who have, in addition, suffered from the suppression of
entrepreneurial activities.
3.3.2
International experience in dealing with such legacy
South Africa’s peculiar features imply that policy makers may partly draw on
international experiences when looking for policy responses to promote
economic and employment growth. There are other economies like Chile or
Venezuela, for example, which have a historically strong mining base. Like
South Africa, they suffered from high levels of unemployment and/or
underemployment, resulting in income inequality, because public interventions
and resources were focused on strengthening the mining industry, to the
detriment of the more labour-intensive agricultural and manufacturing sectors.
Chile, for example, solved the unemployment dilemma by creating a large
public sector, while other governments protected their agriculture and
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manufacturing sectors so that the shrinkage in employment would not be so
pronounced. For a country like South Africa, however, protectionism and
increased state expenditure are contrary to the liberal philosophy adopted, as
shown below.
3.3.3
Way forward for South Africa
South Africa has adopted a regime of trade liberalization and fiscal prudence,
thereby limiting the use of protectionism and public sector employment. This
may partly explain why unemployment levels and income inequality have
increased.
Taking into account the characteristic of dual economy, adequately
remunerative employment could originate from:
•
The high productivity sector increasing its level of employment i.e.
absorbing people previously located in the low productivity sector (or
unemployed).
•
The low productivity sector increasing its income generating capacity
through investment, technological improvement and education and
training.
However, the success of each of these mechanisms is limited by historical
neglect of education and training for both employers and employees in the low
productivity sector. Therefore the key challenge is identifying the best policy
levers available to the government, given the problem of inequality and the
overall thrust of an economic reform strategy comprising fiscal prudence,
trade liberalization and deregulation of various economic sectors.
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3.4
Can SMMEs resolve the unemployment problem? – a
theoretical consideration
This section tries to highlight, from a theoretical standpoint, the requirements
for using SMMEs as vehicles for employment creation where the interaction
between capital, productivity and demand for labour are explained.
3.4.1
Capital, productivity and demand for labour
Economic production is defined as the combination of capital and labour to
generate a “product”. The demand for labour can be understood as a function
of the country’s national product, the availability and productivity of both
capital and labour and the ratio of substitution between capital and labour.
More precisely, the productivity of one factor is boosted by the quality and
abundance of the other factor, and this explains the difference in labour
demand amongst enterprises and across countries.
Countries with a broad capital base (typical of developed countries) exhibit
high labour productivity, and because their national product is high, will be
able to employ the majority of their labour force. By contrast developing
countries, South Africa included, are characterized by lower capital
endowments and an abundance of low-skilled labour. Overall productivity in
developing economies cannot be high as long as only a limited number of
workers are needed to operate the fixed amount of capital. This results in a
dearth of employment opportunities for unskilled labour.
A similar distinction can be made between the various sizes of enterprises.
This is done on the assumptions that the larger firms are more capitalintensive, and that the demand for labour is directly related to its marginal
productivity. In large capital intensive firms, the first few workers are highly
productive, but as workers are added their marginal productivity tapers off
fast. Thus the initial demand for labour as a whole or for high-skilled labour is
high, but then falls sharply as workers are added.
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In contrast, the labour demand of the micro-enterprise sector does not
achieve high levels at any given point. To begin with, much of the demand is
imputed since the workers are self employed. In addition, the marginal product
of the labour employed is low because of the limited capital and simple
technologies employed. The demand hence remains relatively flat (elastic),
because of the low barriers to entry.
The labour demand of the SMME sector lies between these two extremes.
The first workers are relatively more productive than those in microenterprises, but less so than those in large firms. Productivity declines slower
than in large firms as workers are added, but faster than in micro enterprises.
3.4.2
Labour markets, wage rates and productivity
The summation of the three labour demand scenarios described above
constitutes the total demand, which in turn is a function of the wage. Its
intersection with the supply of labour represents the equilibrium wage, which
is applicable to all low-skilled workers in the absence of labour legislation or
other institutions, which affect wages of various subgroups of the workers,
found in this labour market segment.
The demand is high at the beginning, where most of the demand for labour
originates from the high productivity sector, but flattens towards the bottom
where it reflects the existence of the micro-enterprise sector. In other words,
in a country with a large labour supply, the equilibrium wage for this category
of relatively unskilled workers is defined by the marginal labour productivity in
the micro sector.
3.4.3
Role of the high productivity sector in labour markets
A healthy high productivity sector directly contributes to employment creation
(Kesper, 2000). However, when capital is scarce, its main impact on
employment is indirect, by means of technology spin-offs, subcontracting and
transfers to the lower productivity sectors. The combination of an increase in
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the demand for labour in the high productivity sector, as well as the rest of the
economy, produces a rightward shift of the labour demand.
In South Africa’s case, according to Rogerson (1998), however, technological
upgrading seems to work in the opposite direction. The high productivity or
modern sector seems to grow “vertically” i.e. with no transfer, technology spinoffs or other indirect benefits. As a result, wages in the high productivity sector
rise, but fall in the other sectors. Such growth causes more income inequality,
reinforced by likely fall in wages of low-skilled micro-enterprises because this
segment of the labour market gets flooded.
According to Kesper (2000), international experience suggests that the direct
(low) employment creation capacity of the high productivity sector does not
vary much across developing countries, but that the extent of its positive
impact on employment creation in the lower productivity sector does. In the
case of Latin America for example, there has been virtually no net
employment creation of this sort in the 1990s – even though a modest rate of
overall economic growth was achieved. The Latin American experience
suggests that the high productivity sector cannot be expected to provide the
answer to a developing country’s employment needs in a world of
liberalization, fiscal prudence and rapid technological change. Its employment
growth is slow, and unless productivity was raised in other sectors, the
equilibrium wage would stay low for a discouraging long period.
3.4.4
Role of the micro-enterprises and the SME sector
Returning to the employment and wages in low-skilled segment of the labour
market it is important to distinguish between the micro-enterprise sector and
the SME sector. The micro-enterprise economy increases the average
productivity of labour in the economy as a whole by “pulling into production”
unemployed low-skilled labour whose skill levels are not sufficient to qualify
for employment in larger firms. Although this probably does not raise the
average labour productivity of the employed labour force, it makes the most
productive use of the unemployed economically active population. This has
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University of Pretoria etd – Chalera, C S (2007)
the effect of raising total output in the economy at little or no opportunity costs.
By means of support measures, the average labour productivity of those so
employed could be enhanced.
The marginal product of labour in the micro-enterprise sector determines the
equilibrium wage for unskilled labour in the whole economy, although labour
legislation and trade union power artificially push up wages in large scale
firms and part of the SME sectors, so that the actual wages tend to lie above
those paid in the non-unionized micro-enterprise sector. Nevertheless, the
social and economic importance of having policies that raise the productivity
in this micro sector must be viewed in light of the fact that its impact on
earnings can go beyond the micro-enterprise itself. Their successful
implementation raises not only the incomes of people employed therein, but of
all other comparable workers in the economy whose incomes are not above
the equilibrium due to “institutional distortions”.
Promoting the micro-enterprise sector with a micro-finance programme, for
example, may raise the productivity of enough micro-enterprises (or induce
the formation of dynamic ones to replace less productive micro-enterprises)
so that the labour demand (labour productivity) of that sector will rise.
Unfortunately, this cannot be the final resolution to the challenge of adequate
employment, because the productivity levels of micro-enterprises have a
relatively low ceiling. Hence, while effective policies impact positively on
micro-enterprise productivity, they achieve poverty alleviation at the most, but
not an expansion of the middle class.
The SME sector, by contrast, is not just a desirable complement to growth in
the high productivity sector and a multiplier of productivity increases in microsector, but holds in itself the main key to whether the country will succeed or
fail in confronting its employment challenge. Labour productivity is sufficiently
high in most of this sector so that its workers earn above the poverty line.
Further productivity improvements raise average wage levels of this subsector. Even more helpful, however, is the horizontal expansion of this sector,
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University of Pretoria etd – Chalera, C S (2007)
through entry of new and growth in size of existing firms. This shift in the size
distribution of firms can be explained by:
•
The redeployment of former lower skilled micro-enterprise employers to
SME firms (or the “maturation” of micro-enterprises into SMEs) until
eventually only a few micro-enterprises are left.
•
The redeployment of high skilled and less skilled workers from the high
productivity sector, which tends to replace labour with capital.
SMMEs therefore emerge not only from a productivity perspective, but also
with an interest in income distribution, as the most promising section of South
Africa’s economy. The country could have raised its average labour
productivity by allocating a high share of capital to large firms, which yield
scale economies, and/or firms using modern technologies. In this case, only a
few high skilled labour and well paid workers would be needed to operate this
capital, while the majority of the labour force produces with little capital, and
hence low levels of productivity and remuneration. In this scenario, labour (as
the abundant factor of production) is sub-optimally used and income
distribution worsened, especially with regards to unskilled workers and labour
entrants in particular.
Since South Africa boasts a large pool of low-skilled workers, maximizing
average labour productivity of those who are employed seems to be the
wrong path to follow at this time. Such a strategy would lead to a high rate of
unemployment, and hence inequality in income distribution. While the microenterprise segment usually absorbs some of the unemployed, therefore
slightly increasing the overall productivity of the economy, it is more desirable
to have SMEs generate the bulk of employment, which is more productive,
and hence able to pay higher wages.
Admittedly, the correlation between size, labour intensity and labour
productivity varies from country to country and industry to industry, but allows
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University of Pretoria etd – Chalera, C S (2007)
a first assessment of the potential of the SMME sector. If the theoretical
assumptions above are accepted, and it is acknowledged that the upgrading
of skills in the labour force is pivotal to a prosperous SMME sector, it becomes
equally clear that the overall economic success of a country like South Africa
depends on the nature and effective implementation of its SMME support
policies.
All over the world it has been recognized that the small business sector plays
an important if not critical role in the economic and social development of a
country. This also applies to South Africa, where the small business sector
has been neglected during much of the century following the discovery of
diamonds and gold, and the establishment of a modern, capitalist economy
with almost exclusive white control.
According to Kesper (2000), while the importance of large industrial, mining
and other enterprises for growth of the economy cannot be denied, there is
ample evidence that the labour absorptive capacity of the small business
sector is high, the average capital cost per job created is usually lower than in
big business and its role in technical and other innovation is vital for many of
the challenges facing South African economy.
Given South Africa’s legacy of big business domination, constrained
competition and unequal distribution of income and wealth, the small business
sector is seen as an important force to generate employment and more
equitable income distribution, to activate competition, exploit niche markets
(both internally and internationally), enhance productivity and technical
change, and through all of this stimulate economic development.
Taking into account the very large micro segment of the small business
sector, as well as those struggling in the survivalist activities it should be clear
that the small business sector plays a crucial role in people’s efforts to meet
basic need and help marginal groups for example, female heads of
household, disabled people and rural families, to survive during the current of
fundamental structural changes where the formal economy is unable to
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absorb the increasing labour supply and social support systems are grossly
inadequate.
Experience has shown that in the past black people have been able to make
far greater progress in the micro- and small-enterprises. Thus, the SMME
sector has – all its impediments notwithstanding – proven to be a highly
significant vehicle for black economic empowerment.
3.5
Size, profile and performance of South Africa’s SMME
economy
3.5.1
Introduction
Any policy decision concerning South African SMMEs requires accurate
information about their size and structure as well as contribution of SMMEs to
the economy. In particular, there is need to know the number and size of
SMMEs, and where to find them.
Because their needs vary strongly
according to these two criteria, it is also important to know their distribution
across industries. Moreover, the potential of SMMEs for economic
empowerment can only be estimated with a sense of the share of previously
disadvantaged individuals (PDIs) in the ownership of SMMEs. Apart from
these specific questions, more general information on the share of SMMEs to
the economy can enlighten macro-economic policy on the impact of their
actions on the sector.
Unfortunately, accurate information is far from being available in South Africa,
especially on the informal sector, which according to the available statistics, it
can be estimated to represent at least two-thirds of the SMME population.
Although the annual reviews of the State of Small Business in South Africa,
published by Ntsika Enterprise Promotion Agency, represent an official source
of data, they are not easily usable.
During 1995 to 1999 period, Ntsika tended to publish very comprehensive
statistics based on fragmentary and sometimes outdated sources, which were
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compiled with a lot of extrapolation. For example, the combined data source
used for the 1997 review were the Registrar of Companies, the South African
Receiver of Revenue (SAR), Unemployment Insurance Fund (UIF), National
Population Census (NPC) 1996 and sectoral Censuses, as well as October
Household Surveys from Statistics of South Africa (SSA), Matrix Marketing
Databanks
(MMD),
Development
Bank
of
Southern
Africa
(DBSA)
employment series, the Reserve Bank of South Africa (RBSA) and other
commercial research agencies (Ntsika, 1997:76). This posed several potential
problems, as economic SMME databases in South Africa are prone to
inconsistency as national surveys and censuses are often published with a
three to four year time lag and the extrapolation assumptions may be
discretionary. Because the accuracy of the statistics was often questioned,
Ntsika had chosen, since 2000, to follow a more cautious line, with the result
that the information stays very general and is no longer as comprehensive as
it used to be.
This section aims to present an overview of available estimations on the
SMME sector according to a variety of data sources. The diversity of statistics
indicates just how difficult it is to undertake quantitative work on SMMEs in
South Africa, and indicates the urgent need for complementary research.
3.5.2
Numbers of SMMEs in the various size category
The difficulty with regard to this study in statistical work was perhaps best
demonstrated when answers to the most basic questions were required, for
example, “How many SMMEs are there in South Africa?” Unfortunately, an
answer to this question is not easy to obtain as Table 3.1 on the following
page demonstrates by comparing several estimates made by various
institutions.
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Table 3.1: Different indicators for the size of the SMME sector
Source
Survivalist Micro Very small Small
Ntsika 1999
Ntsika 2000/
Stats SA 2000
Business
Partners
Management
Sciences Group
Survey, 1999
184 400
466 100
Informal 1 138 854
180 000
330 271
2.3 million
micro: 960 740
600 000
Eskom Survey,
1999
900 00+ “in home business”;
total 3 million if one includes farmers
58 900
94 804
Medium
11 322
52 620
35 000
Large
Total
6 017
12 249
906 739
1 658 797
n/a
2.9 million
formal:445 880 (of which 357 780 private
2.3 million
“informal”: 862 580
n/a
Global
below 0.73
Entrepreneurship and 1.15 mil. 1 709 142
Monitor, SA 2001
3 million
between
2.44 and
2.86 mil.
Source: Compiled by Rashid Ahmed, MFRC, and Magali von Blottnitz, UCT
The correspondence between the size categories is approximate, since sources tend to use divergent definitions.
As Table 3.1 shows, there is a considerable potential of error, especially in the
survivalist and micro categories (informal sector). Considering that even
Ntsika has drastically revised its estimation from 0.9 to 1.6 million between
1999 and 2000, it can probably be surmised that Ntsika’s 1999 estimations
were somewhat “out of picture”. Accordingly, it can probably be said that there
are between 1.6 and 3 million SMMEs in South Africa.
It is particularly noteworthy that the two “official sources” (Ntsika and Stats
SA) suggest lower totals than private research groups. There may have been
an under-estimation of the informal sector by Stats SA and Ntsika, due to the
strong reliance of their figures on various industrial censuses, which are not
likely to capture informal business very accurately. Estimates of the informal
sector mainly derived from employment data contained in the October
Household Survey; indicate that there is a potential for error in extrapolating
enterprise figures from employment figures.
It seems, private investigations on the contrary, were generally centred on the
actual question, i.e. the existence of enterprises. So although they may not
have had the statistical power of Stats SA (in terms of sample size), their data
may have been closed to reality. For example, the Global Entrepreneurship
Monitor 2001 (conducted by the Graduate School of Business of the
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University of Cape Town) found out that the “multiple ownership of business”
was a frequent phenomenon (for example, almost 54% of established
business owners have started at least one other firm before). This may
explain why there may be more enterprises than there are self-employed.
What this suggests is that the number of firms is likely to be higher than 1.6
million.
A data and methodology problem is encountered in the consideration of size
categories. Although the Small Business Act has provided an official definition
of four size categories (micro, very small, small and medium), this is not
followed by the official state agencies (especially Ntsika) in that they either
add new categories (“survivalist category”) in 1995-1999 or ignore some
(“very small category,” Stats SA, Ntsika 2000), without explanations. Private
studies are probably even less disciplined as far as their definition of size
categories is concerned, also combining a legal criterion (formality) with a size
criterion (micro-enterprises), which makes comparisons rather hazardous.
It must be emphasised however, that the weight of the smallest size
categories (micro-enterprises) is overwhelming. Although their contribution to
the GDP is minor, they represent between 1.2 and 2.8 million businesses, i.e.
between 69% and 80% of all SMMEs.
In terms of dynamic evolution of the size classes, it is almost impossible to
make accurate comments. While previous Ntsika publications may have
suggested a decrease in the proportion of survivalist business (from 23% to
20%) and a significant increase in the micro- and very small category (from a
combined 67% to 71%) between 1995 to 1997, the Management Services
Group sees an increase in all categories, but mainly in the smallest informal
size class (as well as in the public service) between 1998 and 1999.
3.5.3
Sectoral structure of South Africa’s SMMEs
The only sources giving comprehensive information on the number of firms by
sector are the data published by Ntsika (1997, 1999 and 2000) for the year
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1995, 1997, and 1999. This is problematic, since Ntsika may have overlooked
a number of enterprises, which may or may not be concentrated in a few
sectors.
A summary of statistics is represented below.
3.5.3.1
Current sectoral profile
Table 3.2 shows a static picture of the SMME population by sectors for the
five year period (1995 to 2000).
Because of the statistical weakness of the estimates presented, these figures
should be seen as providing an order of magnitude, rather than very precise
indications. Thus, the comparison between three years may not be very
reliable.
Nevertheless, interesting findings emerge from these estimations. It is not
surprising that the sectors of mining, and quarrying, and electricity and water
supply are almost irrelevant to the SMME economy. More interesting is the
distribution between primary, secondary and tertiary sectors.
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Table 3.2: Ntsika statistics on the sectoral distribution of South Africa’s
enterprises
1. Agriculture, Forestry etc
3. Manufacturing
5. Construction
6. Trade; repairs; hotels and restaurants
7. Transport, storage, communication
8. Financial and business services
9. Social and personal services
1995
92 300
11.0%
113 555
13.6%
79 974
9.6%
351 183
42.0%
50 007
6.0%
65 700
7.9%
80 400
9.6%
1996
98 060
10.8%
106 019
11.75%
88 516
9.8%
365 980
40.4%
58 796
6.5%
77 826
8.6%
107 013
11.8%
2000
204 429
12.6%
163 343
10.0%
147 830
9.1%
699 106
43.0%
85 360
5.2%
111 996
6.9%
179 837
11.1%
836 850
906 600
1 626 459
Source: Own calculations based on Ntsika 1997, 1999 and 2000.
It is important to note in Table 3.2 that the 2000 estimations follow a different
methodology than the previous years, and may not fully be comparable. The
statistics include large enterprises because it was not possible to isolate them
in the 2000 figures. However large enterprises have barely any impact on the
overall sectoral distribution. The figures do not add up to 100% because some
sectors which are less relevant for SMMEs, as well as “other activities not
adequately defined” have been left out of this table.
Table 3.3 reveals two interesting findings. First, a pronounced majority of the
smallest of South Africa’s enterprises, which come mostly from the informal
sector, are active in the tertiary sector, especially in trade. This is not
surprising, as it is well known that primary and secondary activities require an
amount of capital (land for the former machinery and equipment for the latter),
which is often not affordable to “emerging” enterprises.
However, the difference between the 1995 to1997 estimations and the 2000
estimations are striking; the 2000 estimations (which capture almost twice as
many informal businesses as the previous ones) seem to have identified a
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University of Pretoria etd – Chalera, C S (2007)
much higher proportion of those firms in the primary sector than the previous
studies. This may be due to an effective change in land ownership or to a
better count of emergent farmers in the previous homelands and other rural
areas.
Table 3.3: Primary, secondary and tertiary economy depending on
enterprise size
Among informal/survivalist- Among large enterprises
micro business
1995
1997
2000
1995
1997
2000
Primary
6.4%
8.4%
13.7% 24.6%
25.3% n/a
10.8%
10.8%
12.6%
Secondary
22.7% 21.6% 20.7% 34.8%
32.2% n/a
23.6%
21.9%
19.4%
Tertiary
70.6% 70%
42.6% n/a
65.4%
67.2%
66.2%
63.%
1995
40.6%
1997
2000
Among all enterprises
Source: Own calculations based on Ntsika 1997, 1999 and 2000.
Surprisingly, the 2000 estimation also suggest that secondary activities such
as manufacturing and construction are even more dominant in the informal
economy. Again, it is difficult to separate the dynamic effects (decrease of the
secondary sector within the last decade) from the impact of the change of
methodology.
3.5.3.2
Sectoral dynamics
As mentioned before, any accurate comments on the sectoral evolution of the
SMME population made on the basis of Ntsika is perilous, given that margin of
error suggested by the gaps between 1997 and 2000.
More limited studies are probably helpful in examining the dynamics of the
various sectors. In particular, GEM (2001) gives indications on the sectors in
which start-ups were created in 2000 - 2001 and the sectors where new firms
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University of Pretoria etd – Chalera, C S (2007)
were present. A comparison of these figures with the overall distribution of
enterprises as suggested by Stats SA 2000 may indicate dynamic sectors.
The difficulty with this approach is that a sector with a high proportion of “startups and new firms” can be either new developing or characterised by a very
high firm turnover, i.e. there are many births and many deaths within each
year. Despite its caveats, a look at the registration and deregistration statistics
of the registrar of companies can help support the interpretation of GEM’s
results.
The statistics, presented in Tables 3.4 and 3.5, enable the building of qualified
presumptions on the following questions: which sectors witnessed the most
enterprise creation in the periods under consideration and in which sectors
does entrepreneurship appear to be sustainable.
•
Sectors with high company creations in the last 5-10 years
According to both sources, two sectors emerge as having had a strong
creation activity, namely financial and business services and trade/hotels and
restaurants. This is not surprising as these are known to be popular start-up
activities. In the former case, though, this dynamic creation activity seems to
be compensated by a fairly high “attrition rate”, almost 11% of new registration
in 1999.
The manufacturing sector is fairly dynamic, as GEM results suggest (high
share among new firms in particular). Nevertheless, according to registration
statistics, the sector’s creation activity is rather “average” relative to its size in
the formal economy. What is more, the sector appears to have the highest
attrition (11.3%).
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University of Pretoria etd – Chalera, C S (2007)
•
Sectors with high company creation 2000
Looking at the creations in 2000, the above-mentioned three sectors remain
significant. In addition, the sector of “social and personal services” emerges
both from the Registrar’s data as a sector where creation accelerated in 2000.
•
Contradictory results
For three sectors, the two sources apparently yield contrary results. Apart
from possible weaknesses, other explanations are also sought for this
discrepancy.
o Construction
The Registrar of companies suggests that in the last 10 years to 2000, the
construction sector has had the second-most vibrant registration activity,
albeit with a slight slow-down in 1999, while the GEM findings suggest that
there were rather few new firms in that sector. While its “attrition profile” is
average (9.7%), it is very dynamic among private companies (46.3%). This
could possibly be attributed to a discrepancy between the formal and informal
sector, a high “infant mortality” rate leading to a much smaller number of living
young companies than were created, and/or the re-registration of proprietary
companies (Ptys) as close corporations (CCs), and the phenomenon of
dormant companies.
o Transport and communication
This sector consists of among others, activities such as “telecommunications”
or tour operators/travel agencies”, which are known to be popular start-up
activities – and also activities such as taxi driving. While GEM found a very
high share of statistics of start-ups - though not of new firms in that sector –
the registration activity seems to have slightly slowed down in 1999 -2000,
especially for CCs.
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University of Pretoria etd – Chalera, C S (2007)
This may arise from a difference in the delimitation of the sectors or the fact
that while the communication and tourism sectors are beginning to be
saturated, a high infant mortality is perceived. This may have reduced the
attractiveness of the sector for start-ups.
o Agriculture, fishing and hunting
The primary sector shows an intriguing pattern when comparing registration in
2000 to the registration activity in 1990-99. Undoubtedly, there has been a
great acceleration in the registrations of CCs in 1999-2000. However, GEM
does not corroborate this, as they found very few new firms in that sector. The
hypothesis of an “old sector” is also confirmed by the low rate of attrition. It is
difficult to correctly interpret these results without a study of the structural
changes in agriculture as a whole. This would require knowing what
proportion of agricultural businesses is registered as CCs or private
companies. In any case, the land reform process seems to be slowly
generating some emerging farming businesses.
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University of Pretoria etd – Chalera, C S (2007)
Table 3.4: Sectoral distribution of start-ups and new firms compared to
the total distribution of South Africa’s enterprises
GEM 2001
Start-ups
New firms
Ntsika 2000
Total
Agriculture, hunting, forestry and Building
1.38%
2.6%
12.6%
Manufacturing
14.3%
19.1%
10.0%
Construction (Including mining and quarrying)
3.7%
5.0%
9.1%
Trade repairs; repairs; hotels; and restaurants
Of which wholesale, incl. fuel and vehicles
Of which retail, repair, hotels & restaurants
46.8%
6.0%
40.8%
54.3%
6.5%
47.9%
43.0%
Transport, storage and communication
9.8%
1.7%
5.2%
Financial and business services
10.4%
13.1%
6.9%
Community, social and personal services
13.6%
4.2%
11.1%
100%
100%
100%
Source: Own calculations based on Gem 2001, Ntsika 2000
Table 3.5: Registration and de-registrations of CC’s and Pty’s by sector
(1990-2000)
1990-1999
1999
2000
RegistratIons
Registr/ó Registr- Dereg. %.
formal
tion
Agriculture/ primary
sector
14 988
38.8%
3 542
237
6.7%
3 775
25.2%
Manufacturing
43 013
111.6%
6 824
768
11.3%
7 357
17.1%
Construction
46 212
170. 4%
6 983
680
9.7%
7 572
16.4%
Trade; repairs; hotel
and restaurants
206 437
156.8%
35 047
3 377 9.6%
40 603
19.7%
21 632
54.2%
2 961
3 237
15.0%
Financial & Bus. Serv.
Social & personal
services
247 525
365.5%
37 374
4 061 10.9%
40 721
16.5%
27 552
147.6%
4 813
394
8.2%
4 813
20.1%
Totals
610 404
147.6%
98 041
9 846
10.0%
109 359
17.9%
Transport, storage &
communication
271
9.2%
Registr2000/
tion
1990-99
Source: Own calculations based on Registrar of companies, as quoted by Ntsika, 1999 - 2000
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University of Pretoria etd – Chalera, C S (2007)
3.5.4
Ethnic structure of South Africa’s SMMEs
Given South Africa’s specific history of apartheid, which meant the exclusion
of the majority of potential entrepreneurs from proper education and access to
property and/or financial resources, it is important to know to what extent and
in what forms Previously Disadvantaged Individuals (PDIs) are able to take
their part in business.
3.5.4.1
“Black business”
The following statistics could be used: Ntsika estimated the share of PDI
ownership at 50% in 1997; GEM suggests that in 2001, 76% of entrepreneurs
are black, coloured or Indian. While it is plausible that there has been an
increase in the share of PDIs with regard to this statistics, most of the
difference is, however, believed to stem from Ntsika’s under-estimation of the
informal sector.
The share of “non-white” is noticeably higher in the informal sector firms than
in the formal sector. The World Bank study on formal SMMEs in the
Johannesburg area illustrates the very small significance of PDIs in the formal
economy.
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University of Pretoria etd – Chalera, C S (2007)
Table 3.6: PDI share according to various studies
Survivalist
Very small
Number of PDI owned firms
PDI share within size category
434 428
65.9%
15 875
15.8%
GEM 2001
Survivalist
Small
Total
Ntsika 1997
Number of white owned firms
Number of Indian owned firms
Number of coloured owned firms
Number of black owned firms
Total number of PDI-owned firms
PDI-share within category
466 928
57.9%
Declared firms
28 525
4 989
42 633
653 405
701 027
96.1%
392 220
90 650
186 958
1 039 615
1316 922
77.1%
Chandra 1999 (formal
and urban)
< 20 employees
Number of PDI-owned firms
PDI share within category
110
18.5%
3.5.4.2
16 625
35.9%
420 745
95 639
229 290
1 693 020
2 017 949
82.7%
20-49 employees
35
18%
Racial discrimination by sector
Taking a look at the main sectors, it appears that the share of PDIs is higher
in transport and communication, mining and quarrying and construction and
trade (Ntsika) as well as community services (GEM, 2001). In agriculture and
financial and business, the share is lower.
3.5.4.3
Cross-racial partnerships
The social economic context of PDIs, in particular the lack of funds to start
business on their own, as well as the rise of the so called “affirmative
procurement” (preference given by government or large corporations to blackowned firms in their tendering activities), have led to an increase of crossracial partnerships in the establishment of firms.
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University of Pretoria etd – Chalera, C S (2007)
Table 3.7: Racial distribution of firm ownership by sector
NTSIKA 1997
SIC Codes
White
1. Agriculture,
hunting, forestry
fishing
2. Mining,
Quarrying
3. Manufacturing
39 500
57.5%
29 235
42.5%
11972 14170
45.8% 54.2%
0
0%
0
0%
14 170
54.2%
2 895
29.0%
35 962
41.2%
4 998
58.3%
7 090
71.0%
51 280
58.8%
3 570
41.7%
42 607
19.0%
131 305
58.6%
37 793
19.9%
12436
5.5%
181 534
81.0%
5. Construction
24 808
30.1%
57 720
69.9%
30 283
43.4%
14 170
20.3%
6. Trade; repairs;
hotels and
restaurants
7. Transport,
storage and
communication
8. Financial,
insurance, real
estates business
services
9. Community,
social and
personal services
107 106
35.1%
98 330
64.9%
9 973
21.4%
4. Electricity, gas
water supply
PDI
GEM 2001
Black
Coloured
Indian
PDI
25 339
36.3%
0
0%
39 508
56.6%
121 484 524 274
15.2%
65.8%
101 139
12.7%
49 743
6.2%
675 157
84.8%
36 688
78.6%
30 283
24.0%
83 128
65.9%
12 669
10.0%
0
0%
95 797
76.0%
56 525
73.2%
20 725
26.8%
91 201
57.8%
41 564
26.3%
12 669
8.0%
12 4336
7.9%
66 669
42.2%
48 381
46.7%
55 190
53.3%
23 945
12.43%
137 917 25 339
71.3%
13.1%
6 218
3.2%
169 474
87.6%
351 774
22.1%
946 527 214 948
59.4%
13.5%
338 981 66 928
42.1% 57.9%
3.5.5
White
80 833
5.1%
1 242 308
77.9%
Geographical location of South Africa’s SMMEs
Owing to poor infrastructure in rural areas (including banking infrastructure), it
is important to take consideration of the location of the enterprises.
Furthermore, an interesting question is the extent to which the potential for
SMMEs in the rural areas is fully exploited.
3.5.5.1
Rural and urban SMMEs
As per Table 3.8 shows, Ntsika estimations (until 1999) seem to have grossly
under-estimated the number of enterprises in the most rural provinces,
especially the Eastern Cape, Limpopo Province and Mpumalanga. In these
provinces, SMMEs are – even more often than in urban areas – of an informal
and survivalist nature.
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University of Pretoria etd – Chalera, C S (2007)
Table 3.8: Distribution of SMMEs according to location
Ntsika 1997
Ntsika 2000
Survivalist
Very small &
&
Small
Medium
Total
Total SMMEs
SMMEs
Micro
Mainly
urban
provinces:
415, 800
175.400
8,770
599,970
944,034
In %
63.9%
73.5%
77.5%
66.6%
57.9%
provinces)
234,900
63,400
2,552
300,752
685,622
In %
36.1%
26.5%
22.5%
33.4%
42.1%
466 100
180 000
11, 322
900,722
1,629,656
Mainly
rural
Total number of
enterprises
GEM’s results (Table 3.9), on the other hand, suggest a much lower
prominence of rural business, although in the survivalist economy almost a
third of businesses come from rural areas.
Table 3.9: Distribution of SMMEs according to location
Survivalist
Formal and semi-formal
Total
Metro
320,309
47.7%
1,081,043
64.8% 1,401.352
59.9%
Small Town
148,310
22.1%
251,509
15.1% 399,819
17.1%
Rural
203,575
30.3%
335,898
20.1% 539,473
23.0%
Total
672,194
1,668,450
2,340,644
Source: GEM 2001 combined with OHS.
It is also important to note that it would seem that small enterprises are at a
disadvantage in small towns, relative to rural areas.
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University of Pretoria etd – Chalera, C S (2007)
3.5.5.2
Evidence of untapped potential in rural areas
From these diverge sources; it is difficult to establish precisely the number of
SMMEs in rural areas. GEM suggests another approach to the conundrum,
which is the comparison of existing entrepreneurs with the potential for further
business creations.
One limitation of the GEM methodology is that the business creation potential
is self-assessed, i.e. respondents are asked whether they believe that there
are opportunities and that they would have the skills necessary to start a
business. However, the results are intriguing, and suggestive of a large
untapped business potential in rural areas – especially among black people.
Table 3.9 shows that among urban and white and Indian populations, there is
little or no potential for more entrepreneurship opportunity; the figures even
suggest a negative untapped potential among the whites, presumably
because many entrepreneurs realize a posteriori that either they do not have
the skills, or the market potential is insufficient.
Table 3.10 Untapped potential of “opportunity entrepreneurship”
Small
White
Indian
Coloured
Black
Metro
Town
Rural
Total
7.0%
6.2%
8.1%
5.8%
6,3%
5.4%
6.0%
6.1%
Entrepreneurs
8.1%
6.2%
6.1%
2.6%
6.3%
3.8%
0.7%
3.7%
Untapped potential
-1.1%
0.0%
2.0%
3.2%
0.0%
1.6%
5.3%
2.4%
No of adults
-38,350
0
49,364
657,139
0
Potential opportunity
entrepreneurs
Actual opportunity
87,008
593,420
665,490
Source: GEM 2001 combined with OHS data.
On the other hand, it seems that, with the appropriate support (including
finance, infrastructure and mentoring), there could be a considerable increase
in entrepreneurship in rural areas and among coloured and black people. This
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University of Pretoria etd – Chalera, C S (2007)
suggests that government policy should endevour to stimulate small business
activity among those population groups.
The figures in Table 3.9 have two limitations, though. First, the “actual
opportunity index” of 0.7% for rural areas does not mean that there are a few
entrepreneurs among rural populations. Rather, GEM indicates that 1.8% of
the rural adult population is involved in entrepreneurial activities and 2.9%
own established businesses. However these rural business people are mostly
characterized as “necessity entrepreneurs”. The scarce job opportunities in
rural areas possibly distort the distribution between “necessity” and
“opportunity entrepreneurs” leading to an exaggeration of the “untapped
potential”.
The second caveat is that the “potential opportunity entrepreneurs” are selfassessed. It is possible that, with their lack of exposure and business
experience, rural and black South Africans over-estimate both opportunities
present on the market, and their own ability to start a business.
3.5.6
SMMEs’ contribution to the economy
Although statistics about the weight of SMMEs in the economy are frequent
and popular, giving reliable and precise estimation is difficult. Once more, the
reason is the lack of statistics about the informal sector, which considerably
affects the economy. Therefore, again, the approach in this section will be to
present multiple sources and estimations and discuss the differences.
3.5.6.1
SMMEs’ contribution to employment
Several technical difficulties arise when comparing the figures below. The
definition of “employed” may vary, depending on whether or not they include
domestic workers, public sector employment and “self-employed”. The largest
disturbing factor, though, is the estimation of the “informal sector”.
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University of Pretoria etd – Chalera, C S (2007)
Table 3.11: Contribution to Employment by firm size – overview
Survivalist
& Micro
Very Small
Small
13.66%
13,35%
19.89%
13.77%
100.0%
No of Jobs
Ntsika 1997 (1999, p. 35)
In %
901 550
880 000
1 3 13 000
909.100
6 600 000
16.57%
12.30%
100.0%
No of Jobs
Ntsika, 1997 (199, p 41)
In %
1 033 000
Informal:
12.8%
1 068 300
1 225 000
909. 820
“Formal including public sector”
87.2%
7 397 020
No of jobs
Abedian, 1997
In %
1 174 000
Informal:
13.0%
7 972 000
“formal SMEs”
38.8%
9 146 000
No of jobs
Ntsika 2000 & Stats SA
2000
In %
1 052 000
Informal:
3 135 000
“micro informal”
26.1%
12.8%
12.1%
33.6%
100.0%
No of jobs
2 705 000
1 332 003
1 252 000
3 488 653
10 369 000
Ntsika 1995
In %
13.79%
14.44%
Medium
Large
Total
100.0%
34.4%
100.0%
3 097 000
7 284 000
Sources: Ntsika, 1997, 1998 and 1999 editions (combined data were used);
Abedian, 2001, based on CSS (1998), Employment and Unemployment in South Africa
Ntsika 200, combined with OHS 2000
Comment on the informal sector
In all developing countries, the so called informal sector (consisting of
survivalist and micro-enterprise) functions largely as an employment cushion
for those with limited skills and young job seekers. Accordingly, the number of
micro-enterprise activities typically rises during economic decline.
Nevertheless, assessing the scale and performance of the informal sector,
which by definition, comprises statistically unrecorded activities (since
recording is typically limited to the formal sector), has been a difficult task –
more so in South Africa where the black population used to be prosecuted if
involved in such activities. Apart from the difficulty in researching the hidden
economy, different definitions of unemployment and full/or part-time selfemployment lead to divergent observations.
The 1996 Population Census estimates the number of workers employed in
the informal sector to be at least 1.4 million and the total employed labour
force to amount to 9.1 million (Ntsika, 1999: 35), while the distribution below
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University of Pretoria etd – Chalera, C S (2007)
only ascribes 382 400 employees (and 650 500 self-employed) to the informal
sector (see second row of Table 3.1) with formal and informal employees not
exceeding 7.4 million in 1997 (Ntsika, 1999:51). It is therefore likely that this
distribution underestimates the extent of informal sector employment – by
perhaps as much as about 1.7 million.
Given the possible inaccuracy of the available data, the hypothesis of a
numerically growing informal sector during times of economic decline can be
neither contested nor totally confirmed, although its plausibility for South
Africa is perhaps emphasized by the fact that it has been frequently observed
in other countries.
Data by industries
According to Ntsika (2000), the sectors with the highest contribution to
employment by very small (“informal micro”) and small enterprises were the
service sector, with a combined 70.9% of employment in “community, social
and personal services”, 59.5% in trade, repairs, hotels and restaurants”, and
44.3% in business services. Meanwhile, medium-sized enterprises were
significant in agriculture (52.3% of formal employment) and manufacturing
(24.6%). These figures, however, could change significantly if the informal
sector were included.
Dynamic analysis: are SMEs employment generators?
From Table 3.10, it is tempting to answer the question whether South African
small firms are dynamic employment generators. When comparing changes in
the distribution of employment over size classes between the successive
estimations, it seems that this is the case – although the doubt remains
whether the increase of estimated figures comes from a better capture of the
informal and smallest activities, or from real change.
Assuming that there has been an actual increase in the demand for labour,
the next question is whether this is explained by the growth of individual
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University of Pretoria etd – Chalera, C S (2007)
enterprises, or by the next formation of new businesses. Dividing the
employment figures by the number of establishments can help answer that
question. Due to the inconsistencies in data collection, the available data sets
only allow for a tentative development of either answer, in particular with
regards to informal enterprises.
Acknowledging the possible misrepresentation of actual trends by the
available data and returning to the question of SMMEs as employment
generators, it seems, one would assume that micro-enterprise and very small
business formations, and not the expansion of existing SMMEs, account for
the overall growth in the SMME sector.
3.5.6.2
SMMEs’ contribution to the GDP
Discussing SMME contribution to the GDP is problematic, since the GDP
typically records only formal activities, while most SMMEs are active in the
informal sector. Therefore, in theory, two approaches are possible: either
ignoring the informal sector entirely, which can only give a partial answer to
the question on the economic significance of SMMEs; or attempting to
quantify the value added generated by informal enterprises.
Table 3.12 suggests that Abedian has made the only attempt to qualify the
contribution of the smallest, informal firms to value added. The methodology
that he used was to split gross value added into compensation of employees
and gross operating surplus. The first part was allocated to the various size
categories according to their contribution to employment, while gross
operating surplus was allocated to each type of enterprise using assumed
weights. Depending on the assumptions he arrived at a combined 12-14.5%
of GDP being generated by informal SMMEs.
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University of Pretoria etd – Chalera, C S (2007)
Table 3.12: Contribution to GDP by size – overview
Survivalist Micro Very Small
Ntsika, 1995
In %
In million R
Abedian, 1997
Scenario 1, in %
In million R
Scenario, 2 in %
In million R
1.2%
7 622
1.24%
7 622
Ntsika, 1999
In %
In million R
Ntsika 2000
In %
In million R
13.25%
81 572
11.00%
67 721
9,43%
58 061
9.4%
58 061
5.8%
47 027
Small
Medium
Large
0thers Total
21%
76 020
12.0%
43 440
67.0%
42 540
100%
362 000
17,24%
106 153
14.99%
92 302
15.11%
93 076
15.11%
93 076
43.73%
269 312
48.23%
297 015
100%
615 796
100%
615 797
25.2%
170 585
8.3%
56 024
46.3%
312 958
13.9%
112 314
21.2%
136 314
15.1%
65.2%
121 607 527 070
Sources: Ntsika, 1995: Abedian, Chapter 1, in: Policy Board for Financial Services, Access to Finance for SMMEs,
2001 Ntsika 1999, Ntsika, 2000, combined with stats SA Release P0441, 2001.
Several improvements could be undertaken to refine this approach. Assuming
that compensation of employees is distributed across the size classes
according to the employment weights implies that the wage per worker is
constant across size classes. There is considerable evidence to suggest that
this is not the case. While allocating the share of value added corresponding
to compensation of employees between the size categories, it would make
sense to assume different salary levels. The assumption that salary levels are
homogeneous across the size categories probably led to an overestimation of
the contribution of survivalist and micro-enterprises.
On the other hand, Abedian worked with Ntsika’s former estimations of
employment within survivalist and micro-enterprises, which (as shown in the
previous section) are probably strongly underestimated. Moreover, in terms of
the absolute figures, it would have been more correct to calculate the value
added by informal enterprises as being “on top” of the official GDP of 615.8
billion Rand. Thus the value added by survivalist and micro-business would
have been slightly higher.
Nevertheless, Abedian’s estimates seem to be a good proxy of the orders of
magnitude.
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100%
675 881
100%
808 017
University of Pretoria etd – Chalera, C S (2007)
Data by industries
In terms of sectoral distribution, the broad lines are pretty similar to the
comments made on the employment figures, with very small and small
enterprises dominating in the service sector, and medium-sized enterprises
strongly contributing to the agriculture and manufacturing sectors (Ntsika
1999). It should be noted that these data ignore informal contribution due to
lack of data.
According to Ntsika (2000), significant differences between employment
distribution and GDP appear, however, in two sectors:
•
The trade and hotel/restaurants sector, where micro/very small enterprises
represent 35.8% of employment but only 3.1% of value added. This
suggests that the smallest supermarkets, petrol stations and restaurants
operate at very low surplus levels.
•
The services (especially finance and business services) sector, where
large enterprises contribute to 69.3% of GDP, supposedly referring to the
(relatively) high margins of South Africa’s large finance institutions.
Dynamic analysis: is the share of SMMEs growing?
The data available barely enables intertemporal comparison. Indeed, both the
size categories and the underlying GDP figures are inconsistent. From
Ntsika’s explanations it is not clearly recognizable whether the “large
enterprises’ GDP” includes the contribution of public and parastatal
enterprises or even the government services.
3.5.6.3
SMMEs’ contribution to investment
Another important dimension of the economic weight of SMMEs is their
contribution to investment. While there is very little information on this
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University of Pretoria etd – Chalera, C S (2007)
question, Abedian (1998) has attempted to qualify this figure with a very rough
approach as Table 3.13 portrays.
Although this estimation would need to be refined, it is interesting in that it
suggests very low investment behaviour of SMMEs compared to their share in
employment and production. A reason may be difficulties experienced by
these enterprises in getting access to sufficient finance to undertake
investments. This certainly requires further attention.
Table 3.13: SMMEs contribution to nominal gross fixed capital formation
2000 (R million)
Assumptions
Sector
SMEs
Large
SMEs
Agriculture
Mining
Manufacturing
Electricity
Construction
Wholesale,
retail, catering
and
accommodation
Transport
Finance
Community
service
100%
09%
40%
0%
50%
0%
91%
60%
100%
50%
4 101
954
12 202
0
605
Total
Percentage/
Total
70%
20%
20%
30%
80%
80%
100%
0%
Large Enterprise
6 091
3 870
6 370
0
33 239
25.5%
Total
0
9 647
18 304
6 980
605
4 101
10 601
30 506
6 980
1 210
2 611
15 480
25 481
8 702
19 350
31 851
17 018
17 018
97 081
130 320
74.5%
100.00%
Source: Abedian, in: Policy Board report on Access to Finance for SMMEs
3.5.7
Statistical data on SMME – conclusions and recommendations
Any policy decision concerning SMMEs requires accurate information about
the size and structure of South Africa’s SMME economy. Ntsika aims to
facilitate such decision-making by publishing annual reviews on the State of
Small Business in South Africa. Nevertheless, the data presented in the
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various editions of the publication can be improved to meet the requirements
of policy makers for a number of reasons.
Ntsika can only encourage Statistical Agencies such as Statistics South Africa
and private researchers to address the shortcomings with regard to
correctness and coverage of the existing databanks, but it must request
SMME data that:
•
Is more detailed (both by size-class and by industry instead of sectors).
•
Relies on more than just a single data source.
•
Reflects changes over time by maintaining the same definitions.
3.5.7.1
Directions for data collection
Improvements to data collection need to be considered in the following areas:
Better coverage of the smaller sized, and in particular, micro sized
establishments
The currently reported low contribution of micro-enterprises to total
employment contradicts anecdotal evidence and is probably not an accurate
reflection of reality. Given the complexity of the task, particularly on the
informal sector, it is recommended to proceed with limited-scope samples and
case studies rather than using a census-like methodology, which is likely to be
too “massive” to capture the subtleties of the informal sector. Some initiatives
such as the World Bank Firm Study on the Johannesburg area are likely to
provide a number of new insights in this regard, but a similar job would be
needed in rural areas. Stats SA’s established series of Labour Market Surveys
could also be considered in this regard.
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Standardisation of data collection procedures
This particularly applies to sampling methods and definitions, to allow for
comparisons between data sources and various years.
3.5.7.2
Directions for data presentation
In certain cases, it is likely that the data is correctly collected but not
appropriately presented. It is strongly recommended that Ntsika devote
extreme attention to the following issues:
Continuity
Even if improvements of the previous years’ methods and results are
welcome, they should be presented in such a way that comparison across the
years is possible.
Precision with regard to industry
Each of the nine main sectors consists of very diverse activities. According to
Ntsika manufacturing alone comprises about 75 industries. While presenting
detailed statistics would be too unwieldy, certain industries would need to be
singled out, for example manufacturing.
Precision with regard to size: If, for a particular reason, the official size
categories provided by the Small Business Act cannot be used, the underlying
definitions should be explained.
Disclosure of method and reference population: Tables and graphs should
indicate clearly the population they refer to (e.g. whether it is only the formal
sector, or formal and informal). The primary sources and the approach used
for the data offered need to be explained as well.
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3.5.7.3
Directions for data analysis
With more detailed information on SMMEs, data analysis can take a number
of additional directions, such as:
•
Verification of information obtained from Stats SA with household/labour
market and entrepreneur surveys (and vice versa): Recent empirical work
such as the 1999 World Bank Survey in the greater Johannesburg and the
National Enterprise Survey are first attempts to generate information for
representative samples. National-wide coverage and repetition of these
surveys is to be encouraged.
•
Refinement of estimations on the informal sector: For example, its
contribution to employment and value added, based on the newest
estimations on the number of firms in the informal sector.
•
Generation of data on more precise performance indicators: Apart from the
(static) contribution to output and employment, SMMEs’ investment
behaviour, wage levels and labour productivity inform about their
performance.
•
Generation of time-series data: The relative growth of the SMME sector
and its performance emerges over time. Indicators that require further
investigation over time and by industries (and later size-class) are: ratio of
employment growth in SMMEs to that of the overall economy; ratio of
value added by SMMEs to the overall economy: ratio of the number of
SMMEs to that of all establishments; and capital/labour ratio of SMMEs
(labour intensity).
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3.6
Conclusion
The previous chapter discussed the main functions of SMMEs with an
emphasis on the structural features of the South African economy and its
implications for SMME growth.
A theoretical consideration was also outlined as to whether SMMEs can
resolve the unemployment problem and lastly the chapter attempted to give
an overall view of the South Africa’s SMME economy with regard to size,
profile and the performance of the SMME sector.
In the following chapter, international, regional and local experiences with
regard to SMME development will be discussed.
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CHAPTER 4
INTERNATIONAL, REGIONAL AND LOCAL EXPERIENCES IN
SMME DEVELOPMENT
4.1
SMMEs as major employment creators – evidence from
industrialized countries
In many industrialized countries, 1970s and 1980s witnessed the reemergence of the small business sector due to two major events. First,
spectacular cases of large enterprises running into economic difficulties and
shedding employment arose in nearly all industrialized countries, while the
latter’s small business sectors (or parts of it) went relatively well through the
period of economic turbulences that started in the early 1970s. Second,
Birch’s (1979; 1987) finding that small businesses created the majority of new
jobs in the United States, spread quickly around the world and provoked an
upsurge in research on employment shifts towards smaller businesses.
The Organization of Economic Co-operation and Development (OECD)
countries which accounts for over 75% of the world output, concluded in 1985
that, in several of its member states, a tendency towards the concentration of
workers in small businesses could be found, even after accounting for shifts in
industrial structure or sectoral composition (OECD, 1985). Reviewing data on
employment shares by enterprise size for nine industrialized countries,
Loveman and Sengenberger (1990:8) confirm that,
“[…] despite significant cross-national differences in the size distribution and
despite methodological caveats, the employment share of small enterprises
has reversed a downward trend that had prevailed for many decades and
risen significantly […]. Taken together, the case studies present a convincing
case for a shift in employment to smaller units of production”.
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According to Harrison (1994), it is important to guard against rushing into
premature and overly general conclusions as to the economic implication of
the shift toward smaller units. Job generation studies show that the
employment dynamic accompanying new business formations and business
closures is very important to net employment contribution of smaller
businesses (Becattini, 1990; Koshiro, 1990; Mead, 1999). Many of the recent
firm births in industrialized countries may have been induced by poor
economic conditions in general and by high unemployment in particular.
Those undertaken as “last-ditch” attempts to provide livelihood to the founder
may rest on especially shaky ground and their failure rate might therefore be
expected to be abnormally high as either good times draw the entrepreneur
back into dependent employment or bad times topple the weak business
(Sengenberger et al., 1990; OECD, 1993).
Nevertheless, it has now been acknowledged that a large majority of business
units in industrialized countries are small, and even a conservative review of
the job generation literature suggests that small businesses account for at
least a proportional share of employment creation. The net new jobs created
in small businesses, however, result from a very dynamic process of
expansion and contraction within the small business castor. While some small
businesses start and remain small throughout their existence, others
experience stages of growth, and senescent businesses even decline
(Timmons, 1994). Large employment gains occur seemingly only in a few
small businesses (Sengenberger et al., 1990; Qualman, 1998; Mead, 1999).
Research by the European Commission has shown that only enterprises
characterized as fast growing contribute some 50% of net job creation
(Papoutsis, 1996).
4.2
SMMEs as major employment creators - the experience in
African countries
In Africa as well as in other less developed countries, SMMEs (and micro
enterprises in particular which constitute their majority) have received
mounting attention because of their labour absorptive capacity in times of both
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shrinking public sector and private formal economy, and increasing numbers
of new labour entrants. With the shift of industrial policy away from import
substations and of trade policy towards liberalization, SMMEs are moreover
expected to respond flexibly and thus withstand global competition (Hirst and
Zeitlin, 1992; Bambara, 1995; Kalinsky, 1997; Schmitz, 1997). While the Latin
American experience of both single and especially clustered SMEs confirms
the dynamism associated with SMEs (Cortes et al., 1987; Rabellotti, 1999;
Schmitz, 1999), there has been little systematic evidence on the incidence
micro-enterprise “graduation” or growth into larger ones in Africa (Mead and
Liedholm, 1998; Mead, 1999). Indeed, one-person operations constitute the
majority of small scale industry in Africa, and only about 1% succeeds in
graduating to an intermediate-size (Mead, 1995; Dia, 1996; McPherson, 1996;
Ferrand, 1997; Manu, 1999). It is argued that latest technologies are not yet
available, but instead technology which has already been commercialized by
foreign companies is implemented. Moreover, product specification is, in most
cases, not a strategic answer to segmented markets, but lack of resources
(Pedersen et al., 1994; Amsden, 1997). Virtually all SMMEs operate in
conditions of excess supply of relatively unskilled and unorganized labour,
which allows them to transmit the burden of unstable markets on their
employees and to base competition on squeezing labour costs rather than
innovation or technological upgrading (Storper, 1991; Schmitz, 1995;
McComick, 1999). Unlike in South Korea where large businesses function as
catalysts of growth to their subcontractors, corporate subcontracting to small
and mostly “informal” businesses in Africa is more than often a means to
reduce costs by exploiting labour-surplus conditions and circumventing
regulations and trade union organizations (Pedersen and McCormick, 1996).
Clusters of sector-specific businesses exist in Africa, but their growth
experiences vary and differ markedly from other developing countries cases,
like the successful Sinos Valley shoe cluster in Brazil and the surgical
instruments cluster in Sialkot, Pakistan, or from the “model” industrial districts
of Italy (Dawson, 1992; Rasmussen, 1992; Sverrisson, 1992; Maldonado,
1993; Nadvi, 1994; 1997; Schmitz, 1993; 1995; Yankson, 1996; Advani, 1997;
McCormick et al., 1997; McCormick, 1999). Indeed, strong social ties and
networking, reported to be essential for the success of industrial districts in
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Europe, have ambiguous effects on firm growth in Africa: While being
supportive amongst the Igbo in Nigeria, research in Kenya suggest that the
successful African entrepreneur has loosened his networks based on kingship
and social ties in general (Brautigam, 1997; Ferrand, 1997; McCormick et al.,
1997). Furthermore, formal institutions in Africa face crises of legitimacy and
enforcement by not being rooted in local culture and therefore are far from
conducive to enterprise growth (Steel, 1995; Dia, 1996).
The above suggests that models of competitions and growth trajectories of
SMMEs vary across continents and countries (Khoza, 1993; Humphrey &
Schmitz 1995; Amsden, 1997; Gordon, 1997; McCormick 1999). Research
findings on SMMEs throughout Africa are diverse, albeit they show widely that
it cannot be enterprise size as such which determines a firm’s growth potential
for success and failure of SMMEs to co-exist and instead point to the role of
the entrepreneur (Sengenberger et al., 1990; Späth, 1994; King and McGrath,
1999). The predominance of SMMEs in the industrial tissue, both in terms of
numbers and employment opportunities generated, demonstrates that
SMMEs form an important part of African economies and have found their
own ways to deal with market instability and uncertainty. Nevertheless, the
critical underlying issues of the viability of these small firms, and the
sustainability and quality of the employment generated by them remain still
unclear (Späth, 1994; Dia 1996; McCormick et al., 1997).
4.3
Employment creation through SMMEs – South Africa’s debate
4.3.1
Government’s perspective: SMMEs as a vehicle to tackle the
problem of unemployment
Since the elections of April 1994, the issue of black economic empowerment
and a more equal income distribution have been placed high on the agenda of
the
government
of
South
Africa
(Rogerson
and
Rogerson,
1995).
Nevertheless, the need to take the South African economy onto “a higher
road”, i.e. a diversified economy in which productivity and international
competitiveness are enhanced, wage-levels are raised, investment is
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stimulated and entrepreneurship flourishes, is recognized as a condition to
address these issues successfully (RSA, 1994; 1995). In the 1995 White
Paper on National Strategy for the Development and Promotion of Small
Business in South Africa, the government assigns the SMME sector a key role
in South Africa’s socio-economic transition (RSA, 1995:10). In particular,
SMMEs are seen as a vehicle to:
•
Address the problem of high unemployment levels in South Africa as they
have a high labour-absorptive capacity.
•
Activate domestic competition by creating market niches in which they
grow until they identify a new niche as a response to demand changes and
to be internationally competitive because of their flexibility.
•
Redress the inequalities from the apartheid period – in terms of patterns of
economic ownership and restricted career opportunities for black
employees.
•
Contribute to black economic empowerment in that the majority of SMMEs
is reported to be initiated, owned or controlled by those members of
society who were discriminated against in South Africa’s past.
•
Play a crucial role in peoples’ efforts to meet basic needs in the absence of
social support systems during restructuring processes – which refers in
particular to South Africa’s micro-enterprise segment and especially
survivalist activities characterized by low entry barriers for inexperienced
job seekers.
4.3.2
Government initiative: Supply-side policy to promote SMMEs
The South African government suggests that the SMME sector – with the help
of the government support – is capable of fulfilling these objectives and has
introduced a number of supply-side measures to promote the formerly
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neglected sector (RSA, 1995:10). The overall objective is “to create an
enabling environment” and “to level the playing fields” in terms of national,
regional and local policy frameworks for SMME development. More
particularly, policy measures are aimed at:
•
Addressing the obstacles and constraints that SMMEs face to promote
(faster) growth.
•
Enhancing their capacity to comply with the challenges of globalization and
an internationally competitive economy.
•
Strengthening their cohesion to increase the leverage of policy measures.
The mechanisms used for small business support involve institutional and
regulatory reforms. Ntsika enterprise Promotion Agency and Khula Finance
Limited had been established to act as intermediaries to address SMME
constraints such as access to finance and information. The DTI itself
administers programmes aimed at increasing SMME competitiveness such as
co-financing the acquisition of new technology, for example. Regulatory
reforms include, for example, the procurement reform with an affirmative of
small, medium and micro enterprises participation programme (RSA, 1997).
Nevertheless, so far, no clear differentiation between promoting dynamic firms
on the one hand and survivalist activities on the other – which would rather be
the focus of welfare than industrial policies – has been made. There are also
indications that – in launching the implementation of several programmes –
the South African government severely underestimated the problems of
establishing a whole set of new support institutions, the capacity of these
institutions to deliver, and the capacity of the existing NGO network in South
Africa to become involved in the highly ambitious set of programmes that were
to be implemented (Hirsch and Hannival, 1998; Rogerson, 1998; Bloch and
Kesper, 2000).
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4.4
Conclusion
This chapter outlined international, regional and local experiences with regard
to SMME development with a major emphasis on SMMEs as major
employment creators.
In the following chapter, the South African government’s National Strategy for
the development and promotion for the small business sector will be
discussed; emphasizing on its evolution and the development of its
institutional framework.
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CHAPTER 5
SOUTH AFRICA’S STRATEGY FOR THE DEVELOPMENT AND
PROMOTION OF THE SMME SECTOR
5.1
The evolution of the SMME policy framework
During apartheid, South Africa’s SMME economy was either largely neglected
by policy makers or, in case of black-owned enterprises, actively discouraged
by repressive measures. In line with the political disinterest, small enterprises
were wiped off the research agenda of most business schools and university
commerce departments.
The establishment of the Small Business Development Corporation (SBDC) in
the early 1980s was the first government initiative to support small firms, but
only in the late 1980’s did a racially unbiased political interest in the
development of the small business sector in South Africa begin to take root.
The political shift provoked an upsurge of literature on small businesses, in
particular black-run micro-enterprises. Most surveys of the early 1990s
focused on black-run micro enterprises and used cross-section surveys to
identify their constraints. Nevertheless, the notion that it is the larger SMMEs
that are more likely to contribute to employment creation and economic
growth, gave impetus to a renewed (largely industry-specific) focus on
established, albeit white-owned, SMEs in South Africa (Bloch and Kesper,
2000).
In months following the first South Africa’s democratic elections in 1994,
academics, politicians, small business agency representatives and foreign
specialists started analyzing the problems affecting the small-enterprise
sector, a few of which included the abolition of regulatory obstacles and lack
of access to finance, infrastructure, advice and markets. In the time leading up
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to the elections, position papers were circulated, workshops held and visits
made to other countries.
Against this background, the Government of National Unity placed the reform
of small-business support high on its agenda with the Reconstruction and
Development Programme (RDP). By mid 1994, the then, Minister of Trade
and Industry, Mr. Trevor Manuel, had appointed a special advisor for small
business support and promised to have a government position paper
prepared as early as possible.
Based on this work and contributions from many organizations, a discussion
paper was released at the end of September 1994. This paper was widely
discussed all over the country. Many organizations sent in comments and
proposed amendments. This feedback led to substantial revisions and
additions, which culminated in the White Paper on National Strategy for the
development and promotion of the small business sector in South Africa,
presented to cabinet and parliament. Simultaneously to the drafting of the
White Paper, preparations were in progress for the President’s Conference on
Small Business, which was held in the last week of March 1995. From the
outset, the directive of the conference was to heighten public awareness
about the plight of small, medium and micro enterprises.
In the months following the White Paper, the newly established Center for
Small-Business Promotion (CSBP) within the Department of Trade and
Industry embarked on a vigorous campaign to determine delivery mechanisms
to support the small, medium and micro-enterprise sector.
In May 1995, the Center for Small Business Promotion commenced with
drafting the National Small-Business Enabling Act, as an instrument block to
underpin government’s commitment and strategy to facilitate a more enabling
environment for small businesses in South Africa.
As its name indicates, the Act was to create a positive, enabling environment
for emerging and expanding small, medium and micro-enterprises (SMMEs),
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with particular emphasis on the impediments faced by black entrepreneurs
and others disadvantaged in the past.
This 1995 White Paper on National Strategy for the development and
promotion of small business in South Africa had been the first major effort by
the South African government to design a policy framework particularly
targeting the entire spectrum of the small enterprise sector.
The overall objective of the Strategy was to create an enabling environment
for SMME growth in the country as a way of addressing basic inequalities in
the economy. The mechanism for small business support outlined in the White
Paper became constitutional through the National Small Business Act, which
also provides the first comprehensive definition of SMMEs. The Act legalized
the establishment of new institutions, affirmative procurement reform and the
formation of an advisory board to review SMMEs’ legal and regulatory
environment.
In an attempt to overcome the historical definition of small enterprises as
formal (which was due to apartheid white-owned only) and informal (mostly
owned by blacks), the post-apartheid government put forward the first national
and most comprehensive definition of SMMEs, which is manifested in the
National Small Business Act.
The following characteristics of the four categories should help to justify
particular policy stances outlined in the White Paper.
Survivalist enterprises
These are activities by people unable to find a paid job or to get into an
economic sector of their choice. Income generated from these activities
usually will fall short of even a minimum income standard, with little capital
invested, virtually no skills training in the particular field and only limited
opportunities for growth into a viable business. Poverty and the attempt to
survive are the main characteristics of this category of enterprises. Support
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strategies should primarily help these people – a large percentage of whom
are women – to get out of this sector. Given the large number of people
involved in survivalist activities, this constitutes a vast challenge, which has to
be tackled within the broader context of the Reconstruction and Development
Programme (RDP).
Micro-enterprises
These are small businesses, often involving only the owner, some family
member(s) and at least one or two paid employees. They usually lack
“formality” in terms of business licenses, value-added tax (VAT) registration,
formal business premises, operating permits and accounting procedures.
Most of them have a limited capital base and only rudimentary technical or
business skills among their operators. However, many micro-enterprises differ
widely, depending on the particular sector, the growth phase of the business
and access to relevant support.
Small enterprises
These constitute the bulk of the established businesses, with employment
ranging between 5 and about 50. The enterprise will usually be ownermanaged or directly controlled by the owner-community. They are likely to
operate from business or industrial premises, be tax-registered and meet
other formal registration requirements. Classification in terms of assets and
turnover is difficult, given the wide differences in various sectors like retailing,
manufacturing, professional services and construction.
Medium enterprises
These constitute a category difficult to demarcate vis-à-vis the “small” and
“big” business categories. It is still viewed as basically owner/manager
controlled, though the shareholding or community control base could be more
complex. The employment of 200 and capital assets (excluding property) of
about R15 million are often seen as the upper limit. In terms of this study we
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are concerned with medium-sized enterprises which face obstacles and
constraints which can not be solved through normal market forces and
private-sector action.
It follows from these distinctions and it is a fundamental principle of the
government’s SMME support strategy that the problems of each of these four
categories need somewhat different policy stance.
Equally important for small business support in South Africa is the recognition
of the particular problems and needs of enterprises initiated, owned or
controlled by those who are disenfranchised and/or otherwise discriminated
against in the past. Aside from the racial dimension, i.e. enterprises owned
and controlled by black South Africans, reference should also be made to
women and all other disadvantaged and marginalized groups, including those
in remote rural areas as well as disabled, elderly people and the youth. Such
enterprises are found in all four of the above categories.
Since publicly funded support for small enterprises should only be granted to
those really needing it, the government created the mechanism to identify
types of enterprises based on sectoral, size and developmental criteria.
5.2
The development of institutions to facilitate SMME growth
In response to the challenges set out in the White Paper, the Centre for Small
Business Promotion (CSBP) of the DTI and the National Small Business
Council (NSBC), as well as Ntsika Promotion Agency (in short Ntsika or
NEPA) and Khula Enterprise Finance Limited were established to drive the
National Small Business Strategy. While the NSBC had the task of
“democratizing” the issue of small business development (although it was
closed in 1997 due to allegations of misuse of funds) and the CSBP was
mandated to “coordinate, monitor and evaluate the implementation of the
government’s Strategy”, Ntsika and Khula are expected to build the technical
and financial capacity of non-financial and financial retail services providers
(RSA (1995), Ntsika (1997), DTI (1998) and Hirsch and Hanival (1998)). The
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University of Pretoria etd – Chalera, C S (2007)
DTI, together with the Industrial Development Corporation (IDC), have
introduced a number of specific programmes aimed at increasing the
competitiveness of the formal SMME manufacturers. From interviews
conducted, there are, however, indicators that, despite their good intentions,
these policy measures suffer from sub-optimal implementation due to a
general distrust of external agencies by SMMEs on the one hand, and the
incapacity of support institutions to persuasively raise awareness about their
existence and effectives on the other.
The institutional framework i.e. the SMME support network developed under
the National Small Business Act for the development and promotion of
SMMEs is as shown in figure 5.1.
Figure 5.1: Institutional framework structure of the South African’s
National Strategy for the development and promotion of the SMME
sector
DEPARTMENT OF TRADE AND INDUSTRY (DTI)
Center for Small Business Promotion
Ntsika
LBSC
TAC
Provincial SMME
desks
Banking Community
Khula
MAC
RFIs
Others
Start-up
Credit
Guarantees
Small Medium and Micro Enterprises (SMMEs)
5.2.1 Department of Trade and Industry and its related institutions
A number of DTI Incentive Schemes were designed exclusively for
(registered) SMME industrialists and include the following:
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University of Pretoria etd – Chalera, C S (2007)
•
Standard Leased Factory Building Scheme
This scheme is of the Industrial Development Corporation (IDC), which makes
general purpose factory buildings available for lease to SMEs.
•
Small/Medium Manufacturing Development Programme (SMEDP)
This consists of a tax-exempt establishment grant as a percentage of the
investment for the first two years and a Skills Support Programme (SSP) if the
business has an approved training programme as outlined in the 1998 Skills
Development Act.
•
Economic Empowerment Scheme
This is for the expansion or establishment project of previously disadvantaged
Individual (PDI) SMME entrepreneurs to which the IDC contributes the
majority of capital outlay.
•
Venture Capital Schemes
In this scheme the IDC co-finances viable product ventures.
•
Normal Finance Scheme
This scheme provides for low-interest IDC-administered finance during
expansion.
•
Import Finance Scheme
This scheme provides credit and guarantee facilities for importing capital
goods and services.
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University of Pretoria etd – Chalera, C S (2007)
•
Short-Term Export Finance Guarantee Facility
This facility is through which the Credit Guarantee Insurance Corporation
(CGIC) can provide pre- and post-shipment export finance guarantee.
•
Export Marketing and Investment Assistance Scheme (EMIA)
This scheme provides funding of primary market research, outward selling
and inward buying trade missions and assistance to take part in exhibitions.
Moreover, Ntsika has established the European Union Trade and Investment
Programme under the auspices of the DTI to enable SMMEs through
technical assistance to become exporters.
5.2.1.1
Center for Small Business Promotion
The Center for Small Business Promotions was conceived as the central
policy-making, coordinating, and performance-monitoring group of the
government’s National Strategy. Specifically, the White Paper states the
following:
“Within the national government the DTI is the coordinating body for all
policies related to the small business sector and for all SMME-supported
programmes directly or indirectly assisted by the government, it is also
responsible for the coordination of small business strategies pursued by the
provincial government within the national policy framework”.
The White Paper states that “a Chief Directorate for Small Business will be
responsible for all matters related to the government’s support for small,
medium, micro and emergent enterprises”. Thus, the White paper gives the
CSBP a large measure of authority to lead the entire government’s
programme related to the National Strategy.
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5.2.1.2
Ntsika Enterprise Promotion Agency
Under the National Strategy, Ntsika was given the mandate to provide a wide
range of non-financial services to local service delivery groups on a
“wholesale” basis, meaning delivery of resources to local providers that work
directly with SMMEs. These services include institution building of these
organizations, training programmes for entrepreneurs, mentoring of individual
firms, marketing and procurement advice, technology assistance, among
others. Given the sheer range of these activities, it is clear that Ntsika’s
mandate is critical to the success of the government’s National Strategy.
Ntsika has the following institutional framework:
•
Market access and business division
This division runs the Tender Advice Centers (TACs), the Business
Opportunities National Initiative and the International Competitiveness
programme. The Tender Advice Centers have constituted the most promising
element to using public procurement to assist small business with entering in
new markets. Indeed, it is through the procurement system that Ntsika can
link its activities with the many government departments able to offer market
opportunities to small business and ultimately create new jobs.
•
Targeted assistance division
This division is responsible for working with previously disadvantaged sectors,
primarily women, youth, disabled people and the rural population. Targeted
assistance has a clear social and development focus by working with those
elements of the population who are least easily served. The division is clearly
focused on objectives of assisting the Previously Disadvantaged Individuals
(PDIs) category, particularly rural women, and addressing the issues of
disempowerment of these groups. The programme is also one that reaches
deeper into the rural areas than other Ntsika-sponsored initiatives. Its
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objectives are clearly social and development, with limited impact on larger
scale job creation.
•
Management and entrepreneur development division
This division runs the following programmes:
o Training and Organizational Capacity Building.
o SMME Contracted Training Programme.
o Development/Sourcing of Training Materials.
•
Technology division
The division runs the Technopreneur and Manufacturing Advisory Centers
(MACs). The Technopreneur programme has the most clearly integrated
operation with complementary programs and institutions outside Ntsika, and
provides the greatest amount of follow through with individual companies
through
the
incubator
and
cocoon
programmes.
The
two
existing
Manufacturing Advisory Centers similarly focus on a more integrated
assistance to companies than is typical in other Ntsika operations.
The focus of the division tends to be on small to medium size firms where job
creation potential is greater.
•
Business development division
This division manages:
o Services Provider Development Programme.
o Services Provider Network Development Programme.
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o Empretec Program.
o Local Business Service Center (LBSC) Programme.
•
Policy, research and information division
The division runs:
o National Small Business Data Programme.
o Programme Development and Implementation Support.
o National Small Business Research Programme.
o National Small Business Regulatory Review.
This division is intended to be the policy arm for Ntsika, which was initially
conceived as the policy center for the National Strategy.
5.2.1.3
Khula Enterprise Finance Limited
Khula Enterprise Finance Limited was mandated to undertake an ambitious
task for the country, namely, improving access to finance for the country’s
large SMMES sector, with special emphasis on its previously disadvantaged
population. Khula’s mission is a critical composition of the National Strategy’s
long-term success.
Since its establishment in 1996, a number of loan schemes to increase
access to finance SMMEs through Retail Financial Institutions (RFIs), which
are SMME departments for commercial banks or accredited NGOs were
introduced. RFIs apply their own minimum lending criteria (the most basic is
provision of a business plan) as the responsibility of risk assessment lies
entirely with the RFIs. This might explain why only four out of every 300
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applications had been granted a loan (Khula Website report for 1999). The
schemes currently existent can be grouped as follows:
•
Business Loan Schemes
Loans to the value of R1 million to R100 million are forwarded to RFIs to
capacitate them or increase their willingness to provide loans to SMMEs.
•
Guarantee schemes
Guarantees are underwritten by Khula to reduce the risk of lending to SMME
without sufficient collateral. The Emerging Entrepreneur
Scheme, for
example, targets existing SMMEs which need up to R75 000 of which Khula
guarantees up to 80%, while the maximum amount covered by Khula under
the Standard Scheme is R600 000. A special product called “Siza Bantu” was
introduced in 1999 for micro-loans up to R10 000, which are 95% guaranteed
by Khula. “Khula Start” is a progressive loan guarantee scheme targeting an
enterprise venture of groups in peri-urban or rural areas of up to ten
individuals. Initially, between R300 to R600 are lent monthly and repayable in
four months. After the successful completion of this phase, larger loans with
longer repayment periods are granted.
•
Equity funds
Through the Internet-based Emerging Enterprise Zone (EEZ) as part of the
Johannesburg Securities Exchange (JSE), SMMEs are expected to gain
access to equity funding (up to R250 000, constituting less than 45% of total
equity and to be re-capitalised within five years) from private investors with
whom Khula might partner. This scheme has seen four (out of 36) successful
applications. Unclear business plans or problems to determine the willingness
or ability to repay have been two of the reasons for rejection (Khula Annual
Website Report for 2002)’ while only a minority of SMMEs has access to the
internet (Ntsika, 2002:10).
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In addition, Khula Institutional Support Services Limited offers seed loans to
organizations that aim to become RFIs. Khula also runs a capacity building
programme for existing RFI staff.
Khula’s Institutional Support Services (ISS) division was established in 1997
as a section 21 company to assist in capacity building for the RFIs. The ISS
was a direct response to the lack of institutional infrastructure within the RFI
network to conduct onward lending to SMMEs using Khula capital. A range of
needs was identified in the early years of Khula which are to be addressed by
ISS, namely, strategy, and board development, loan officer training,
management information systems, accounting and auditing, legal issues, and
human resources. The ISS delivers these activities directly to the RFIs by
contracting with consultants to undertake specific assignments.
5.2.1.4
Provincial SMME desks
The provincial SMME desks were established to ensure provincial
representation of SMME interests as well as to contribute to the
implementation of the government’s National Strategy. Their main task is to
link national or sectoral programmes with local or regional implementation
bodies and to establish a comprehensive SMME database on which national
policy changes can be based. Nevertheless, the capacity of these Desks
varies. In 1997, Mpumalanga’s SMME desk had established SMME database
and synergistic network of SMME service of SMME providers, while the
Northwest SMME desk had undertaken no such action (Rogerson, 1997). In
2000, only two of the nine provinces organized annual Service Provider
Forums (Block and Daze, 2000).
Besides these SMME-specific institutions and programmes, the (formal)
SMME economy is surrounded by a rich body of sector and industry-specific
institutions (Dune, 1998; Kaplinsky and Morris, 1999 and Bloch and Kesper
2000).
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5.3
Conclusion
This chapter outlined the government institutional framework of the National
Strategy for the development and promotion of the small business sector in
this country, with a specific emphasis on the institutions created within that
framework.
The following chapter will tend to discuss the South Africa’s mining industry
focusing on its general overview.
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CHAPTER 6
SOUTH AFRICA’S MINING INDUSTRY OVERVIEW
6.1
Introduction
For more than a century, South Africa’s mining industry, largely supported by
gold, diamond, coal and platinum production, has made an important
contribution to the national economy (Department of Mineral and Energy:
South Africa’s Mineral Industry Review, 2004/2005). It has provided the
impetus for the development of an extensive and efficient physical
infrastructure and has contributed greatly to the establishment of the country’s
secondary industries.
According to the same review the South African mining industry is a wellestablished and resourceful sector of the economy, and has a high degree of
technical expertise and the ability to mobilize capital for new development.
Mining is South Africa’s largest industry sector, followed by manufacturing.
Other sectors, which contribute significantly to the country’s economy, are oil
and gas, chemicals, agriculture and tourism. The clothing and textiles,
financial services and banking sectors have also had significant growth in
recent years.
South Africa is a leading world supplier of a range of minerals and mineral
products of consistently high quality. According to South Africa’s Mining
Industry Review (2004/2005), in 2004, some 59 different minerals were
produced from 993 mines and quarries, of which 49 produced gold, 28
platinum-group minerals (PGMs), 64 produced coal and 145 produced
diamonds. Mineral commodities were exported to 82 countries.
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6.2
Structure of the South African mining industry
Democratic change in South Africa during the 1990s resulted in the
endorsement of the principles of private enterprise within a free-market
system, offering equal opportunities for all the people. The State’s influence
within the mineral industry was confined to orderly regulation and the
encouragement of equal opportunities for all citizens.
Discriminatory policies excluded a large sector of the population from fully
participating in the South African mining industry during the pre-1994 period,
before democracy was realised. The new Minerals and Petroleum Resources
Development Act, which came into effect on 1st May 2004, legislates the
official policy concerning the exploitation of the country’s minerals. The Act
addresses many issues, including the following:
•
Transformation of the minerals and mining industry in South Africa.
•
Promotion of equitable access to South Africa’s mineral resources.
•
Promotion of investment in exploration, mining and mineral beneficiation.
•
Social-economic development of South Africa.
•
Environmental sustainability of the mining industry.
Previously in South Africa, mineral rights were owned either by the State or
the private sector. This dual ownership system represented an entry barrier to
potential new investors. Government’s objective is for all mineral rights to be
invested in the State within the next five years, with due regard to
constitutional ownership rights and security of tenure.
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6.2.1 The private sector
Corporate restructuring of the South African mining industry, which has been
in progress for over a decade, continued throughout 2004. Mining houses
were transformed into focused mining companies by shading their non-core
industrial holdings. The transformation included the consolidation of
ownership through minority buy-outs, the transfer of primary listings (and
corporate head-offices) offshore, as well as the purchase of South African
mining assets by foreign companies.
As the South African mining industry is still controlled predominantly by white
males, emphasis is being placed on stimulating black and women economic
empowerment in the industry. Several black-owned firms are now beginning
to play an important role in the industry. Mining has thus become a focus of
the Reconstruction and Development Programme in terms of entrepreneurial
development, black economic empowerment and stimulating employment and
growth.
The broad-based social-economical empowerment Charter for the South
African mining industry was promulgated in May 2004. The Charter calls for
Historically Disadvantaged South Africans (HDSAs) to control 15% of mines
within five years, rising to 26% within ten years. The mining empowerment
Charter stresses commitment to pursue a shared vision of a global
competitive mining industry that draws on the human and financial resources
of all South Africa’s people, and offers real benefits to all South Africans. The
goal of the Charter is to create an industry that will reflect the government’s
promise of non-racial South Africa.
In order to give effect to the provisions contained in the Broad-Based SocioEconomic Empowerment Charter for the mining and mineral’s industry, a
scorecard was released. The score card is designed to facilitate the
application of the Charter in terms of the Minerals and Petroleum Resources
Development Act requirements for the conversion of all the “old order rights”
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into “new order rights” within a five year conversion window period, but
recognizing the full 10-year period.
During 2004, the Department of Minerals and Energy drafted proposals for a
Precious Metals and Diamond General Amendment Bill with the intention to
improve access to rough diamonds and precious metals for the purpose of
local mineral beneficiation or value adding.
6.2.1.1
Black economic empowerment mining companies
The first notable activity in the operating and developing black economic
empowerment mining companies in South Africa was when African Rainbow
Minerals (ARM) acquired several shafts from AngloGold’s Vaal Reefs Mine in
2001. ARM also jointly developed a platinum mine with Anglo Platinum, as
well as entering into a joint venture with Harmony Gold to exploit several Free
State assets acquired from AngloGold.
Black economic empowerment (BEE) mining deals worth about R6.5 billion
were concluded in 2004 and new giants such as African Rainbow Minerals
and Mvelaphanda Resources are shaping the new South African mining
landscape. Most of the BEE deals are taking a form of mergers and
acquisitions. Prominent deals in 2004 include the purchase of 18 percent of
Lonplats by Incwala Resources amounting to R3 187 billion, the JCI
unbundling totaling R1 840 billion and the R1 276 billion merger of Pelawan
Investments and Anooraq Resources Corporation.
Other black economic empowerment mining companies’ initiatives include the
following:
•
The empowerment mining company Khumo Bathong Holdings closed a
deal with Durban Roodepoort Deep, South Africa’s fourth largest gold
producer. Khumo Bathong also closed a deal with Durban Deep’s Crown
Gold Recoveries operations.
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•
Mvelaphanda Resources closed a deal with De Beers. The two companies
are jointly searching for new kimberlites, or primary sources of diamond.
The joint venture will focus on the Limpopo and Mpumalanga provinces,
an area for which De Beers already has a considerable database.
•
Mmakau mining is also a black empowerment mining company with
interests in platinum.
•
Eyesizwe coal formed a joint venture with AngloCoal, creating a new black
empowerment company producing 18 million tons of coal per year.
•
The DeBeers diamond company has several outsourcing and joint venture
operations with black economic empowerment companies.
•
Harmony Gold and a black-owned mining company, African Vanguard
Resources concluded a deal for Gold explorations and mining.
•
Angloplatinum nominated a consortium headed by the black empowerment
group, New Mining Corporation (NMC), as its partner in a R1.7 billion Der
Brochen platinum project. The mine is expected to produce an average of
160 000 ounces a year between 2005 and 2012.
•
AngloCoal has identified a number of coal reserves, which are suitable for
black economic empowerment (BEE) mining ventures and is also in the
process of reviewing its total Base Metals and Industrial Minerals Rights
Database with a view of releasing certain rights suitable for BEE mining
ventures.
Numerous smaller groups and companies also carry out mining and
beneficiation activities. Not only do they contribute towards the creation of
employment opportunities, but they also exploit the relatively smaller mineral
deposits which may not be considered economically attractive to the larger
groups. The National Small-scale mining development framework established
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in 1999 is contributing to the development of the junior mining sector. The
unique mechanism of the framework was designed to assist first-time
entrepreneurs in overcoming the many obstacles faced by small-scale miners.
Many co-operative organisations protect and serve the interests of the smaller
groups and independent operators, or specific sectors of the industry. These
include the aluminium Federation of South Africa, the South African Copper
Development Association, the Ferro-Alloy Producers Association, the
Engineering Industries Federation of South Africa, the Southern Africa
Stainless Steel Development Association and the Aggregate and Sand
Association of South Africa.
According to the Department of Minerals and Energy, the database of black
empowerment companies reached 72 in number by 2000 but its current
official database (2004) has 44 black empowerment companies. These 44
black economic empowerment mining companies are the sample of the
second phase of this study.
These black empowerment mining companies are actively involved in a
number of mineral commodities and their geographic distribution covers the
entire country as figures 6.1 and 6.2 depict:
Figure 6.1: Commodities associated with small black economic
empowerment mining companies, 2003.
Commodities Associated with Black Empowerment
Mining Compamies, 2003
35%
29%
30%
25%
20%
15%
15%
15%
17%
14%
10%
4%
3%
5%
3%
0%
Coal
Various
Minerals
Gold
PGMs
Ferrous Industrial Diamond
Minerals Minerals
Nonferrous
Minerals
Source: Department of Minerals and Energy: South Africa’s Mineral Industry (2002/2003): Director Mineral
Economics, Pretoria.
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Figure 6.2: Geographical distribution
empowerment mining companies, 2003.
of
small
black
economic
South Africa's Mining Industry: Employment by Province, 2003
Free State
13%
Northern Cape
5%
Limpopo
12%
North West
30%
Kwazulu Natal
1%
Gauteng
25%
Eastern Cape
0%
Western Cape
1%
Mpumalanga
13%
Source: Department of Minerals and Energy: South Africa’s Mineral Industry (2002/2003): Directorate: Mineral
Economics, Pretoria.
6.2.1.2
Chamber of mines
The Chamber of Mines of South Africa is a voluntary, private sector
employer’s organization founded in 1889 – three years after gold was
discovered on the Witwatersrand. The Chamber is an association of mining
companies and mines operating in gold, coal, diamond, platinum, lead, iron
ore, manganese, antimony, zinc and copper mining sectors. According to the
Department of Minerals and Energy (2003), in recent years the Chamber’s
role and functions have undergone a substantial change in view of the
developments unfolding in the external environment (macro environment).
Today the Chamber acts as the principal advocate of the major policy
positions endorsed by mining employers. The Chamber represents the
formalised views of its membership to various organs of South Africa’s
national and provincial governments, and to other relevant policy-making and
opinion-forming entities, both in and outside the country.
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6.2.1.3
South African Mining Development Association
The South African Mining Development Association (SAMDA) is a new
organization established with a vision to be a vehicle for the development of a
vibrant and sustainable junior mining sector.
6.2.2 The government
The State’s involvement in the mineral industry is of a complementary and
supportive nature, and seeks to provide and maintain:
•
A legal and fiscal environment which will allow unimpeded exploration for,
as well as mining, beneficiation and marketing of the country’s minerals.
•
An efficient physical infrastructure including road, rail, air, and harbour
facilities, communications and health services, and the supply of electricity
and water.
The Department of Minerals and Energy (DME) is responsible for the
administration of the Minerals and Energy Act, 28 of 2002, which came in
effect on 1st May 2004. This Act replaces the Minerals Act, 50 of 1991 and
regulates the prospecting for, and optimal exploitation and utilization of
minerals. It also provides for safety and health in the mining industry; and
controls the rehabilitation of land disturbed by exploration and mining. The Act
created associated institutions which are responsible for the administration of
the mining laws and for promoting the development of the industry. The
following divisions of the Department of Minerals and Energy and the
associated institutions are responsible for the administration of the mining
laws and for promoting the development of the industry.
The office of Director General, the permanent head of the Department of
Minerals and Energy, is located in Pretoria. The Mine Health and Safety
Inspectorate of the Department ensures the safe mining of minerals, under
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health working conditions and is represented by Principal Inspectors. The
Energy branch promotes the optimum utilization of energy resources. The
Minerals Development Branch (MDB) promotes the orderly and optimal
mining utilization of mineral resources and is represented in the provinces by
Regional Directors. The MDB consists of a Mineral Resources Management
Chief Directorate to controls mineral resources management, a Mineral
Development and Administrative Chief Directorate to direct and administer
regional offices on economic growth and development and a Mineral Policy
Investment Directorate to promote minerals development and advise on
trends in the mining industry. The Directorate Mineral Economics promotes
mineral exploitation and beneficiation in South Africa and collects, classifies
and analyses mineral data in order to advise both Government and private
sector on matters related to local and international mineral-economic
developments. The Directorate also disseminates mineral-ralated information
through publications and by participating in local and international
conferences.
The Council for Geoscience undertakes geological mapping and carries out
studies relevant to the identification, nature, extent and genesis of ore
deposits and also maintains a national database of the country’s geoscientific
data and information.
Mintek’s aim is to enable the minerals industry to operate more effectively by
developing and making available the most appropriate and cost-effective
technology. It is engaged in the full spectrum of minerals research, from the
mineralogical examination of ore to the development of extraction and refining
of technologies, the manufacturing of end products, and the feasibility and
economic studies. Much of this work is carried out in close liaison with the
minerals and metallurgical industries, both locally and internationally.
South Africa’s Nuclear Energy Corporation (NECSA) undertakes and
promotes research and development in the field of nuclear energy and
radiation sciences and technology in order to process source material, special
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nuclear material; and restricted material; and to co-operate with persons in
these fields.
The Council for Scientific and Industrial Research (CSIR) conducts, inter alia,
research related to specific minerals, brownfields minerals exploration, air
quality, water pollution and purification, and mining and mineral processing.
The CSIR’s division of Mining Technology serves primarily, the local gold and
coal-mining industries, but increasingly also other mining sectors and
international markets. Major research activity is concerned with solving the
most crucial problems that impact on profitability in the mining industry.
Services range from fundamental research, technology development and
general advice and assistance, and cover the areas of improving the
underground environment, strata control, reducing the hazardous conditions
associated with rock pressure in the mining operations and developing new or
improved mining systems and equipment.
Most of South Africa’s institutions of higher education also undertake mineral
and/or mining research and are responsible for the training of professional
and technical personnel required by the mineral industry.
6.3
South Africa’s mining industry strengths
According to the Department of Minerals and Energy (2004), South Africa’s
mineral wealth is found in the diverse geological formations, some of which
are unique and extensive by world standards. Some of them include the
following:
•
The best known geological formation is the unique and wide-spread
Witwatersrand basin, hosting a considerable portion of the world’s gold
reserves, as well as those of uranium, silver, pyrite, and osimiridium and
yields some 98 percent of South Africa’s gold output.
•
The Transvaal Supergroup contains resources of manganese and iron ore.
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•
The Bushveld complex, also a uniquely important geological formation,
contains more than half of the world’s chrome ore and platinum-group
metals (PGMs). Additionally, the complex hosts ores of vanadium, iron,
titanium, copper, nickel and fluorspar.
•
The coal and anthracite beds of the Karoo basins in Mpumalanga,
KwazuluNatal and Limpopo.
•
The Phalaborwa Igneous Complex, which hosts extensive deposits of
copper, phosphate, titanium, iron, vermiculite and zirconium ores.
•
Diamond (kimberlitic, alluvial and marine) deposits and heavy mineral and
occurrences containing titanium minerals, iron and zircon.
•
Heavy mineral sand occurrences containing titanium minerals, iron and
zircon.
•
Large deposits of lead/zinc ores with associated copper and silver in the
Northern Cape.
According to the South African Mining Industry Review (2004/2005), South
Africa holds the world’s largest reserves of ore of platinum-group metals (87.7
percent), manganese (some 80 percent of the total world reserves), chromium
(72.4 percent), gold (40.1 percent) and allumino silicates (37.4 percent). It is
also prominent in terms of titanium, vanadium, zirconium, vermiculite and
fluorspar.
As a result of its large reserve base, South Africa is a mineral producer of
note: for alumino-silicates, chrome ore, ferro-chrome, PGMs, vanadium and
vermiculite, the country is not only the leading world supplier, but contributes
in excess of 30 percent of the world’s total of these commodities. South Africa
is also the foremost world producer of gold of which its contribution is almost
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16 percent. For many other commodities, namely zirconium, titanium,
antimony, manganese and ferro-manganese, it is one of the world’s leading
suppliers.
The domestic market for most of the mineral commodities produced in South
Africa is relatively small. Hence, South Africa’s mineral industry is export
orientated. According to Department of Minerals and Energy (2004), it
contributes 95.0 percent of world vermiculite exports, for vanadium 71.3
percent, for alumino-silicates 45.9 percent, for ferro-chromium 49.5 percent,
for ferro-manganese and manganese ore 24.2 percent and 21 percent
respectively. In terms of the most of these commodities, as well as for gold,
zirconium and antimony, it is the world’s largest exporter. Other commodities
include coal and titanium minerals.
6.4
Minerals exploration
Although the existence of large reserves of a variety of minerals has been
proven in South Africa, the country cannot be considered over-explored.
According to the Department of Minerals and Energy (2004), experts in this
field generally agree that there is considerable potential for the discovery of
other world-class deposits in areas, which have not yet been exhaustively
explored. According to this general belief there is still ample potential for
exploration programmes in certain areas.
Expenditure on exploration is subject to many decision variables, tied to
ongoing results and business, economic and political factors and therefore,
may vary considerably from the projected investments. Exploration success in
South Africa has encountered substantial investment in key primary minerals
such as gold, platinum, diamonds, heavy minerals and base metals. Several
major South African companies have also adopted aggressive exploration
strategies beyond the borders of the country. This strategy has resulted in a
far-reaching internalization exercise that has changed the structure of these
companies.
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Although exploration has been increasing since 2002, South Africa is losing
out in the race for international exploration dollars. By contrast Australia and
Canada continue to attract new investment in exploration. According to the
Department of Minerals and Energy (2004), a total amount of R5 736 million
was spent on exploration in South Africa between 1998 and 2003. Of this
amount, R769 million was laid out in 2001, R670 in 2002 and R1 201 million in
2003.
The Limpopo, Northern Cape, Gauteng, Northwest and Mpumalanga
provinces figured prominently in terms of exploration. Most of the exploration
activities took place in the Bushveld Complex. The northern limb of the
complex has become the focus of recent exploration activities by both junior
and senior companies, domestic and international.
Exploration for diamonds in South Africa continues to draw worldwide
attention. According to the Department of Minerals and Energy (2004), South
Africa’s major diamond companies spent a total amount of R534 million on
diamond exploration between 1998 and 2003. Six kimberlites, which account
for over 80 percent of De Beers’ and Debtwana’s diamond production
(equivalent to 30% of world output by value), were discovered in the past by
De Beers’ in-house exploration teams in South Africa and Botswana.
6.5
Communication, infrastructure and labour
The South Africa’s communication system is well developed with 5.1 million
installed telephones and 4.3 million installed exchange lines. The network is
almost entirely digitized with digital microwave and fibre optic serving as the
main transmission media.
The country’s transport infrastructure is highly developed with extensive road
and rail networks. And for many years, has also been utilized by other
countries in Southern Africa, to as far as the Democratic Republic of Congo.
According to the Department of Minerals and Energy (2004), the national and
provincial road network consists of 63 027 km of paved and 471 104 km
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unpaved roads. The rail nexus extends over more than 30 000 kilometers.
This includes dedicated railway lines; one of them for iron ore from Sishen, in
the Northern Cape, to Saldanha Bay on the east coast, and another for
transporting coal from the coal fields of Mpumalanga to the port of Richards
Bay on the east coast. Of the five major ports through which most of South
Africa’s minerals are shipped, the largest are Richards Bay (capacity 81.0 Mt,
mainly for coal and other minerals), Saldanha Bay (30.9 Mt, chiefly for iron
ore) and Durban (29.7Mt, mainly for liquids, containers and break bulk
cargoes).
Electric power is largely generated by the country’s giant electricity utility,
Eskom, and according to the Department of Minerals and Energy (2004), it is
among the cheapest available anywhere in the world. This low electricity cost
has been instrumental in the establishment of sizeable ferro-alloys, stainless
steel and aluminium beneficiation industries, and has also contributed to the
economic exploration of the country’s deep gold reserves.
Most importantly, the country enjoys political stability and has a fundamentally
sound economy compared to most African countries. Its banking and finance
infrastructure is excellent, on par with those in most developed and
developing countries, which assist global trade through a network of
international links.
South Africa has a sizeable labour pool, although to a large extent unskilled.
The government is, therefore, actively pursuing a higher level of education,
training and productivity in the nation. The labour force, whilst unionised,
welcomes the inflow of foreign investment.
According to the Department of Minerals and Energy, the implementation of
the new minerals policy, it is envisaged, will lead to increased investment in
South Africa’s mineral industry, by ensuring a competitive business
environment and the lowering of barrier to entry. This, and the creation of a
national mineral promotion system (“one-stop shop), furthermore, will
stimulate small-scale mining and job creation. Other measure proposes to
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intensify mineral beneficiation. The whole of the subcontinent will also benefit
from anticipated improved regional co-operation.
6.6
The industry’s role in the national economy
According to the Department of Minerals and Energy (2005), in 2004, mining
contributed US$13.5 billion or 7.1 percent to gross value added. This
contribution increased by R2.93 billion from that of the previous year. The
contribution as a percentage of the total has ranged from between 6,5 in 1997
and 8.7 in 2002 over the last decade, largely due to the growth experienced in
the secondary and tertiary sectors of the economy and the contraction in the
gold mining industry. However, if one should add the Gross value added
contribution of processed minerals (presently included in the manufacturing
sector’s figures) to that of mining and quarrying, the impact on the national
accounts will be significantly higher. During 2004, mining and quarrying
contributed 9.9 percent to Total Fixed Capital Formation. This sum of R22.3
billion is equal to 25.6 percent of the sector’s gross value-added contribution.
Sales of primary mineral products accounted for 34.3 percent of South Africa’s
total export revenue during 2004, while gold’s contribution decreased further
to 10.9 percent. The declining trend over the last two decades in both these
indicators was the result of the contraction in the gold mining industry,
increased local beneficiation and relatively weak commodity prices across the
board. The inclusion of various processed mineral products, such as ferroalloys, aluminium and carbon and stainless steel, raised the contribution of the
minerals sector to above 40 percent.
During 2004, the mining industry employed 2.9 percent of South Africa’s
economically active population or some 5.4 percent of all workers in the nonagricultural formal sectors of the economy. The average number of workers
employed in the mining industry increased by 16 139, or 3.7 percent, from 434
859 in 2003. A total of 147 125 mineworkers lost their jobs over the ten-year
period from 1995 to 2004 as a result of, among others, the shrinking gold
sector and improvements in productivity of the domestic mineral industry.
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Nevertheless, taking into account the multiplying effect with regard to the
supply and consuming industries, as well as the related dependants, many
millions of people still rely on the mining industry for their livelihood. Wage
income amounted to R33.1 in 2004, or 27.0 percent of total mining revenue,
an increase in nominal terms of 9,8 percent when compared with 2003. The
average annual income per worker was R74 958 in 2004, registering an
increase in real rand terms in excess of 4.4 percent year-on-year.
As figure 6.3 depicts, the gold mining sector, despite its declining economic
contribution, was the largest employer with some 48 percent of the total
mining industry’s labour force. The PGMs industry employed 27 percent, with
coal industry in third place with 11 percent.
Figure 6.3: South Africa’s mining industry: Employment by Sector, 2004.
South Africa's Mining Industry: Employment by Sector, 2004
Other Minerals
10%
Diamond
4%
Gold
48%
PGMs
27%
Coal
11%
Source: Department of Minerals and Energy: South Africa’s Mineral Industry (2004/2005): Directorate: Mineral
Economics, Pretoria.
The employment crisis caused by the low gold price resulted in the inception
of the Gold Crisis Committee (GCC) during 1998. Through a concerted effort,
actual retrenchment by gold mines has been kept down to below 12 000 in
2004. The mining Summit, an initiative born out of the GCC and hosted by the
Department of Minerals and Energy in early 2000, had as its main objective to
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address key issues critical to the survival of the industry, among them being
labour concerns.
According to the Department of Minerals and Energy (2004), the gold industry
was responsible for some 45 percent of the total remuneration and the PGMs
industry for 23 percent as figure 6.4 on the following page depicts.
Figure 6.4: South Africa’s Mining Industry: Remuneration by Sector,
2004.
South Africa's Mining Industry: Remuneration by Sector, 2004
Other Minerals
12%
Diamond
2%
Gold
45%
PGMs
23%
Coal
18%
Source: Department of Minerals and Energy: South Africa’s Mineral Industry (2004/2005): Directorate: Mineral
Economics, Pretoria.
The higher degree of mechanization in the coal sector is reflected by its
contribution of 11 percent in terms of the labour force, but 18 percent in terms
of remuneration.
6.7
Mineral production and sales in 2004
Most of the world’s economy entered a period of subdued growth in 2001 and
2002; however some economies, most notably that of China, continued to
grow strongly and increased their demand for commodities. As the United
States and, to a lesser extent, the rest of the world entered a period of strong
economic growth in 2003 and 2004, the demand for commodities outstripped
supply and as a result commodity prices began to increase sharply. According
to the Department of Minerals and Energy (2004), it seems unlikely that world
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commodity prices will be sustained at these levels indefinitely because the
present high prices substantially exceed the cost of production.
Both demand for minerals and prices showed positive movement from the low
levels experienced during 2003. Despite the large increase in gold and
platinum prices and moderate increases in those of most other mineral
commodities, the strong rand/dollar exchange rate, resulted in only a
moderate increase in South African sales revenue in rand terms during 2004.
South Africa’s total primary mineral sales revenue increased by 6.5 percent
from R117.6 billion in 2003 to R125.2 billion in 2004. When the total sales and
total export sales are expressed in US dollars, the annual changes reflect
increase of 26.0 percent (from US$15.4 billion to US$19.4 billion), and 20.9
percent (from US$11,5 billion to US$13,9 billion) respectively. The moderate
increase in revenue in rand terms was due to the strengthening value of the
rand, which achieved an average of R6.4499 in 2004, compared with R7.5647
in 2003. The major foreign revenue earners in 2004 were platinum-group
metals (33.0 percent), followed by gold (32.4 percent) and coal (16 percent).
Domestic mineral sales proceeds increased in rand terms by 15.1 percent,
and 32.7 percent in dollar terms. Improvements in local sales income were
recorded for all the minerals that make a meaningful contribution to the total.
Coal remained the major local income earner, accounting for 38.2 percent of
total domestic sales, followed by metallic commodities with 31.2 percent and
miscellaneous mineral commodities with 16.5 percent. Industrial commodities
accounted for 14.1 percent.
Of South Africa’s nine provinces, North West, Mpumalanga, Limpopo, and
Northern Cape contributed the bulk of the total mineral revenue, together
generating 87.1 percent of the total primary mineral sales income. The same
five provinces accounted for 89.6 percent of export revenue, while
Mpumalanga, North West and Limpopo accounted for 67.2 percent of local
sales earnings in 2004. North West is mainly dependent on PGMs as the
major contributor towards minerals revenue, Gauteng on gold, Mpumalanga
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on coal and the Limpopo on diamonds, copper and coal. The economies of
North- West, Limpopo, the Northern Cape and Mpumalanga are particularly
dependent on the contributions from their respective mining industries
6.8
Minerals beneficiation
Beneficiation or value-added processing involves the transformation of
primary material (produced by mining and extraction process), to a more
finished product, which has a higher export sales value. Beneficiation involves
a range of different activities including large-scale, capital-intensive activities
such as smelting, and sophisticated refining plants as well as labour-intensive
activities, such as craft jewellery and metal fabrication. Each successive level
of processing permits the product to be sold at a higher price than the
previous product or original raw material and adds value at each stage.
Beneficiation is a process that starts at the rock-face where the ore is
liberated. This process can have many varied steps along the way, but the
ultimate aim is to add value to the product, implying financial value, so as to
get the greatest possible benefit out of the initial advantage of having the
mineral.
The concept of beneficiation is old in South Africa, but it took major steps
forward during 1990s. The key has been to envisage South Africa as a base
for adding value to raw material input from anywhere in the world, not only
from domestic resources.
The government is committed to the promotion of beneficiation and, the
Mineral and Petroleum Resource Development Act includes provisions that
will ensure that the Minister promotes the establishment of secondary and
tertiary mineral-based industries, aimed at adding maximum value to mineral
raw materials, where economically justifiable.
According to the Department of Minerals and Energy (2004), export revenue
comprised 76.0 percent of total sales in 2002; it improved by 3.8 percent
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compared to 2001, from R18.2 billion. However, when expressed in dollar
terms, it showed a decrease of 15.3 percent, from $2.6 billion in 2000 to $2.2
billion in 2002. Substantially lower dollar prices for most commodities were
only partly offset by higher export sales volumes. The biggest contribution to
export sales were chromium alloys (25.0 percent), aluminium (30.0 percent)
and manganese alloys (12.3 percent).
The value of local sales of processed mineral products rose to 29.5 percent,
from R4.4 billion in 2000 to R5.7 billion in 2001. Aluminium, with a 50.3
percent contribution, was the major revenue earner in 2001, with phosphoric
acid and zinc metal contributing substantially as well (South Africa’s Mineral
Review: 2004/2005). And according to the same review, the provinces,
KwazuluNatal and Mpumalanga, contributed 74.5 percent of the total
processed minerals sales revenue in 2002.
Aluminium and titanium slag dominate the KwazuluNatal contribution, whilst
nearly two-thirds of Mpumalanga’s total sales were derived from chromium
alloys. These two provinces dominated export and local sales revenues as
well, with respective combined contributions of 76.7 and 67.5 percent. No
beneficiation of the selected minerals occurred in the Eastern Cape, the
Northern Cape, and the Free State. Several minor commodities such as
cobalt, antimony, arsenic and semi-precious stones are omitted from the
analysis. Most of these commodities are beneficiated to a considerable
degree, some entirely.
6.9
South Africa’s imports of minerals products
As a result of its vast mineral resource base, South Africa is, to a large
degree, self-sufficient with respect to the supply of minerals. However, some
minerals and mineral products need to be imported due to an insufficiency of
local resources or the fact that deposits in South Africa are not economically
viable; another factor is that certain specialized grades and products are not
produced in South Africa. According to the Department of Minerals and
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Energy (2004), the value of the more significant imports during 2002
increased by 7.2 percent to R12.8 billion.
6.10
Forecast of minerals exports for 2004 to 2009
South Africa’s mining industry is primarily export driven, with 71.6 and 74.8
percent of primary and processed mineral sales during 2004 respectively,
destined for world markets. Therefore, it is pertinent to estimate future
earnings from mineral exports. Since gold, coal, the p[platinum-group metals
and diamond together contribute about 90 percent of total primary mineral
export revenue, forecasts in respect of these commodities are the most
critical.
For the purpose of forecasting South Africa’s mineral export revenue from
2005 to 2009, the Department of Minerals and Energy assumed that the major
economies of the world would enjoy sustainable expansion over the medium
term, providing a stable base for the smaller economies to achieve relatively
high growth. This should filter through to mineral commodity markets, with
volumes increasing moderately and significant price increase from 2004 to
2005. In 2006 and 2007 prices may again come under pressure as production
of minerals is likely to start outpacing consumption.
Based on these broad assumptions, as well as a detailed analysis of the
supply and demand for each of the significant commodities, the value of South
Africa’s export of primary minerals according to the Department of Minerals
and Energy, is forecast to increase by 6.8 percent per annum, which
compounded from US$13 607 million in 2004 will reach US$19 965 million in
2009. The sectors with the highest expected growth rate are coal (11.4
percent), gold (8.8 percent) and ferrous (7.4 percent).
Export Earnings from gold are expected to decrease from US$4 494 million in
2004 to US$4 250 in 2006 as a result of continued drop in output, despite
higher US dollar price. A rise in US dollar price should see the export revenue
grow to US$7 455 million by 2009, despite a possible decline in gold
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production. The export of revenue from gold is forecast to increase by 8.8
percent per annum.
South Africa’s export earnings of platinum group metals (PGMs) are expected
to increase from US$4 578 million in 2004 to US$5 429 million in 2005, as a
result of continued rise in output as well as higher US dollar prices of the
constituent metals. Export revenue is forecast to decrease to US$4 622
million in 2007 due to lower platinum price, despite higher production, before
climbing to US$5 735 in 2009 in 2009 on the back of the rising platinum price.
The weighted average price for the basket of PGMs is expected to average
US$644 per ozt in 2005.
The export value of coal is expected to increase by 41.3 percent, to US$3 169
million in 2005 from the US$2 243 million recorded in 2004. Export revenue
for coal is likely to show an increase of 11.4 percent per annum rising from
US$2 243 million in 2004 to US$4 280 million in 2009. Europe and the Middle
East are still South Africa’s major customers and coal demand is rising in
those regions. Furthermore, this increase in forecast export volumes is
influenced mainly by the increase number of exporting mines created as a
result of the implementation of the Mineral and Petroleum Resources
Development Act (MPRDA) and the willingness on the bigger coal mining
companies to allow economic empowerment companies to mine coal blocks
wits in their mining concession areas.
Export earnings for ferrous minerals (US$751 million in 2004) are foreseen to
rise by 3.8 percent annually. By 2009 the value is expected to be almost
US$939 million. The sector’s share of total primary mineral export earnings is
expected to almost remain constant from 5.5 percent in 2004 to 4.7 percent in
2009.
Primary nonferrous mineral export revenue is expected to increase from
US$355 million in 2004 to US$373 million in 2005. Export income is also
anticipated to increase to US$386 million in 2009, reflecting a compound
growth rate of 1.4 percent per annum.
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The forecast for primary industrial minerals export earnings indicates a
possible increase of 1.8 percent from US$163 million in 2004 to US$166
million in 2005. The export revenue of these minerals is anticipated to
increase by 3.1 percent per annum, to US$196 million over the five-year
period to 2009.
The contribution of processed mineral products to foreign exchange earnings
is expected to grow to a rate of 4.8 percent per annum, fromUS$4 349 million
in 2004 to US$5 748 million in 2009, compared with a 6.8 percent per annum
increase for primary minerals. The ratio of primary to processed minerals is
foreseen to increase from 3.1 percent to 3.5 percent over the forecast period.
6.11
Regional co-operation - SADC
On 17th August 1992, the Declaration and Treaty establishing the Southern
African Development Community (SADC), was signed at the Summit of Head
of States of Governments, in Windhoek, Namibia. This declaration and Treaty
replaced those regarding the South African Development Coordination
Conferences established on 1 April 1980, following the Lusaka Declaration.
Today, the SADC comprises of the following member states: Angola,
Botswana, DRC, Lesotho, Malawi, Mauritius, Mozambique, Namibia, South
Africa, Swaziland, Seychelles, Tanzania, Zambia and Zimbabwe.
The Treaty establishing the SADC was designed to lead to higher levels of cooperation and integration in the region. Member States pledged commitment
to pursue common approaches and policies and also effective participation by
the people of the region and their institutions in the formulation and execution
of policies, strategies and programmes. The SADC vision for mining is hence
in harmony with the overall objectives of the Community, which include “to
achieve development and economic growth, alleviate poverty, enhance the
standard and quality of life of the peoples of Southern Africa and support the
socially disadvantaged through regional integration”. Another of the objectives
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of the SADC is support for small scale mining which has been recognized by
nearly all the countries in the region as a means of alleviating poverty and
empowering local communities. A number of support programmes have been
established in various member States, ranging from provision of loans and
grants, to equipment and plant hire schemes and making provisions that will
enhance and support small scale activities.
The SADC Mining Sector Programmme of Action is subdivided into six subsectors, namely Information, Geology, Mining, Marketing, Mineral processing,
Environment and Human Development.
During the last decade, a number of countries made efforts to reform their
mineral policies and regulatory environment, aimed at encouraging private
sector participation, attracting new capital investment, technology and skills
and stimulating exploration.
Mining continues to be the major foreign exchange earner in most of the
economies of the SADC region. According to the Department of Minerals and
Energy, the mining sector in the region contributes approximately 10 percent
of the Gross Domestic Product while accounting for 60 percent of foreign
exchange earnings. The major minerals supplied to the World markets by the
SADC include asbestos, chrome ore, coal, cobalt, copper, diamonds, gold,
nickel, the platinum group metals, lead and zinc.
Mine development in the region has primarily been focused on gold,
diamonds, PGMs and base metals. There is still great scope for more
investment in these sectors, and others.
During 2001, the total expenditure on exploration programmes in the SADC
region was approximately US$100 million (South Africa’s Mineral Industry
Review: 2002/2003). Exploration Programmes continued to be carried out by
companies in almost all member states.
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According to the Department of Minerals and Energy (2004), during 2002, the
total labour force in the SADC industry stood at 1 535 642, compared with the
2000 figure of 1 978 845. The decrease in employment was largely due to
rationalization of the workforce after privatization of previously state-owned
mining companies, and declining world demand for production of minerals like
asbestos.
6.12
Conclusion
This chapter discussed the overview of the mining industry in South Africa,
where the structure and the economic contribution of the industry was outlaid.
The chapter also discussed the small-scale mining as a sector and the
government’s commitment to develop that particular sector.
The following chapter will discuss the type of this study, specifically how the
data was collected and analyzed.
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CHAPTER 7
TYPE OF STUDY
7.1
Introduction
This study is qualitative and as such, it is based on meanings expressed
through words where results were collected in non-standardized data which
required to be classified into categories and the analysis was done through
the use of conceptualization. A key distinction is drawn between qualitative
and quantitative research (Bryman, 1998; Easterby-Smith et al., 1991).
However, attempts to define the distinctiveness of qualitative research, and
therefore the way in which it can be distinguished from quantitative research
can be problematic (Silverman, 1993). Nevertheless, through the data
produced by this study, significant distinctions from those of quantitative work,
for example, meanings derived from numbers, were drawn and these
distinctions were helpful in terms of understanding what was necessary in
order to be able to analyze the qualitative data of the study meaningfully.
7.2
Qualitative data of the study
While ‘number depends on meaning’ (Dey, 1993: 28) it is not always the case
that meaning is dependent on number. Dey, (1993: 28) points out that: ‘The
more ambiguous and elastic our concepts, the less possible it is to quantify
our data in a meaningful way’. Qualitative data are associated with such
concepts and are characterized by their richness and fullness based on an
opportunity to explore a subject in a real manner as is possible (Robson,
1993). A contrast can thus be drawn between the ‘thin’ abstraction or
description which results from quantitative data collection and the ‘thick’ or
‘thorough’ abstraction or description associated with qualitative data (Dey,
1993; Robson, 1993).
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The nature of qualitative data in this study therefore had implications for both
its collection and analysis. To be able to capture the richness and fullness
associated with the data, it was not collected in a standardized way, like that
of quantitative data. During analysis, however, the non-standardized and
complex nature of the data collected was classified in categories before it
could be meaningfully analyzed; otherwise the most that resulted was an
impressionistic view of what it meant. While it was possible to make some use
of diagrams and statistics, such as the frequency of occurrence of some
categories of data, the way the collected qualitative data was analyzed was
through the creation of a conceptual framework.
7.3
Qualitative data analysis of the study
The approach adopted in this study involved disaggregating the mass of the
qualitative data which was collected into meaningful and related parts or
categories. This allowed the systematic arrangement and rigorous analysis of
these data. Adopting this approach essentially meant transforming the nature
of the data which was collected in order to allow the following:
ƒ
Comprehending and managing the collected data.
ƒ
Merging related data drawn from different transcripts and notes.
ƒ
Identifying key themes and patterns from it for further exploration.
ƒ
Testing propositions and hypotheses based on these apparent patterns or
relationships.
ƒ
Drawing and verifying conclusions.
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This process involved the following activities:
Categorization
This first activity involved classifying the data into meaningful categories which
were derived from the data. These categories were in effect labels which were
used to rearrange the data. The categories provided an emergent structure
which was relevant to the study to analyze the data further.
The identification of these categories was guided by the purpose of the study,
as expressed through the research questions and objectives. As Dey (1993),
puts it: ‘categories must have two aspects, an internal aspect – they must be
meaningful in relation to the data – and an external aspect – they must be
meaningful in relation to the other categories’, the devised categories were
part of a coherent set so as to provide a well structured, analytical framework
to pursue the analysis.
‘Unitizing’ data
The next activity of the analytical process was to attach relevant ‘bits’ and
‘chunks’ of the data in units of data to the appropriate category or categories
which were devised. A unit of data was a number of words, a sentence, a
number of sentences, a complete paragraph or some other chunk of textual
data which fits the category.
Recognizing relationships and developing categories
This activity involved generating categories and reorganizing the data
according to them. This analysis continued as key themes and patterns or
relationships were searched in the rearranged data.
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Testing propositions/assumptions
When patterns were revealed and relationships recognized within the data
between categories, propositions were tested. The appearance of an
apparent relationship or connection between categories needed to be tested
in order to be able to conclude that there is an actual relationship.
7.4
The interactive nature of the study process
The course of events during the study demonstrated that data collection, data
analysis and the development and verification of relationships and
conclusions are very much an interrelated and interactive set of processes.
The interactive nature of data collection and analysis enabled the recognition
of important themes, patterns and relationships as data was collected. As a
result recategorizing existing data to see if these themes, patterns and
relationship are present in the cases where data was already collected, as
well as adjusting future data collection approach.
The concurrent process of data collection and analysis also had implications
for the way in which time was managed and organization of data and related
documentation. It was necessary to arrange interviews with enough time
between to allow sufficient time to write up or type a transcript, or set of notes,
and to analyze this before proceeding to the next data collection session.
7.5
Conclusion
This chapter outlaid the type of the study and the implications of its data
collection and analysis. Unlike the quantitative study the analysis of this study
is based on conceptualization.
In the following chapter the study’s problem statement, objectives and
hypotheses/propositions will be discussed.
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CHAPTER 8
PROBLEM STATEMENT, RESEARCH OBJECTIVES AND
PROPOSITIONS
“The known is finite, the unknown infinite; intellectually we stand upon an islet
in the midst of an illimitable of inexplicability. Our business….is to reclaim a
little more land”, Huxley as quoted by Dane (1990:61).
8.1
Introduction
The literature review from chapters 3 to 5 determined, in general, that SMME
sector development is very important both from an economic point of view as
well as from a business management perspective, in particular, is an
important element in addressing the social ills and the legacy of apartheid in
this country. A major conclusion emanated from this review is that the SMME
sector is an important contributor to a country’s economy and that it can
indeed, with support policies; contribute to job creation and economic growth.
From a South African context, SMMEs have, at least in theory, the potential to
generate employment and upgrade human capital by absorbing the abundant
pool of unskilled labour, which they can possibly employ and upgrade. The
question is whether a more robust SMME growth strategy in South Africa will
indeed generate employment by absorbing the unskilled labour force and
provide a “skills upgrading process”.
South Africa’s experience is very unique and even though the government
may learn from other countries both internationally and regionally, the success
of South African mechanisms is limited by historical neglect of education and
training to those who contribute most in the small business sector (i.e. blacks).
Therefore the key challenge in the South African context is identifying the best
policy levers available to government, given the problem of inequality and the
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overall thrust of an economic reform strategy comprising fiscal prudence,
trade liberalization and deregulation of various economic sectors.
8.2
Problem statement
In chapters 2 to 5 some of the existing literature on SMMEs was scrutinized
(including the historical background of South Africa) to determine the
dynamics and the current structure of the SMME sector with regard to its
fitness in the overall macro-economic framework of the country and the
country’s economic growth. It has been found out that no literature or research
reports exist that provide any concrete evidence to quantify the extent the
SMME sector has contributed to the economic growth of the country through
job creation and poverty alleviation as a result of the government’s National
Strategy and whether the government’s mechanism and programmes to
achieve that, has created an enabling environment for the SMME sector
growth.
The current literature and statistics with regard to the structure of the small
business sector is inconclusive (Kesper, 2000). There is a lot of conflicting
assessment between different agencies’ statistics including that of Ntsika. In
addition, no text books or any concrete research study was found (both from
the private and public sectors) which analyzed the impact of the government’s
National Strategy for the development and promotion of the small business
sector in South Africa. This thesis will therefore serve as a seminal first step in
evaluating the impact the National Strategy (designed in 1995) has had on the
SMME sector i.e. whether it has indeed created an enabling environment for
the small business sector to achieve its objectives of job creation and
economic growth.
The dearth to the unemployment crisis in South Africa is continuously posing
major challenges to the South African government in both social (crime) and
economic (income generation) circles. On the global arena South Africa is
also faced with challenges of re-integration into the world markets, while at the
same time positioning itself to realize the importance of addressing the local
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challenges. The international and local challenges, one would assume, will
pose conflicting strategic priorities within the government’s overall macroeconomic strategy which are aimed at addressing both the local and
international challenges.
It is a result of such challenges that forced the government to move quickly to
launch the new and untried National Strategy for the development of small
business sector in the country. The National Strategy was structured to forge
a wide range of participants in both the private and public sectors hoping it
would address the local challenges (job creation, poverty alleviation and
economic growth) while also being globally competitive at the same time.
The government’s initiative could, one would also assume, face enormous
difficulties and pains to achieve its objectives because of the country’s
apartheid legacy which has created South Africa’s dearth of entrepreneurial
tradition and culture, lack of business skills and finance most especially
among the targeted group (blacks). These factors may mean that progress to
the attainment of the objectives of the government’s initiative would face
tremendous difficulties.
Since it is believed that job creation does not exist in the entire small medium
and micro enterprises (SMMEs) but mainly in small medium enterprises
(SMEs),
the
small-scale
mining
sector
specifically
black
economic
empowerment (BEE) companies was chosen to compare the findings of the
National Strategy’s impact by an evaluation of the instructional framework and
other related institutions to the extent the small-scale mining sector has
benefited from the government’s National Strategy and whether the Strategy
has indeed created an enabling environment for that particular sector.
The small black economic empowerment mining database from the
Department of Minerals and Energy is usually not updated and that created
problems when conducting the interviews within that sector. Most of the
companies in the current database no more exist and a lot have changed
locations and hence their contact particulars.
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8.3
Objectives of the study
The main objective of this study is to evaluate the impact of South Africa’s
National Strategy for the development and promotion of the small business
sector in general and specifically on the small black economic empowerment
mining companies. This objective is summarised into the following focus
areas:
•
Analysis of the institutional framework created within the government’s
National Strategy spearheaded by the Department of Trade and Industry.
•
Analysis of the effectiveness of the government’s National Strategy
through the service providers (both financial and non-financial) created
under the National Strategy and some small businesses.
•
Analysis of some governmental departments and some business
institutions not incorporated within the government’s National Strategy’s
framework but having SMME developmental programs themselves.
•
A primary investigation of some parastatal organizations and provincial
SMME desks.
•
A study of the impact of the government’s National Strategy through a
structured questionnaire on the small black economic empowerment
mining companies.
Against this background, the objectives of this study are twofold: the provision
of a more comprehensive understanding of the structure of the government’s
National Strategy’s framework and the challenges at stake if any, in order to
highlight them thus far and specifically whether the National Strategy has had
any significant positive impact on the small-scale mining sector. This, it is
assumed, will give a general picture as to whether the government’s National
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Strategy for the development and promotion of small business in South Africa
has indeed created an enabling environment for the sector.
In detail the study will attempt to:
Revisit the rationale of the SMME policies
While there is a general consensus on the importance of SMMEs in South
Africa, their economic rationale to date has not been well argued nor
rigorously investigated. In particular, there is a lack of clarity on how the
SMME sector fit within the industrial policy framework with regard to the
objectives of government (RSA, 1995:10).
Propose some goals for the policy
According to Rogerson (1997) optimizing the SMMEs’ contribution to
employment and economic development could be translated into the following
broad objectives:
•
Raising the rate of formation of new SMMEs with growth potential since
these SMMEs will contribute to investment, employment and income
generation.
•
Encouraging new SMMEs arising from a previously disadvantaged
background, since these start-ups can contribute to redistribution of
economic ownership and income, as well as a more participatory
economy.
•
Increasing the rate of graduation of micro-enterprises into the SME
categories, since only then will the legacy of apartheid be overcome.
•
Raising performance of existing SMMEs with a view to increasing both
their competitiveness and their ability to fulfil a role in society.
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•
Decreasing the undesirable mortality rate of SMMEs that could be viable
undertakings.
Main areas of intervention required
Achieving these broad objectives typically requires policies, which will focus
on:
•
Increasing the supply of the entrepreneurial talent and opening
opportunities.
•
Providing support to existing SMMEs – micro-enterprises in particular – at
no higher than its social opportunity costs.
•
Providing incentives for formalization of enterprises, including cultural
bridging.
•
Assisting SMMEs (where necessary) to use the resources as efficiently as
possible.
Within the context of the overall macro-economic performance, the ideal
policy package for SMME support in South Africa should allow this sector to
maximise its contribution to the economy’s overall performance in terms of
growth, employment and income distribution (RSA, 1995). This is likely to
involve making more resources available to the sector as well as raising the
efficiency with which it uses the resources already available.
Evaluation of policies to date
With policy initiatives already under way, the study aims to disentangle the
reasons for the SMME sector growth (low or high), and why it has made or not
made a more significant contribution to employment and overall economic
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growth in South Africa. By doing so, the study aims to assist the government‘s
National Strategy framework in reconsidering its policy as an integral part of
its industrial development strategies.
The impact of the National Strategy in the small black economic
empowerment mining companies
Apart from interviews with the institutions created under the government’s
National Strategy, service providers (financial and non-financial), other
institutions not created under the National Strategy but involved in SMME
programmes and other secondary data in relation to the SMME sector, the
study will attempt to investigate the National Strategy’s impact on the small
black economic empowerment mining companies.
8.4
Research propositions
In this section a number of research propositions that aim to address the
research problem and research objectives will be discussed.
The use of research propositions and research hypotheses in a study need
some clarification. Dilton, Madden & Firtle (1994:417) and MacDaniel & Gates
(199:514) argue that a hypothesis is an assumption or guess that the
researcher makes about some characteristic of the sample population.
Willemse (1990:131) defines a hypothesis as an assumption to be tested with
the objective of making statistical decision based on a scientific procedure. It
is an attempt to determine when it would be reasonable to conclude, from an
analysis of a sample, that the entire population possesses a certain property.
Cooper and Schindler (1998:131) argue that the immediate purpose of
exploration (research) is usually to develop hypotheses or questions for
further research. They (1998:48) also state that research literature disagrees
about the meaning of the terms proposition and hypothesis. Their definition of
a proposition is that it is a statement about concepts that may be judged true
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or false if it refers to observable phenomena. When a proposition is
formulated for empirical testing, they refer to it as a hypothesis.
The research propositions of the study were formulated in such a way that
may allow limited statistical analysis and will be judged according to the
definition of Cooper & Schindler (1998:131) that a proposition is a statement
about concepts that may be judged true or false if it refers to observable
phenomena. The propositions will be accepted if they can be judged to be
true or rejected if they can be judged to be false.
In the first phase of the study the propositions formulated can be summarized
as follows:
8.4.1 Testing the effectiveness of the institutions created within the
government’s National Strategy
The institutional framework of the government’s National Strategy consists of
the Centre for the Small Business Promotion (CSBP), Ntsika Enterprise
Promotion Agency (NEPA) and Khula Enterprise Promotion Agency (KHULA)
which all fall under the jurisdiction of the Department of Trade and Industry.
The research propositions in this section will cover these three institutions i.e.
CSBP, NEPA and KHULA incorporated in the institutional framework of the
government’s National Strategy for the development and promotion of
SMMEs.
The propositions only apply to the research subjects, namely directors and/or
heads of different departments within these institutions who manage these
departments. These research propositions were formulated to test their
opinion on the successes or failures with regard to achieving their mandates
as stipulated in the White Paper on National Strategy for the development and
promotion of small business in South Africa (Notice No. 213 of 1995).
Evaluating the institutional framework of the government’s National Strategy
entailed a descriptive analysis in each of the three institutions.
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Three research propositions in this section were formulated as follows:
Proposition One:
The Centre for Small Business Promotion as a
policy centre and custodian of the South African
National
Strategy
for
the
development
and
promotion of the SMME sector has coordinated all
institutions
incorporated
in
the
institutional
framework of the National Strategy effectively.
The response to this statement will be tested by analyzing the following issues
within the CSBP (a detailed analysis is given in Chapter 10):
•
The CSBP’s mission and objectives.
•
The CSBP’s structure and its activities.
•
Performance activities of the CSBP.
Proposition Two:
Ntsika Enterprise Promotion Agency has provided
its wide range of non-financial services to local
service
meeting
delivery
the
groups
objectives
successfully
of
the
thereby
government’s
National Strategy.
The response to this statement will be tested by analyzing the following issues
within Ntsika (a detailed analysis is given in Chapter 10):
•
Analysis of Ntsika’s mission and objectives.
•
Analysis of the institutional framework of Ntsika.
•
Analysis of Ntsika’s success in meeting its programme objectives.
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•
Analysis of Ntsika’s monitoring and evaluation process.
Proposition Three:
Khula has improved access to finance for the
country’s SMME sector with special emphasis on
the
previously
disadvantaged
population
as
mandated by the government’s National Strategy
successfully.
The response to this statement will be tested by analyzing the following issues
within Khula (a detailed analysis is given in Chapter 10):
•
Analysis of Khula’s missions and objectives.
•
Analysis of Khula’s programmes and their performance.
8.4.2 Testing the effectiveness of the government’s National Strategy
The propositions to test the effectiveness of the government’s National
Strategy applied to the research subjects, namely directors and/or owners of
those institutions which provide financial and non-financial services on a retail
basis on behalf of Khula and Ntsika respectively and the owners of small
medium and micro enterprises (refer to appendices two, three and four).
Three research propositions were formulated as follows:
Proposition Four:
Khula’s financial service providers have provided
their finance services to SMMEs effectively.
The response to this statement will be tested by analyzing the following issues
from Khula’s financial service providers (a detailed analysis is given in
Chapter 10):
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•
Their sizes of loans to SMMEs.
•
The assistance that borrowers (i.e. SMMEs) of funds receive from them to
develop business plans, identify market opportunities, and prepare loan
applications.
•
Their ultimately usage of borrowed used.
•
Their level of communication with Khula.
•
Their level of interaction with Ntsika or Ntsika’s non-financial service
providers.
•
Whether they provide mentoring, monitoring and evaluation, or aftercare
to their recipients.
Proposition Five:
Ntsika’s
non-financial
service
providers
have
provided their services to the SMME sector
effectively.
The response to this statement will be tested by analyzing the following issues
from Ntsika’s non-financial service providers (a detailed analysis is given in
Chapter 10):
•
Their level of coordination and communication with Ntsika.
•
Their linkages with Khula’s financial service providers.
•
Their monitoring and evaluation of clients.
•
Whether they have training for the service provider management.
•
Their tracking results of assistance.
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•
Their sectoral approach.
Proposition Six:
The sourcing of both financial and non-financial
services by SMMES through the institutional
framework of the National Strategy was effective.
The response to this statement will be tested by analyzing the following issues
from SMMEs (a detailed analysis is given in Chapter 10):
•
Whether they consider themselves as a small, medium or micro enterprise.
•
Type of assistance they were receiving.
•
Processes they encounter when obtaining assistance.
•
The use of their assistance.
•
The impact the assistance has had on their businesses.
•
Their additional needs.
8.4.3 Testing
of
other
institutions
influencing
small
business
development
These propositions applied to the research subjects, namely heads of other
government’s departments (refer to appendices five and six) other than those
within the Department of Trade and Industry and managing directors and/or
heads of departments of other business organizations – only the National
African Federated Chamber of Commerce (NAFCOC) and the South African
Chamber of Business (SACOB) were interviewed.
The research propositions were formulated as follows:
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Proposition Seven:
There
is
awareness
within
government
departments of the government’s National Strategy
for the development and promotion of SMMEs.
Proposition Eight:
There is awareness within business organizations
of the government’s National Strategy for the
development and promotion of SMMEs.
Proposition Nine:
There is collaboration between government’s
department and other business organizations with
the institutions created under the government’s
National Strategy.
The responses to these statements will be tested by analyzing the
contribution, current views and future roles of those government’s
departments and other business organizations outside government with
regard to the following (a detailed analysis is given in Chapter 10):
•
Awareness and understanding of the National Strategy and its institutions
and programmes within other government departments.
•
Assessments of the SMME support policies and programmes of these
organizations and departments.
•
Relationship between the National Strategy’s programmes and those of
other government’s departments and other business organizations.
8.4.4 Testing of parastatal organizations and provincial SMME desks
The propositions to test the parastatals and the provincial SMME desks
applied to the research subjects, namely managing directors of those
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parastatals (refer to appendix seven) and provincial heads of the provincial
SMME desks (refer to appendix eight).
The research proposition with regard to parastatal organizations was
formulated as follows:
Proposition Ten:
Parastatals
National
are
aware
of
Strategy
for
the
the
government’s
development
and
promotion of SMMEs and are satisfied with the
way the National Strategy has contributed to their
own SMME initiatives.
The response to this statement will be tested by analyzing the following from
the parastatals (a detailed analysis is given in Chapter 10):
•
Level of awareness of the SMME strategy by the parastatal community
with regard to:
o Their view on the National Strategy on a long term basis.
o Their knowledge of the National Strategy.
o Their
view
on
the
government’s
efforts
with
regard
to
the
implementation of the National Strategy.
•
The expectation these parastatals have of the SMME strategy with regard
to:
o Their view of the National Strategy with regard to their own SMME
initiatives.
o Their view with regard to the National Strategy with regard to market
and training opportunities to assist SMMEs.
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The research proposition with regard to provincial SMME desks was
formulated as follows:
Proposition Eleven:
Provincial SMME desks are effectively and directly
involved in the government’s National Strategy’s
activities.
The response to this statement will be tested by analyzing the following from
the provincial SMME desks (a detailed analysis is given in Chapter 10):
•
Their direct involvement in the National Strategy’s activities with regard to
the following:
o As to whether they are being briefed by the DTI on the National
Strategy’s activities.
o Their involvement in other various ministerial committees.
o Their significant input into local SMME strategies and programmes.
o Their representation of CSBP at the provincial level.
8.4.5 Testing of small black economic empowerment mining companies
The assessment of small black economic empowerment mining companies
with regard to the government’s National Strategy comprised the second
phase of the study and like in the first phase, the propositions of this phase
will be judged according to the definition of Cooper & Schindler (1998:131)
that a proposition is a statement about concepts that may be judged true or
false if it refers to observable phenomena. The propositions will be accepted if
they can be judged to be true or rejected if they can be judged to be false.
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The propositions with regard to the small black economic empowerment
mining companies apply to the research subjects, namely owners of the small
black economic empowerment mining companies and the evaluation entailed
a descriptive statistical analysis of information supplied by the owners of small
mines through a structured questionnaire (refer to appendix one for the
questionnaire used in this study and appendix nine for the list of owners of
small mining operations interviewed).
The propositions in this phase of the study can be summarized as follows:
Proposition One:
Small black economic empowerment mine owners
know
some
government’s
programmes
National
including
Strategy
for
the
the
development and promotion of Small Businesses.
The response to this statement will be tested by questions 1 to 3 of the
questionnaire and its analysis will be based on their knowledge of any
government programs or NGOs active in the development of small businesses
including the government’s National Strategy.
Proposition Two:
Small black economic empowerment mine owners
know how the government’s National Strategy go
about its business, how to get access to it and they
have had contact with the institutions formulated
within
the
National
Strategy’s
institutional
framework.
The response to this statement will be tested by questions 4 to 7 of the
questionnaire and its analysis will be based on their knowledge on the way the
government’s National Strategy goes about its business and how they would
gain access to it, and if at all they have had any contact with any of the
institutions created within the institutional framework of the National Strategy.
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Proposition Three:
Small black economic empowerment mine owners
have been very satisfied with the way the
government has implemented its National Strategy
for the development and promotion of small
businesses.
The response to this statement will be tested by questions 8 to 9 of the
questionnaire and its analysis will be based on their satisfaction with the way
the government has implemented its National Strategy for the development
and promotion of small businesses.
Proposition Four:
The government’s National Strategy has created
opportunities i.e. an enabling environment for the
small mining sector which in turn has minimized
their weaknesses and barriers for growth thereby
enhancing their meaningful participation in South
Africa’s mining industry.
The response to this statement will be tested by questions 10 to 14 of the
questionnaire and its analysis will be based on the way the government’s
National Strategy has created opportunities for the small-scale mining
companies and help minimize their weakness and barriers to entry in the
mining industry.
Proposition Five:
Small black economic empowerment mine owners
have had formal training and do not require any
formal training in most business disciplines.
The response to this statement will be tested by questions 15 to 17 of the
questionnaire and its analysis will be based on the way the government’s
National Strategy has provided training opportunities to small black economic
mine owners with regard to their business operations.
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Proposition Six:
Small black economic empowerment mine owners
think that the government has succeeded in the
provision
of
necessary
support
for
their
businesses.
The response to this statement will be tested by questions 18 to 19 of the
questionnaire and its analysis will be based on the way small miners feel the
government has succeeded in the provision of the necessary support for their
businesses.
Proposition Seven:
Most small miners opened their businesses after
1994 and that there has been significant growth in
their businesses with regard to the number of
employees and their annual turnover.
The response to this statement will be tested by questions 20 to 24 of the
questionnaire and its analysis will be based on the way their businesses have
grown with regard to the number of employees and their turnover.
The twenty four questions were formulated to test the propositions of the
second phase of the study and the analysis of these propositions will lead to a
conclusion on whether the government’s National Strategy for the
development and promotion of SMMEs has created an enabling environment
for the small black economic empowerment mining companies sector since
the government’s National Strategy’s inception in 1995.
8.5
Conclusion
This chapter stated that the main objective of the study is to evaluate whether
the South Africa’s National Strategy for the development and promotion of the
SMME sector has created an enabling environment for the sector.
A number of research propositions were formulated to cover the main areas in
the study. These research propositions also provide the basis for testing the
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impact the government’s National Strategy has had thus far on the small
business sector.
In the next Chapter the research methodology will be outlined and
discussed.
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CHAPTER 9
RESEARCH METHODOLOGY
“People don’t usually do research the way people who write books about
research say that people do research,” Bacharach (1981) as quoted by Dane
(1990:201)
9.1
Introduction
As the government’s National Strategy for the development and promotion of
the SMME sector has been in operation since 1995, it is assumed that the
National Strategy should at least by now have achieved its objectives of job
creation and growth of the small business sector. Formal and intensive
research with regard to assessing the impact of the government’s National
Strategy was not found. Therefore, as an initial step in advancing such a
research the author has undertaken, as the major focus of the study, an
attitudinal survey of the drivers within the institutional framework of the
government’s National Strategy including service providers and recipients in
the first phase of the study.
Realizing that many other government and non-governmental agencies in
South Africa also play critical roles in the provision of services to the SMME
sector, the study also examined the activities and impacts of several other
institutions to determine how their programmes can be integrated into the
larger National Strategy.
At the heart of the investigation in phase one was a series of interviews
(through telephone, faxes, emails and personal contact) in the four provinces
(Gauteng, Mpumalanga, North-West and Limpopo) that were carefully
planned to bring a representative cross-section of local service providers,
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other institutions working with the small business sector and finally in phase
two, owners of small black economic empowerment mining companies.
The study has made strong effort to reflect the consensus of these role
players, based on the information and views given. Therefore, it should be
emphasized that the observations and conclusions, and to a large extent the
recommendations themselves, are the result of the views of the role players
during the study. The study has attempted to reflect these views and
judgments.
The theoretical base for this study has been built up in such a way as to
investigate and analyse the extent to which the South African government’s
National Strategy for the development and promotion of the SMME sector has
created an enabling environment for the sector so far.
The evaluation, firstly, used the White Paper and some literature on SMME
which was found as a point of departure and then began its in depth analysis
by interviewing key members of the CSBP, Ntsika, and Khula to review each
of the objectives, the programmes formed in response to these objectives, the
monitoring impacts of these programmes, and the manner in which these
impacts have been measured.
This phase of the study encountered a few challenges, for example,
measuring the impacts of the National Strategy’s programmes on the target
population is an inexact science, and a challenge that seemed difficult to
address because of the lack of solid information from the institutions studied –
understandable given broad mandates of these institutions and in other
instances the information was regarded as highly confidential by the
institutions until they were convinced that the information was required for
research purposes only – made it difficult during the study. Institutions
seemed to have used varied formulas to estimate job impacts, for example
based on their interventions. For this reason it was difficult to verify or refute
these estimates that were built on the preliminary data collected.
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This phase also wanted to evaluate the efficiency of “the utilization of
resources allocated”. This was done mostly on general sense, in that a detail
financial analysis, tracing expenditure programme by programme and region
by region could not easily be accessible.
The second phase of the study was to assess the government’s National
Strategy’s impact on the small black economic empowerment mining
companies as a sector within the broader SMME sector. The population in the
second phase of the study (44 companies) comprised of the small black
economic empowerment mining companies in South Africa. The attitudinal
study with regard to the population (small black empowerment mining
companies) had been chosen in order to sustain mainly whether the owners of
these companies are aware of the government’s National Strategy and how, if
at all, it has helped them in their business operations.
9.2
Research design
The research design of this thesis is of an exploratory nature. Cooper &
Schindler (1998:134) mention that “exploratory research is (unfortunately)
linked to old biases about qualitative research, namely subjectiveness, nonrepresentativeness and non-systematic design. A wiser view is that
exploration saves time and money (in future) and should not be slighted
because exploratory (research) covers areas that may be so new or so vague
that a researcher needs to do an exploration just to learn something about the
dilemma at hand”.
Cooper and Schindler (1998:131) also state that “exploratory studies tend
towards loose structures with the objective of discovering future research
tasks”. MacDaniel & Gates (1999:63) mention that exploratory research is
usually small-scale research undertaken to define the exact nature of the
problem to gain a better understanding of the environment within which the
problem occurred.
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In previous chapters it has been argued that the South Africa’s National
Strategy for the development and promotion of the SMME sector has not been
extensively researched to determine its impact on the SMME sector. In the
literature review chapters the argument of a number of authors led to the
conclusion that the government’s National Strategy’s research is still in its
infancy. These views and a lack of a research report on the South African
National Strategy leads therefore to the assumption that relatively little about
the government’s National Strategy’s impact is known. The main aim of the
study is therefore to analyze the impact of the South Africa’s National Strategy
for the development and promotion of the SMME sector and as to whether it
has indeed created an enabling environment for the small business sector.
The research process consisted two distinctive phases that aim to identify and
determine as to whether, since its inception in 1995, the government’s
National Strategy has created an enabling environment for the SMME sector
in this country.
The first phase of the study comprised the following steps:
9.2.1
Assessment of the effectiveness of the institutions created
within the government’s National Strategy
The three major institutions which constitute the institutional framework of the
National Strategy (falling under the juristidiction of the DTI) were targeted for
interviews. The assessment of the effectiveness of the institutions created
within the National Strategy was done by surveying the chosen research
subjects on their opinion with regard to their success or failures in achieving
their mandates as stipulated by the White Paper on National Strategy for the
development and promotion of small businesses.
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In each of the three institutions the following analyses were conducted:
9.2.1.1
•
Centre for the Small Business Promotion
Analysis of the mission and objective of the Centre for Small Business
Promotion.
•
Analysis of the structure and activities of the CSBP.
•
Performance activities.
The above-mentioned issues were analyzed by firstly identifying the
responsibility of the CSBP as stated in the White Paper on National Strategy
for the development and promotion of small businesses, which clearly
stipulates that the CSBP is a “steward” or a “champion” of the government’s
National Strategy.
The White Paper on the National Strategy for the development and promotion
of small businesses clearly states that the Centre for Small Business
Promotion will undertake the following:
•
Being responsible for all matters related to the government’s support for
small, medium, micro and emergent enterprises.
•
Being responsible for the monitoring of the co-operation between different
government departments in matters relating to small business support.
•
Maintaining of strict control over organizations receiving or channeling
public sector funds for small business support.
The above mentioned issues created the following operational objectives for
the Centre for Small Business Promotion which the study had to analyze:
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•
The championing of the SMME sector in South African economic
development, for example, creating awareness of SMME issues.
•
The implementation of critical SMME programmes, for example, improving
SMME’s access to services
•
The monitoring and evaluation of progress and problems, for example,
identifying gaps and areas not adequately served within the context of the
government’s National Strategy.
The CSBP resources including personnel were evaluated to assess as to
whether they would enable the CSBP to accomplish its operational objectives
effectively in an effort for it to achieve its main objectives as stipulated in the
White Paper.
9.2.1.2
Ntsika Enterprise Promotion Agency
•
Analysis of Ntsika’s mission and objectives.
•
Analysis of the institutional framework of Ntsika.
•
Analysis of Ntsika’s success in meeting its programme objectives.
•
Analysis of Ntsika’s monitoring and evaluation process.
To analyze the abovementioned Ntsika’s issues, Ntsika’s programmes on
meeting the objectives of the government’s National Strategy were evaluated.
The White Paper states a number of objectives of the National Strategy
including the creation of an enabling environment for small enterprises.
Interpreting the government’s National Strategy’s requirements, the study
identified the following programmatic activities with regard to Ntsika’s
mandate:
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•
Providing access to information and advice.
•
Providing access to marketing and procurement.
•
Training in entrepreneurship, skills and management.
•
Providing access to appropriate technology.
•
Capacity-building and institutional strengthening.
These programmatic activities were evaluated to assess as to whether, in
Ntsika’s current state with regard to its resources, Ntsika can effectively carry
out these activities more efficiently in order to achieve the government’s
National Strategy’s objectives.
9.2.1.3
•
Khula Enterprise Finance Limited
Analysis of Khula’s missions and objectives.
According to the White Paper on National Strategy for the development and
promotion of small Business in South Africa, Khula’s missions and objectives
can be broken down into the following:
o Increasing the level of banking lending to SMMEs.
o Improving the outreach of alternative financial institutions, particularly in
un-served rural areas.
o Providing start-up and small scale equity products.
o Expanding the number of SMMEs with external equity participation.
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These missions and objectives create both external and internal operational
objectives for Khula, which can be summarized as follows:
External
o Facilitating the mobilization and flow of resources (both public and private)
for SMME development.
o Increasing awareness of Khula.
o Promoting a favourable legislative environment.
o Cooperating closely with “sister organizations, such as Ntsika, LBSCs and
provincial SMME desks.
Internal
o Maintaining a skilled, effective, and motivated professional staff.
o Maintaining Khula as a lean organization.
o Meeting the expectations of shareholders as defined in the mission
statement.
o Effectively managing business risks of the organization.
These external and internal operational objectives were evaluated in relation
to Khula’s current state with regard to its resources to effectively carry out
these activities more efficiently for it to achieve the government’s National
Strategy’s objectives.
•
Analysis of Khula’s programmes and their performance.
In order to do this analysis the following were evaluated:
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o Khula’s management philosophy.
o Structure of Khula’s operations.
o Khula’s marketing communications strategy.
o Khula’s monitoring, evaluation and reporting systems.
o Khula’s corporate governance.
o Khula’s human, financial and internal management.
These were evaluated in relation to Khula’s current state in meeting its
programmes and rate of performance in executing these programmes.
9.2.2
Assessment of the effectiveness of the government’s National
Strategy
This component of the study was an assessment of the effectiveness of the
government’s National Strategy whose key components was an in-depth
evaluation (through telephone, faxes, emails and personal contacts) of the
perceived impacts of the government’s National Strategy with relation to its
stated objectives of employment creation, income generation and economic
growth.
It was decided during the study that a structured process of meetings or
interviews with service providers and recipients of those services be
conducted. A month long preparation was undertaken to ensure that a
representative sample could be reached through face-to-face meetings or
telephonic as well as email interviews and faxes.
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section of opinion. This was done in the following four provinces: Gauteng,
North-west, Limpopo, and Mpumalanga. These areas were chosen simply
because the author is conducting his business operations in these provinces.
This part of the study focused on the services provided by these organizations
and the perceptions of these organizations of how successful these services
are meeting the objectives of their mandates. In the case of SMMEs that have
received these services, the study sought to understand what types of
assistance were received from the service providers, how that assistance
benefited their businesses, and what other types of assistance would be
useful. Both providers and recipients were asked to detail their perceptions to
change and improve the government’s National Strategy’s approach to
developing small business and creating jobs.
In the course of these investigations emphasis was put on the financial
service providers (i.e. Khula’s RFIs), non-financial service providers (i.e.
Ntsika’s service providers) and SMMEs. The several key issues the study
sought to identify were:
From Khula’s financial service providers, the investigation sought out to
investigate the following:
•
Size of loans (micro, small, medium).
•
Assistance that borrowers received from these groups to develop business
plans, identify market opportunities, and prepare loan applications.
•
How borrowed funds were ultimately used.
•
Level of communication with Khula.
•
Level of interaction with Ntsika or non-financial service providers.
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•
Who funds the service provider.
•
Whether or not the service provider provides mentoring, monitoring and
evaluation, or aftercare to the recipients.
From Ntsika’s non-financial service providers, the investigation sought out
to investigate the following:
•
The level of coordination and communication with Ntsika.
•
Linkages with other programmes, i.e. financial providers.
•
Monitoring and evaluation of clients.
•
Distribution of assistance.
•
Training conducted for the service provider management.
•
Tracking results of assistance.
•
Sectoral approach.
From SMMEs, the investigation sought out to investigate the following:
•
Types of firms receiving assistance.
•
Assistance they are receiving.
•
Processes for obtaining assistance.
•
Use of assistance.
•
Impact the assistance has had on their businesses.
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•
Their additional needs.
9.2.3
Assessment of other institutions influencing small business
development.
The assessment of other institutions influencing small business focused on
government departments other than those groups affiliated with the
Department of Trade and Industry as well as organizations outside
government,
specifically
business
organizations,
SMME
development
practitioner bodies and institutes. The focus was on assessing the views of
these different actors, and their current and future roles, with regard to the
government’s National Strategy.
This part of the investigation was divided into four key components:
•
Awareness and understanding of the government’s National Strategy and
its institutions and programmes by these institutions.
•
Assessment of the SMME support policies and programmes of these
organizations and departments.
•
Relationship between the programmes of these institutions (and delivery
institutions, where applicable) and those falling under the government’s
National Strategy.
•
These institutions’ overall assessment of the strengths and weaknesses of
the government’s National Strategy and their recommended changes.
A series of in-depth interviews was undertaken with senior personnel within
each organization. Interviewed were directors and/or heads within government
departments and senior officers within business organizations. Although most
of those targeted for participation in the study did participate, a considerably
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large number failed to do so. These were either not able to accommodate the
study due to other commitments or declined participation mainly due to their
lack of information on the government’s National Strategy and its operations.
9.2.4
Assessment of the role of parastatal enterprises and
provincial SMME desks
9.2.4.1
Parastatal organizations
In conducting this part of the study, parastatal enterprises as shown in
appendix seven were targeted.
More than 50% of the institutions targeted were interviewed. The study
focused on how these institutions have participated in the government’s
National Strategy and how their involvement has intensified the objectives of
the National Strategy.
Interviews with these institutions highlighted the following aspects in relation
to the government National Strategy:
•
Level of awareness the parastatal community has with regard to the
National Strategy.
o Their view on the government’s National Strategy on a long term basis.
o Their knowledge of the government’s National Strategy.
o Their
view
on
the
government’s
efforts
with
regard
implementation of the National Strategy.
•
The expectation these parastatals have of the SMME strategy.
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the
University of Pretoria etd – Chalera, C S (2007)
o Their view of the government’s National Strategy with regard to their
own SMME initiatives.
o Their view with regard to the government’s National Strategy with
regard to market and training opportunities to assist SMMEs.
9.2.4.2
Provincial SMME desks
The provincial SMME desks as indicated in appendix eight were interviewed.
The role of the provincial SMME desks is to co-ordinate the government’s
National Strategy’s initiatives at a provincial and local level. The study covered
the following scope in conducting its evaluation of the SMME programmes in
their provinces:
•
The responsibility they have in the coordination of the SMME Strategy in
the provincial and local levels.
•
Their influence to create laws that will impact SMMEs at the levels where
provincial governments have authority.
•
Their interaction with the CSBP, Ntsika and Khula on how the
government’s National Strategy is coordinated as well as the relevant
policies.
The direct involvement of SMME desks in the government’s National
Strategy’s activities can be described as follows:
•
In most instances they attend meetings at the DTI to be briefed on
Strategy activities.
•
The provincial SMME desks also get involved through various ministerial
committees.
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•
There is insufficient evidence to suggest that the provincial SMME desks
provide any significant input into local strategies and programmes.
•
They represent the interest of the CSBP at the local level. This is made
difficult by the fact that the Strategy’s institutions do not usually liaise with
them directly. Their constituencies get confused about the role of these
institutions that are operating on the ground.
9.2.5
Small black economic empowerment mining companies
The second phase of the study specifically targeted the small black economic
empowerment mining companies as per the sample shown in appendix nine.
The analysis in this phase of the study was done through a structured
questionnaire (refer to appendix one). The assessment tried to verify as to
whether the small black economic empowerment mining companies are
aware of the government’s National Strategy for the development and
promotion of the SMME sector and if so, how it has assisted them in their
business operations. This, it is believed, will test the two main objectives of
the National Strategy of job creation and economic growth of the SMME
sector. These objectives are also the objectives of the study from which the
study is built i.e. whether the government’s National Strategy has indeed
created an enabling environment for their small-scale mining companies to
achieve the government’s National Strategy’s objectives.
9.2.5.1
Assessment of the small black economic empowerment
mining companies
The assessment of the small black economic empowerment mining
companies was done through a random sample of twenty-two (22) small
miners (refer to appendix nine) out of a population of forty-four (44) small
miners. The database of the entire population of the small black economic
empowerment mining companies was provided by the Department of Minerals
and Energy in Pretoria.
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Although the sample was selected randomly acceptability and availability of
the respondent affected the selection of the sample size itself.
The questionnaire tested the respondents on the following issues:
•
The small miners’ knowledge of any programs including the government’s
National Strategy for the development and promotion of Small Business.
•
The small miner’s knowledge of how the government’s National Strategy
go about its business, how to get access to it and whether they have had
any contact with the institutions formulated within its framework.
•
The small miners’ satisfaction with the way the government has
implemented its National Strategy for the development and promotion of
small businesses.
•
In the small miners’ opinion, whether the government’s National Strategy
has created opportunities for them which in turn have minimized their
weaknesses and barriers for growth thereby enhancing their strengths.
•
Whether the small miners have had formal business training and do not
require any further formal training in most business disciplines.
•
Whether the small miners think the government has succeeded in the
provision of necessary support for their business.
•
As to whether the small miners’ businesses have had any significant
growth to the number of employees and their annual turnover since they
started their operations.
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9.3
Scope of the study
The research process covered a range of stages as illustrated in figure 9.1
and can be summarized as follows:
•
First – A comprehensive overview of the South Africa’s political and
economic background and its legacy, in particular the impact that legacy
have had on entrepreneurship in South Africa. This literature review was
conducted to generate important theoretical constructs with regard to what
the legacy of South Africa’s political and economical background could
have on entrepreneurship in the country. The South Africa’s SMME sector
review with regard to its structure, rationale and size was conducted in an
effort to determine the current state of the of the SMME sector and
challenges if any. International, regional and local experiences with regard
to the development of the small business sector were also reviewed.
The South African mining industry’s overview was conducted because
phase two of the study focused to evaluate how the government’s National
Strategy has benefited the small mining companies. This was viewed to be
a testing platform on the findings of phase one of the study.
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Figure 9.1: Scope of the research process
Literature review on:
•
South Africa’s political and economic
background and its legacy,
•
South Africa’s SMME sector structure, rationale
and size.
•
SMME sector development - (international,
regional and local evidences)
•
South Africa’s Minerals Industry overview
Conduct
interviews with
small mining
companies
Studying the scope of
previous researches on
SMME sector and the
government’s White
Paper for the National
Strategy for the
development and
promotion of SMMEs
Identify population
and sample
Compile
questionnaire for
small mining sector
and test
Acquire opinions
and views from
experts
Develop analysis
derivatives
Interviews with:
•
CSBP, Ntsika & Khula
•
Service providers and receipts
•
Other government departments & other business
institutions
•
Some parastatals and provincial SMME desks
Final Research Phase (see Figure 9.2)
Do statistical analysis on the data captured from the questionnaire and qualitative analysis of
the information gathered from phase one of the research.
The literature review of SMMEs in South Africa assisted in the study to
give a broader overview of the SMME sector in this country. This was
conducted to make comparisons internationally and regionally to assess
how the issues of SMMEs are handled.
•
Second – The review of some SMMEs studies (for example. Anna
Kesper’s study (2000): “Failing or not aiming to grow? Manufacturing
SMMEs and their contribution to Employment growth in South Africa”. The
White Paper on the National Strategy for the development and promotion
of small businesses in South Africa also helped to form the academic and
theoretical base of the study.
The previous research approaches and the White Paper on National
Strategy for the development and promotion of small businesses in South
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University of Pretoria etd – Chalera, C S (2007)
Africa were used to formulate constructs and statements to be included in
the research instruments including the questionnaire.
•
Third - The opinions of a number of experts in the field were sought (for
example, Professor Peter Karungu of Wits University) to generate relevant
ideas and focus on the research approach.
•
Fourth – The small black economic empowerment companies who are
involved in the small scale mining activities were selected as a sample
population.
•
Fifth – Theoretical constructs views and input from the White Paper and
experts were formulated to create statements.
•
Sixth – A structured questionnaire (that evaluates the importance of
statements i.e. has the government’s National Strategy created an
enabling
environment
for
the
small
black
empowerment
mining
companies) was compiled and tested on some individuals who are
involved in the small mining activities and had indicated their willingness to
participate in the study.
•
Seventh – One of the research instruments (phase one) was done through
personal interviews. This focused on the government’ National Strategy’s
institutional framework etc as illustrated in figure 9.1
•
Finally – In the last phase a statistical analysis on the questionnaire
responses of the small black economic empowerment companies and a
qualitative analysis of the information gathered from the first phase was
done.
The last step in figure 9.1 refers to a final research phase that is illustrated
in figure 9.2.
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University of Pretoria etd – Chalera, C S (2007)
Figure 9.2: Final research framework followed in this study
Analysis of:
• Institutional framework of the
National Strategy
• Effectiveness of the National
Strategy
• Other government & business
institutions influencing small
business
• Parastatals and SMME desks
Comparison of
the two phases
of the study
Analysis of: the
Small Black
Economic
Empowerment
Mining Companies
Examining the findings of phase one of the
study
Compare the findings of two phases of the
study
Examining the findings of phase two of the
study
It is summarized that the two phases of the study could test the effectiveness
of the government’s National Strategy and understand how it has benefited
the SMME sector and whether it has indeed created an enabling environment
for small enterprises. In the next section the research design of the two
phases of the study will be discussed.
9.4
Research methodology of the first phase of the study
Phase one of the study started with the evaluation of the key objectives, the
institutional framework created by the Strategy (i.e. CSBP, Ntsika and Khula)
and the programmes created by these institutions. The White Paper on the
National Strategy for the development and promotion of small business in
South Africa formed the basis of this evaluation.
Secondly the study structured its investigation by focusing on the services
providers by these organizations (i.e. Ntsika’s non-financial providers and
Khula’s financial providers) and the perceptions of these organizations of how
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these services are meeting the objectives of their mandates. In the case of the
SMMEs that have received these services, the study sought to understand
what types of assistance were received from the service providers, how that
assistance benefited their businesses and what other type of assistance
would be useful. Both providers and recipients were asked in detail their
perceptions of successes and failures, and finally requested to make several
recommendations on the ways to change and improve the government’s
National Strategy’s approach to developing and promoting small businesses
and create jobs.
A key component of this evaluation was an in-depth field investigation of the
following four provinces: Gauteng, Limpopo, North-west and Mpumalanga of
the perceived impacts of the government’s National Strategy on the
development and promotion of small businesses.
A complaint overheard during the study when conducting this analysis was
that the headquarters organizations (namely the CSBP, Ntsika and Khula)
have little familiarity with what is actually happening on the ground in the
regions. According to these critics, their preoccupation with institutional and
programmatic issues and their lack of realistic monitoring systems have
created a major breach between them and their retail services providers and
ultimately the recipients of the assistance. It was then decided in this analysis
to seek assistance from the provincial desk officers where some providers and
some recipients were identified where a structured process of meeting with
them was done. This was mainly done through the face-to-face medium.
Thirdly the study focused on other departments other than those groups
affiliated with the Department of Trade and Industry, as well as organizations
outside government, specifically business organizations (for example
NAFCOC). The focus was on the view of these actors and their current and
future roles, with regard to the government’s National Strategy. The
investigation was divided into four key components:
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1) Awareness and understanding of the National Strategy and its institutions
and programmes.
2) Assessment of the SMME support policies and programmes of these
organizations.
3) Relationship between the programmes of these groups and those falling
under the National Strategy.
4) These institutions’ overall assessment of the strength and weaknesses of
the National Strategy and their recommended changes.
Finally, the study focused on the role of parastatals and provincial SMME
desks in the government’s National Strategy.
9.4.1
Objectives
The main objective of the first phase was to evaluate the impact of the South
Africa’s National Strategy for the development and promotion of the small
business sector. Main focus areas can be summarized as follows:
•
Analysis of the institutional framework created within the government’s
National Strategy spearheaded by the Department of Trade and Industry.
•
Analysis of the effectiveness of the National Strategy by interviewing both
financial and non-financial and the recipients of those services i.e.
SMMEs.
•
Analysis of other government departments which are not affiliated to the
institutional framework of the National Strategy and other business
organizations who have their own development initiatives.
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•
A primary investigation of some parastatal organizations and some
provincial SMME desks.
Against this background, the objectives of this study are twofold: the provision
of a more comprehensive understanding of the structure of the National
Strategy’s framework and the challenges at stake if any in order to highlight
them; and an explanation of its impact on small business thus far.
In detail the study will attempt to:
Revisit the rationale of the SMME policies
While there is a general consensus on the importance of the SMMEs in South
Africa, their economic rationale to date has not been well argued nor
rigorously investigated. In particular, there is a lack of clarity on how the
SMME sector fit within the industrial policy framework with regard to the
objectives of government (RSA, 1995:10).
Propose some goals for the policy
According to Rogerson (1997) optimizing the SMMEs’ contribution to
employment and economic development could be translated into the following
broad objectives:
•
Raising the rate of formation of new SMMEs with growth potential since
these SMMEs will contribute to investment, employment and income
generation.
•
Encouraging
new
SMMEs
arising
from
previously
disadvantaged
background, since these start-ups can contribute to redistribution of
economic ownership and income, as well as a more participatory
economy.
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University of Pretoria etd – Chalera, C S (2007)
•
Increasing the rate of graduation of micro-enterprises into the SME
categories, since only then the legacy of apartheid will be overcome.
•
Raising performance of existing SMMEs with a view to increasing both
their competitiveness and their ability to fulfil a role in society.
•
Decreasing the undesirable mortality rate of SMMEs that could be viable
undertakings.
Main areas of intervention required
Achieving these broad objectives typically requires policies, which focus on:
•
Increasing the supply of the entrepreneurial talent and opening
opportunities.
•
Providing support to existing SMMEs – micro-enterprises in particular – at
no higher than its social opportunity costs.
•
Providing incentives for formalization of enterprises, including cultural
bridging.
•
Assisting SMMEs (where necessary) to use the resources as efficiently as
possible.
Within the context of the overall macro-economic performance, the ideal
policy package for SMME support in South Africa should allow this sector to
maximise its contribution to the economy’s overall performance in terms of
growth, employment and income distribution (RSA, 1995). This is likely to
involve making more resources available to the sector as well as raising the
efficiency with which it uses the resources already available.
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Evaluation of policies to date
With policy initiatives already under way, the study aims to disentangle the
reasons for SMME sector growth (low or high), and why it has or has not
made a more significant contribution to employment and overall economic
growth in South Africa. By doing so, the study aims to assist the government‘s
National Strategy framework in reconsidering its policy as an integral part of
its industrial development strategies.
9.4.2
Population and sample
For conceptualization purposes all South African organizations (both public
and private) that have programmes for the development of the SMME sector
should be regarded as part of the population to be surveyed. For convenience
purposes, though, it was decided that it would be too costly, time-consuming
and impractically possible to conduct interviews with all organizations having
programmes for SMME development (ranging from public, private, NGOs,
parastatals, donors etc) and it was subsequently decided to interview the
following:
9.4.2.1
Center for Small Business Promotion
In conjunction with the White Paper on National Strategy for the development
and promotion of small business in South Africa (Government Gazette, Vol.
357, No. 16317: Notice No. 213 of 1995) and the director of the CSBP
directorate in Pretoria the evaluations were conducted.
Principal areas of evaluation were:
•
Analysis of Mission and Objective of the Center for Small Business
Promotion.
•
Analysis of the Structure and Activities of the CSBP.
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•
Performance activities.
9.4.2.2
Ntsika
In conjunction with the White Paper on National Strategy for the development
and promotion of small business in South Africa and the Chief Executive and
some staff members of Ntsika the evaluation was conducted. The evaluation
focused on the following areas:
•
Analysis of Ntsika’s Mission and Objectives.
•
Analysis of the Institutional Framework of Ntsika.
•
Analysis of Ntsika’s success in meeting its programme objectives.
•
Analysis of Ntsika’s Monitoring and Evaluation process.
9.4.2.3
Khula
In conjunction with the White Paper on National Strategy for the development
and promotion of small business in South Africa and the Chief Executive and
some staff members of Khula the evaluation was conducted. The evaluation
focused on the following areas:
•
Analysis of Khula’s Missions and Objectives.
•
Analysis of Khula’s Programmes and their Performance.
9.4.2.4
Financial service providers
In each of the provinces targeted for the study three RFIs of Khula were
interviewed. The evaluation focused on the following principal area:
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University of Pretoria etd – Chalera, C S (2007)
•
Size of loans (micro, small, medium).
•
Assistance that borrowers received from these groups to develop business
plans, identify market opportunities, and prepare loan applications.
•
How borrowed funds were ultimately used.
•
Level of communication with Khula.
•
Level of interaction with Ntsika or non-financial service providers.
•
Who funds the service provider.
•
Whether or not Ntsika’s service providers provide mentoring, monitoring
and evaluation, or aftercare.
9.4.2.5
Non-financial service providers
In each of the provinces targeted for the study three of Ntsika’s non-financial
providers were interviewed. The evaluation focused on the following principal
area:
•
The level of coordination and communication with Ntsika.
•
Linkages with other programmes, i.e. financial providers.
•
Monitoring and evaluation of client.
•
Distribution of assistance.
•
Training conducted for the service provider management.
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•
Tracking results of assistance.
•
Sectoral approach.
9.4.2.6
Small, medium and micro enterprises
In each of the provinces targeted for the study three Small medium and micro
enterprises (SMMEs) were interviewed. The evaluation focused on the
following principal area:
•
Types of firms receiving assistance.
•
Assistance they are receiving.
•
Processes for obtaining assistance.
•
Use of assistance.
•
Impact the assistance has had on their business.
•
Their additional needs.
9.4.2.7
Other institutions influencing small business development
In conducting the study the evaluation targeted the following:
•
National African Federated Chamber of Commerce (NAFCOC) and South
African Chamber of Business (SACOB) as these have closer interaction
with small enterprises.
•
Four provincial finance ministries, one in each of the targeted provinces
were interviewed. These ministries co-ordinate the implementation of their
provincial financial strategy (refer to appendix five).
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•
Four ministries of provincial developments, one in each province, were
targeted. Public Works departments as coordinators and the implementers
of provincial and local infrastructure were targeted (refer to appendix six).
9.4.2.8
Parastatal organizations
In conducting the study more than fifty percent of the parastasl institutions
were interviewed. The study focused on how these institutions have
participated in the government’s National Strategy and how their involvement
can be intensified in future.
9.4.2.9
Provincial SMME desks
In each of the four provinces where the study was conducted the provincial
SMM desks were interviewed.
The respondents in the first phase of the sample were deemed to be
adequate to serve as the population for this study. The respondents would be
representative of senior decision making individuals of top management of the
organizations. It was assumed that these individuals would be a genuine
representation of the population and that their opinions, views and practices
would be a fair reflection of their opinions.
9.4.3
Information required
The evaluation endeavoured to capture the opinions and perceptions of the
respondents on the importance of the government’s National Strategy’s
objectives, the importance of leveraging different marketing communication
variables of the National Strategy and the importance of its current level of
specific developmental and promotional initiatives.
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9.4.4
Sampling
The exploratory nature of this study and the decision to conduct a census in
the entire population led to the assumption that extensive statistical analysis
would not be possible. The use of a convenience census survey can be
perceived as a severe limitation because of the ostensible lack of reliability.
Those people who were interviewed would be regarded as a sample as
referred to in the discussion on the formulation of research hypotheses and
propositions.
The evaluation of the institutions created under the institutional framework of
the government’s National Strategy entailed interviewing the entire population
as they are only three institutions ( i.e. Centre for Small Business Promotion,
Ntsika and Khula).
Evaluation of the effectiveness of the government’s National Strategy entailed
interviewing three of Ntsika’s non-financial service providers, three of Khula’s
financial service providers and three financial service recipients and three
non-financial recipients in each of the targeted provinces i.e. Gauteng,
Limpopo, North West and Mpumalanga.
The evaluation of governments department not incorporated in the institutional
framework of the National Strategy entailed interviewing of the provincial
economic department and provincial Public Works department in the targeted
provinces i.e. Gauteng, Limpopo, North West and Mpumalanga. Evaluation of
those business organizations outside government but having their own SMME
development initiatives entailed interviews with the National African Federated
Chamber of Commerce and South African Chamber of Business only.
The evaluation with the parastatals entailed interviewing the eight parastatal
organizations as shown in appendix seven i.e. South African Bureau of
Standards, Land Bank, Development Bank of Southern Africa, Transnet,
Telkom, Eskom, Sasol and Iscor. Evaluation with regard to the provincial
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SMME desks was only done with the four provincial SMME desks in the four
provinces the study targeted.
9.5
Research methodology of the second phase of the study
Phase two of the study did an evaluation in the small black economic
empowerment mining companies through a structured questionnaire. The
structured questionnaire was formulated to evaluate issues which laid the
foundations of testing the following hypotheses:
•
Small black economic empowerment mine owners know of some
programmes including the government’s National Strategy for the
development and promotion of Small Business.
•
Small black economic empowerment mine owners know how the
government’s National Strategy go about its business, how to get access
to it and they have had contact with the institutions formulated within its
framework.
•
Small black economic empowerment mine owners have been very
satisfied with the way the government has implemented the National
Strategy.
•
The National Strategy has created opportunities for the small mining sector
which in turn has minimized their weaknesses and barriers for growth in
the mining sector for small black economic empowerment miners.
•
The small black economic empowerment miners have had formal business
training and do not require formal training in most business disciplines.
•
The small black economic empowerment miners think the government has
succeeded in provision of necessary support for their business.
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University of Pretoria etd – Chalera, C S (2007)
•
Most small miners opened their businesses after 1994 and there has not
been any significant growth in their businesses with regard to the number
of employees and their annual turnover.
9.5.1
Objectives
The main objectives of the second phase was to evaluate the impact the
government’s South Africa’s National Strategy for the development and
promotion of the small business sector has had so far on small-scale mining
companies. The findings of the second phase were intended to assess the
hypotheses of the second phase and compare the findings of phase one as to
whether similarities exist.
9.5.2
Population and sample
For conceptualization purposes all small black economic empowerment
companies should be regarded as part of the population to be surveyed (fortyfour in number). For convenience purposes though, it was decided that it
would be too costly, time-consuming and impractical to conduct interviews
with all small miners as per the database provided by the Department of
Minerals and Energy, as a result, interviewing all small-scale miners as per
DME’s database would virtually be very impractical.
It was subsequently decided to interview 22 scale-miners only as choosing
them mainly depended on their availability and the willingness to participate in
the study.
9.5.3
Information required
The information required is best illustrated in the seven propositions of the
second phase and can be summarized as follows:
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•
Whether the small black economic company owners know of any
programs
including
the
government’s
National
Strategy
for
the
development and promotion of Small Business.
•
Whether the small black economic empowerment mining owners know
how the government’s National Strategy go about its business, how it can
be accessed and whether they have had any contact with the institutions
created under the National Strategy.
•
Whether small black economic mine owners have been very satisfied with
the way the government has implemented the National Strategy.
•
Whether the National Strategy has created opportunities for the small
black miners which in turn have minimized their weaknesses and barriers
for growth, thereby enhancing their strengths.
•
Whether the small black mine owners have had any formal business
training and if they also require any formal training with regard to their
businesses.
•
Whether the small black miners think the government has succeeded in
the provision of necessary support for their businesses.
•
Whether there has been any significant growth to their businesses since
they started to operate as a result of the government’s National Strategy’s
support initiatives.
9.6
Conclusion
In this chapter the research methodology was discussed, where the scope of
the study was emphasized.
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In the following chapter the research results will be discussed and
qualitatively analyzed.
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CHAPTER 10
RESEARCH RESULTS AND ANALYSIS
10.1
Introduction
In the previous chapter the research methodology was outlined and
discussed. Particular emphasis was placed on outlining how the responses
from the two phases of the study were analyzed to test the government’s
National Strategy’s contribution to creating an enabling environment for the
SMME sector.
In this chapter results and analyses of the two phases of the study will be
outlined.
10.2
Research framework.
The literature review in this study led to the propositions as discussed in
chapter eight. In this chapter the findings of the study i.e. the contents of
responses of respondents in both phases of the study will be analyzed to
determine as to whether the government’s National Strategy for the
development and promotion of the small business sector has or has not
created an enabling environment for that sector in this country.
10.3
Research findings of the first phase of the study
10.3.1
Centre for Small Business Promotion
10.3.1.1
Analysis of mission and objectives of the CSBP
The government’s National Strategy envisioned an integrated national
approach to stimulate the development of the small business sector. Although
composed of many different stakeholders with distinct objectives and work
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agendas, the DTI, through its designated Centre for Small Business
Promotion, was to take responsibility for the stewardship of the National
Strategy.
The White Paper noted that the Chief Director for Small Business was, “to be
responsible for all matters related to the government’s support for small,
medium, micro and emergent enterprises”. In addition, the White Paper noted,
“cooperation between different government departments in matters relating to
small business support will be monitored by the DTI”. The White Paper
continued that the “DTI will maintain strict control over organizations receiving
or channeling public sector funds for small business support”.
The stated goals of the CSBP were two-fold; first to create an enabling
environment for the growth and expansion of SMMEs and second, to develop
and support institutions involved in delivering support services to SMMEs,
including provincial and local authorities. As a result of these goals, the Centre
has adapted three overriding operational objectives for itself:
To champion the SMME sector in South African economic development,
by:
•
Improving policy and legislation.
•
Supporting institutions involved in SMME development.
•
Lobbying for small business interests.
•
Influencing public and private institutions to become involved with SMMEs.
•
Creating awareness of SMME issues.
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To implement critical programmes, including:
•
Improving access to services.
•
Undertaking needs assessment for developing sectoral strategies.
•
Improving legislation affecting SMMEs.
To monitor and evaluate progress and problems, including:
•
Informing decision makers of outcomes and results.
•
Measuring impacts of the government’s National Strategy on the target
population.
•
Identifying gaps and areas not adequately served.
•
Establishing priorities.
•
Measuring achievements against established benchmarks.
•
Implementing budgetary planning and control systems.
Despite the breadth of these responsibilities, the CSBP has been granted a
small staff and rely heavily on close cooperation with various groups. The
intention was to avoid bureaucratization of the small business programmes by
keeping most of the government functions in semi-autonomous organizations
specialized in service delivery and keeping government departments out of
direct involvement with SMMEs. The Centre’s role was to be that of a central
policy developer, coordinator, and evaluator but not a direct provider of
services.
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The resulting structure and activity was to lead to a chain of command
beginning with the CSBP working directly with implementing (wholesale)
agencies, such as Khula and Ntsika that would in turn provide services to
delivery agencies such as NGOs, banks and private groups, who as “service
retailers” would have direct interface with the end users, the SMMEs
themselves.
10.3.1.2
Analysis of the structure and activities of the CSBP
With its lean staff, the CSBP is organized into three functions: policy research
and legislation, programme management and administration, and finance and
administration. This structure was established as a means to reach the
objectives
noted
above.
Since
then,
CSBP’s
functions
have
been
consolidated under two directors, one overseeing programme management
and administration and the second dealing with policy regulatory review.
Programme management and administration division
The programme and administration division has divided its activities into the
following three categories:
•
Market access and linkages
Market access and linkages has four sub-components, two of a policy and
coordination nature, and two of nonfunctional service character. The policy
and coordinating projects deal with investigating franchising regulations to be
proposed, as well as with institutional governance of Ntsika. On the other side
of the service delivery, the division has been heavily involved in developing
the Business Referral and Information Network (BRAIN) designed to deliver
business information services more effectively.
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•
Access to finance
Access to finance involves three areas at various stages of development:
firstly, institutional governance of Khula, secondly, efforts to work with
Business Partners by selling off debentured properties and thirdly, policy work
on micro finance.
•
Information and communications
Information and communication is largely an internal support function for the
CSBP.
Policy and Regulatory Review
Policy and regulatory review is the second directorate of the CSBP, focusing
on two areas:
•
Regulatory review of laws and regulations impacting on the SMME sector,
also being coordinated with Ntsika’s policy and research division.
•
Development of a new monitoring and evaluation system designed to
review the activities of both Ntsika and Khula.
10.3.1.3
Analysis of the performance of CSBP’s activities
In view of the analysis, the mix of services (such as the BRAIN project and
projects in government procurement) with policy coordination, and programme
monitoring runs counter to the intended role assigned the CSBP in the
government’s National Strategy. In effect, it mirrors so much of the confusion
and lack of definition that characterizes the activities of many of the
organizations created under the National Strategy. There is little doubt that the
CSBP is intended to be the policy and coordination centre for the National
Strategy and remove itself from day-to-day service delivery.
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To date, the Centre has been able to undertake only a few of its prescribed
activities. As noted to the CSBP’s operational objectives, there are a series of
responsibilities which the Centre was intended to undertake. First, the CSBP
was to play a role of “champion” of the SMME sector, but also by lobbying for
small business interests, influencing public and private institutions to support
the sector, and creating public awareness of SMME issues, namely a forceful
communication strategy.
Communication strategy
This mandate clearly requires a pro-active communication strategy for the
Centre to champion the SMME sector. However, to date this remains largely a
dormant function. With the exception of speeches made by government
leaders about the importance of the SMME sector, there is very little effort to
advance the awareness of the public in general, and business groups in
particular, of the opportunities of working with and promoting the SMME
sector.
Throughout the study, it was noted that there is lack of awareness in the field
of the government’s National Strategy and the government’s efforts to
promote the SMME sector. Furthermore, the communications strategies of
both Ntsika and Khula are aimed more towards the developed sectors of the
economy (for example, their reliance on very professional, attractive Englishlanguage brochures) than for the less-developed sectors that are supposed to
be targeted. Furthermore, the targets of the marketing programme are often
unclear, as with Khula’s poor efforts to market to the banking community.
Consistently, there has been confusion about the roles of government, Khula,
and Ntsika, with the common perception that Khula and Ntsika were retailers
of finance and services. Local bank branches themselves have little
understanding of the services available to the small and medium-sized
business community that would improve their ability to lend to small
entrepreneurs.
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It is clearly the responsibility of the CSBP to launch national communication
initiatives in conjunction with these other institutions. To date, no coordinating
committee has been established. A committee to formulate a communication
strategy that is based on target audiences using the appropriate media needs
to be formed to reach these groups.
The CBSP should be the nerve of this communication strategy, with Khula
and Ntsika focusing on their specific markets. However these messages need
to be coordinated by the CSBP to avoid confusion that currently exists.
Monitoring and Evaluation (M&E)
One of the overriding operational objectives of the CSBP is to monitor and
evaluate progress and problems of the government’s National Strategy.
Several components were part of this objective, as noted, including measuring
achievements against established benchmarks, identifying gaps in areas not
adequately served, measuring impacts of the National Strategy on the target
population, and budgetary planning and control systems. Of these various
tasks envisioned for the M&E function, only the budgetary planning and
control functions have actually been performed.
Until recently, the CSBP did not have a dedicated function to undertake this
task. With its recent reorganization, the CSBP has just appointed a full-time
position to oversee the monitoring and evaluation of results coming from
Ntsika and Khula. This is meant to lead to a more complete capturing of data
from these groups than has been done in the past. To date, the Centre has
not fully performed this role, except on an ad hoc basis, or as part of the
activity reports demanded before future budgetary requests are approved.
10.3.1.4
Related observations and findings
While the White Paper envisions that the CSBP should not be a large
bureaucracy, the current level of the CSBP’s resources and personnel are so
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restricted that the Centre’s mission can not be performed. The Centre has in
effect been reduced to a budgetary watchdog for the organizations that
depend on it. Outside political intervention has further eroded the role that the
CSBP was intended to perform.
The CSBP was meant to be the policy centre of the entire National Strategy. It
was meant to undertake the necessary policy analyses and coordinate all
departments of government involved in the SMME sector. Currently, the
Centre does not perform these missions effectively.
Rather than concentrating on its policy and coordination role, the Centre has
become involved in services delivery projects, much as Khula and Ntsika do.
For example, its current projects in business information and referral (BRAIN)
and its project in government procurement belong in service delivery
organizations, not in policy and coordination units.
10.3.1.5
The research proposition with regard to the CSBP
The research proposition with regard to the CSBP was formulated to test the
responses given by the research subject in order to determine how effective
the Centre is achieving its mandate with regard to the development and
promotion of the small business sector as stipulated in the White Paper on
National Strategy for the development and promotion of small businesses in
South Africa.
The analysis and the related observation of the CSBP will be used to evaluate
the following proposition:
Proposition One:
The Centre for Small Business Promotion (CSBP)
as a policy centre and custodian of the South
African National Strategy for the development and
promotion of the SMME sector has coordinated all
institutions
incorporated
in
the
institutional
framework of the National Strategy effectively.
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10.3.1.6
Study findings with regard to the CSBP
The study has revealed that the CSBP’s current level of resources and
personnel are so restricted that the Centre’s mission can not be performed
effectively. The Centre has also in effect been reduced to a budgetary
watchdog for the organizations that depend on it and political intervention has
further eroded the role it was intended for.
The study also revealed that despite the CSBP being the centre of the entire
National Strategy as it was meant to undertake the necessary policy analyses
and coordinate all departments of government involved in the SMME sector it
is currently not performing these missions effectively.
The study has further revealed that rather than the CSBP concentrating on its
policy and coordination role, it has become involved in services delivery
projects, much as Khula and Ntsika do, for example, its current projects in
business information and referral (BRAIN) and its project in government
procurement which is supposed to belong to service delivery organizations.
Proposition test
The proposition that the Centre for Small Business Promotion as a policy
centre and custodian of the South African National Strategy for the
development and promotion of the SMME sector has coordinated all
institutions incorporated in the institutional framework of the National Strategy
effectively (Proposition One), is rejected because the findings confirm that
the CSBP as a policy centre and custodian for the National Strategy for the
development and promotion of the small business sector has not managed to
coordinate all departments of government involved in the SMME sector
effectively.
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10.3.2
Ntsika Enterprise Promotion Agency
10.3.2.1
Analysis of Ntsika’s objectives and mission
The study determined the extent to which Ntsika has focused its programmes
on meeting the objectives of the government’s National Strategy.
The White Paper states that the government’s National Strategy’s objectives
are:
•
Creating an enabling environment for small enterprises.
•
Facilitating
greater
equalization
of
income,
wealth
and
earnings
opportunities.
•
Addressing the legacy of apartheid-based disempowerment of black
businesses.
•
Supporting the advancement of women in all business sectors.
•
Creating long-term jobs.
•
Stimulating sector-focused economic growth.
•
Strengthening cohesion between small enterprises.
•
Leveling the playing fields between bigger and small businesses as well as
between rural and urban businesses.
•
Preparing small businesses to comply with the changing of an
internationally competitive economy.
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Interpreting the government’s National Strategy’s requirements, Ntsika’s
charter directed it into the following programmatic activities:
•
Creating an enabling legal framework.
•
Streamlining regulatory conditions.
•
Providing access to information and advice.
•
Providing access to marketing and procurement.
•
Training in entrepreneurship, skills and management.
•
Providing access to appropriate technology.
•
Encouraging joint ventures.
•
Capacity-building and institutional strengthening.
In its extensive interviewing with Ntsika, the study confirmed that Ntsika has
emphasized, and worked diligently, to address virtually all of these objectives.
Indeed, it is also a concern that meeting all these objectives has led to a
plethora of activities that have been difficult to integrate and coordinate.
In pursuit of these objectives, Ntsika’s programming has become oriented
largely towards the micro/survivalist sector. In its effort to promote
empowerment of the previously disadvantaged, enhance the equalization of
income, promote women in all business sectors, and work with rural
businesses has produced a clear bias toward the smallest component of the
SMME sector. The largest portion of Ntsika’s budgetary allocation is directed
towards these groups.
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Nsika has also addressed the issue of job creation through its programmes
offering tender advice and technological counseling. These activities have
been oriented more toward the small and medium sector where job creation
potential appears greatest. Notably absent among the objectives, however,
has been a strong focus and strengthening of the cohesion among small
businesses.
10.3.2.2
Analysis of the structure of Ntsika
Ntsika has been organized into divisions that focus on the different elements
outlined in the government’s National Strategy. The functional divisions that
work on SMME development are:
Market access and business linkage division
This division runs the Tender Advice Centres (TACs), the Business
Opportunities National Initiatives (BONIs) and the international competitive
programme for SMMEs. The Tender Advice Centres have constituted the
most promising element of this programme in view of the government’s overall
commitments to using public procurement to assist small businesses enter
new markets. It is through the procurement system that Ntsika can link its
activities with the many government departments able to offer market
opportunities to small businesses and ultimately create new jobs. It is also one
of the areas where Ntsika can begin to measure progress by tracking the
success rate of companies that receive government tenders.
Targeted assistance division
This division is responsible for working with previously disadvantaged sectors,
primarily women, youth, disabled people and the rural population.
Targeted assistance has a clear social and development focus by working
with those elements of the population who are least easily served. The
division is clearly focused on the objectives of assisting the Previously
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Disadvantaged Individuals (PDIs) category, particularly rural women, and
addressing the issue of disempowerment of these groups. The programme is
also one that reaches deeper into rural areas than other Ntsika-sponsored
initiatives. Its objectives are clearly social and developmental, with limited
impact on larger scale job creation. As a result, it is particularly difficult to
measure progress in this sector beyond calculating the number of individuals
assisted.
Management and entrepreneur development division
The division runs the following programmes: Training and organizational
capacity
building,
Development/Sourcing
SMME
of
contracted
training
training
materials.
programme,
Entrepreneurial
and
training
constitutes an important, but also one of the most controversial of Ntsika’s
programmes. Its broad, largely unfocussed, scope can lead to criticisms that it
is a “one-short” programme with little follow-up or repeat training available to
trainees. The fact that it is only rarely focused on a specific market opportunity
makes it unclear what its impact has been.
Finally its only real measurement of success is the number of people trained.
Pressure on the division to show results lead to emphasis on these
quantitative measures. In the field, the pressure on funded training groups to
reach high qualitative targets is roundly criticized as short sighted,
emphasizing numbers at the expense of quality. This also discourages repeat
or more diversified, in-depth training of potentially promising entrepreneurs.
Technology division
This division runs the Technopreneur and Manufacturing Advisory Centres
(TMAC). The Technopreneur programme has the most clearly integrated
operation with complementary programmes and institutions outside Ntsika
and provides the greatest amount of follow-through with individual companies
through the incubator and cocoon programmes. The existing Manufacturing
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Advisory Centres similarly focus on a more integrated assistance to
companies than is typical in other Ntsika’s operations.
The focus of the division tends to be on small to medium size firms where job
creation potential is greater. The work of this division lends itself to more
effective monitoring insofar as the numbers of participants are fewer.
Business development services division
This division manages the Service Provider Development programme, Service
Provider Network Development programme, Empretec programme and the
Local Business Services Centre (LBSC) programme. Operations of this
division are among the most controversial in that the division makes costly
decisions in its selection and institution building of Local Business Services
Centres. The choice and location of these groups is frequently debated when
the division rejects candidates that seek LBSC status and therefore Ntsika
funding.
Policy, research and information division
This division runs the National small business data programme, Programme
development and implementation support, National small business research
programme and the National small business regulatory review. It is intended
to be the policy arm of Ntsika. It is an open question, however, whether this
activity should be in Ntsika, which is a provider of services, or in the CSBP,
which was conceived as the policy centre of the government’s National
Strategy.
10.3.2.3
Ntsika’s success in meeting its programme objectives
Ntsika’s programs had very mixed results because of the skewed focus of
most of its programmes. Without focus, it is difficult to measure results that
are relevant to the objectives of the National Strategy. The organization has
achieved some general success in improving “access” to services by type of
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activity, but Ntsika has also not succeeded at many levels due to a variety of
circumstances, for example, poor communication (both internal and external),
difficult and poorly defined tasks, and definition of success.
One of Ntsika’s problems, the study noted, has been the problem associated
with assessing the successes and failures of non-financial assistance. While
Khula has also had a difficult job in providing financial assistance to the
SMME sector, quantifying the results of its work is more straightforward.
Ntsika seems to provide quantitative information on how many people they
and their retail institutions have trained, counseled, mentored, etc., but it is
difficult to translate this information into meaningful results, like jobs created.
The study also found out that non-financial assistance works much more
slowly than financial assistance, and that the benefits are less tangible and
harder to translate into actual impacts. Although Ntsika is often criticized in the
field, it became clear during the study that the organization has done variable
work in several areas, most notably tender advice, technology assistance, and
several targeted assistance areas. It has not, however, done a good job in
marketing itself and letting other organizations know about the successes it
has had.
Ntsika is also starting to realize the importance of Ntsika’s service providers
working more closely with Khula’s Retail Financial Intermediaries (RFIs).
Local service providers understand that in order for both financial and nonfinancial service providers to be successful they need to work together.
Financial and non-financial services need to be more linked to make certain
that entrepreneurs can make a success of their new ventures.
Both Ntsika and Khula still struggle and suffer over the concept of
wholesaling.
During the study almost everyone interviewed expressed
concerns about what exactly wholesaling is and how the SMME sector
understands it. Many of Ntsika’s programmes incorporate some retailing
activities, as well as its mandated wholesaling activities. It seems that many of
these retail activities were simply undertaken initially because there was no
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viable retail alternative. However, increasingly, it appears that Ntsika (and
even Khula) sees itself as retailing services directly to SMMEs.
Creating an enabling legal framework
Ntsika’s Policy and Information division is the only division involved with the
legal framework for SMMEs. The Policy, Research and Information (PRI) has
been the major contributor to the small business regulatory review of the
SMME environment being directed by the CSBP. The study investigated the
following areas of regulatory reform:
•
Finance – regulatory environment.
•
Taxation – tax laws, VAT, customs.
•
Labour – legislation on firing, etc.
•
Business trade – commercial law and practices.
•
Property and land ownership – land laws for small farmers.
•
By-laws and regulations – provincial and local laws which prevent much
activity.
•
Procurement – tender legislation to simplify very complicated procedures.
•
Women in rural development.
Access to information and advice
Access to information and advice has been universally acknowledged as vital
to the development of the SMME sector and, as such, is one of Ntsika’s main
responsibilities. This element is probably the one Ntsika has focused on most
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heavily. A number of Ntsika’s programmes deliver services in these areas,
including Market Access & Business Linkages, Targeted Assistance,
Management and Entrepreneur Development, Technology and Business
Development Services and Policy, Research and Information.
•
Market Access & Business Linkage
This programme has substantially increased its service, particularly by
expanding the number of Tender Advice Centres (TACs). The goal of the
Tender Advice Centres is to capacitate SMME service providers to provide
tender support to the local SMME sector. The TACs assist in the training of
SMMEs tendering procedures and in completion of tender documents.
SMME access to markets is a key for the sector. During the study, complaints
were raised about access to both government and private sector tendering by
the SMME sector. There seems to be a need for a large number of tender
advice centres to make an impact on SMME development and job creation.
Ntsika seems to still be undecided as to whether the TACs should give
tendering advice to large numbers of SMMEs or to work much more
intensively on one-to-one with a smaller number of SMMEs to ensure their
success.
The study found out that the TAC programme does not utilize enough existing
service providers who are active in the area of government and private
tendering. There are several non-Ntsika affiliated organizations that are
successfully providing tender advice, which could reasonably be integrated
into the TAC network.
In principal, it is easier to monitor results of the TACs than the results of other
Ntsika activities. However, the study noted that Ntsika does not currently
monitor its success rate, claiming that it is costly to track so many groups that
have expressed interest in responding to tenders.
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The TAC programme has the potential to improve access to information and
advice. The program is well conceived, but the TAC strategy needs to be
thought through more carefully (for example, large number of SMMEs with
less in-depth advice versus smaller number of SMMEs with more direct
counseling).
•
Targeted assistance
Ntsika’s targeted assistance works to provide support particularly for women,
youth, the disabled and the rural population. This division has a traditional
focus on the survivalist and micro sector, although it has recently made some
inroads to the small/medium sector. The division gives support to LBSCs and
other providers to offer targeted assistance to the abovementioned groups. It
has been reasonably successful in choosing quality service providers with
which to work because, for the most part, it chooses established and
experienced providers. Since these groups are targeted and sector-specific, it
automatically narrows down the number of service providers already working
in this sector.
•
Management and entrepreneur development
This programme is involved in the information and advice component of
Ntsika’s charter, along with the LBSCs and the TACs. The division runs
Ntsika’s mentoring programme. Ntsika is working with some provincial SMME
desk officers to train them in the selection of mentors, such as retired
executives, to provide mentoring assistance. These mentors are expected to
fill a void by providing the in-depth information and advice to SMMEs.
•
Technology
While the Technology division of Ntsika is involved in other elements of the
National Strategy, both the Technopreneur and Manufacturing Advisory
Centre (MAC) programme provide information and advice to the SMME
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sector. The MAC seems to be struggling to find its niche, in particular defining
its target group and how it wants to provide assistance, but its mandate is
clearly to provide advice to small and medium manufacturing firms.
•
Business development services
Ntsika’s Business development services division runs the LBSC accreditation
and development programme. The key element of the LBSC program is
disseminating information and advice to the SMME sector.
Most LBSCs provide advice, especially counseling and after-care services to
the SMME sector. These services vary from providing information to
retrenched workers on how to open their own businesses to trying to foster
some SMME-big business linkages. During the study it was found out that one
of the most crucial and often overlooked services to SMMEs is aftercare.
•
Policy, research and information
The Policy, research and information division is intended to run the National
small business data programmes, the Programme development and
implementation support, the National small business research programme,
and the National business regulatory review.
PRI has been the major contributor to the small business regulatory review,
identifying regulatory impediments and legislative constraints to SMME
development. PRI claims it is working with the provincial SMME desk officers,
but during the course of the study some provincial desk officers, denied being
consulted.
The division investigates issues such as finance, taxation, and procurement.
The results of this work are intended to be coordinated by the CSBP, which
has the lead responsibility for reviewing the regulatory environment for
SMMEs.
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Access to marketing and procurement
The study found out that access to markets and assistance in tendering and
procurement are some of the most critical areas in SMME development.
Ntsika departments deal with marketing and procurement in different ways.
•
Market access and business linkages
The Market Access and Business Linkage division is responsible for the
Tender Advice Centre, which are working to provide SMMEs easier access to
procurement contracts. The Tender Advice Centres work closely with SMMEs
to counsel them on tendering and help them complete tender documents.
Some TACs also provide marketing assistance to help them determine where
best to sell their products.
•
Targeted assistance
The Targeted Assistance division’s service providers provide some marketing
advice to SMMEs associated with women, rural, youth and disabled. The
service providers, many of which are LBSCs, conduct market research for the
SMMEs in order to provide them with information on the best ways and
locations to sell their goods, and even which goods are more likely to sell than
others. The division has been very active with this programme in the youth
sector.
•
Management and entrepreneur development
Much of the Management and Entrepreneur Development division’s work
focuses on training, which indirectly incorporates marketing and procurement,
although so far most of the training that has occurred for entrepreneurs is still
generic.
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•
Technology
The Technology division is responsible for the Manufacturing Advisory
Centers, which incorporate marketing and procurement into the overall
services that it offers. Both marketing and procurement are critical to the
success of small/medium manufacturing firms, and the MACs try to provide
this support.
•
Business development services
The business development services of Ntsika provide marketing support
through its LBSC program. Many LBSCs noted that the marketing services
they provide to the SMMEs constitute their most valuable interventions. LBSC
managers said that many of the SMMEs with whom they work produce quality
goods or services, but do not know how or where to sell them, and have
neither time nor resources to conduct market research because of the daily
pressures of managing their small businesses.
Training in technical, management and financial skills
Ntsika is tasked with improving skills of SMME managers with regard to
technical, management and financial skills. This is a large task that several of
Ntsika’s divisions are responsible for.
•
Targeted assistance
The Targeted Assistance division works with service providers who provide
access to technical, management and financial skills to the targeted groups:
women, youth, rural, and disabled. Each of these skills is different, depending
on the targeted groups, and the division works closely with service providers
that offer these services.
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•
Management and entrepreneur development
The Management and Entrepreneur Development division, along with
Business Development Services division, is primarily responsible for
developing technical, management and financial skills. The MED division
provides capacity building and training of trainers to service providers who
then pass these skills along to SMMEs. The division has also worked with
universities but has encountered problems in making a success of this
collaboration. MED started out with generic training courses, but has
increasingly diversified the level and specific nature of the training.
The MED division is working now to create partnership with other
organizations to provide more capacity building to existing service providers,
and to tackle the problem of what to do when there are no service providers in
the area that expresses a need.
•
Technology
The Technology division is responsible for the LBSC programme, which
provides a wide variety of training and other services to SMMEs. LBSCs
provide training, counseling, mentoring and other services to SMMEs in the
areas of technical, management and financial skills.
•
Business to appropriate technology
The BDS division is responsible for the LBSC programme, which provides a
wide variety of training and other services to SMMEs. LBSCs provide training,
counseling, mentoring and other services to SMMEs in the areas of technical,
management and financial skills.
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Access to appropriate technology
The Technology division is most responsible for improving access to
appropriate technology in the SMME sector. In cooperation with Technikons,
the Technoprenuer program provides access and training on appropriate
technology to SMMEs. The MAC program also works to provide information,
access and education to technology for SMMEs involved in the manufacturing
sector.
•
Targeted assistance
The division provides some technology improvement and information in some
of its programs, especially its product improvement projects and its smallscale food processing projects.
Encouraging joint ventures
The only activity that Nsika has that encourages international activity is
through the Market Access & Business Linkage division. This division has a
project with the European Union providing international exposure to SMMEs
that are involved in exporting, or who are poised to export.
Capacity-building and institutional strengthening
Ntsika is responsible for building capacity and strengthening non-financial
service providers. Almost all of Ntsika’s divisions are involved in this to some
degree.
•
Market access and business linkages
The Marketing Access & Business Linkage division is responsible for the
Tender Advice Program. This division provides support to service providers
who are involved in the procurement process. The division provides capacity
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building and institutional strengthening to ensure that quality services are
delivered to SMMEs who seek advice relating to procurement and tendering.
•
Targeted assistance
The targeted Assistance division provides capacity-building and institutional
strengthening to the Manufacturing Advisory Centers. This assistance will
increase as the number of MACs increase.
•
Management and entrepreneur development
The MED division provides capacity building in the form of training of trainers
and training for counselors.
•
Technology
The Technology division provides the capacity building and institutional
strengthening to the manufacturing Advisory Centres. The assistance will
increase as the number of MAC’s increase.
•
Business development services
The BDS division provides capacity-building and institutional strengthening to
all LBSCs. The division supports training of trainers and counselors.
10.3.2.4
Ntsika’s monitoring and evaluation
As noted by the study, monitoring of actual impacts of non-financial services is
exceedingly difficult for Ntsika. It has developed indicators as to the number of
jobs that have likely been created and businesses established as a result of
the number of individuals trained and/or assisted in its programmes. For
example, during the 2002/2003 budget year, Ntsika claims that 37,630
individuals were assisted. From this number, Ntsika estimates that 3,640 jobs
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were created as a direct result of Ntsika activities, while over 67,000 were
created indirectly as a result of Ntsika’s activities. It also claims that upwards
to 900 new businesses were established as a result of their interventions.
Ntsika’s numbers are difficult to verify since they rely on reporting from the
service organizations that are under pressure to show Ntsika that they are
achieving the desired results. There is a constant debate whether these are
new jobs created as such, or rather livelihoods sustained at the survivalist
level. In view of the fact that 70% of Ntsika’s assistance is directed towards
the micro/survivalist sector, there is strong reason to believe that most
assistance has the impact of providing sustenance to the poorest elements of
the population.
Ntsika tries to monitor its impacts through its network of assisted groups using
several quantitative indicators, according to the reporting entity:
•
By service provider:
o Number of people trained.
o Number of people “generally assisted”.
o Number of organizations supported.
o Number of organizations “generally assisted”.
•
By SMMEs themselves:
o Number of businesses established.
o Number of businesses counseled.
o Number of businesses “generally” assisted.
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o Number of people trained.
o Number of people “generally” assisted.
10.3.2.5
Related observations and findings
Under the National strategy for SMME development and promotion, Ntsika
Enterprise Promotion Agency was given the mandate to provide a wide range
of non-financial services to local service delivery groups on a “wholesale”
basis, meaning delivery of resources to local providers that work directly with
SMMEs. These services include institution building of these organizations,
training programmes for entrepreneurs, mentoring of individual firms,
marketing and procurement advice, technology assistance, among others.
Given the sheer range of these activities, it is clear that Ntsika’s mandate is
critical to the success of the government’s National Strategy.
Ntsika’s task has been a daunting one, one conducted without the benefit of a
clear focus or prioritization from the National Strategy or from other
government bodies. It was established as a quasi-independent organization
under the terms of the National Small Business Act of 1996, outside of normal
government bureaucracies, so as to be able to focus exclusively on the
delivery of services. It has struggled to succeed at the tasks laid out for it, but
has had mixed results.
The mixed record is due to several factors. First, it is an institution operating
without the benefit of clear working precedents; therefore it had to develop its
own internal procedures from the beginning. Second, there has been little
consensus within the organization itself on its priorities and also very little
assistance from the designated policy group within the DTI, the Centre for
Small Business Promotion. Third, there are serious internal contradictions
within the National Strategy itself, which have limited Nsika’s potential.
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In short, Ntsika has tried to be all things to all people, launching a flurry of
programmes with little connection among them, weak follow-through, little
leveraging of existing public and private initiatives, little coordination with
provincial authorities, and virtually no coordination with its sister institution,
Khula.
During the study, it was noted that there is a general view in the provinces that
Ntsika has become wasteful bureaucracy in its own right, and in many areas
out of touch with the SMME community.
Despite several successful programmes, Ntsika is generally perceived in the
field to be a scattered, unfocussed, and inefficiently managed institution. The
study leads to concur with this perception, even accepting that Ntsika’s
mandate is probably too ambitious and not clearly focused.
The study noted that many of the difficulties in Ntsika’s performance relate to
the breadth of its mandate, which charges it with undertaking distinctly difficult
tasks as the following issues indicate:
•
Ntsika’s mandate requires the organization to be responsible for the entire
gamut of non-financial services, but does not prioritize these according to
sector or type of enterprise. Therefore, Ntsika is condemned to manage a
very scattered portfolio of projects. Under the best of circumstances,
therefore, Ntsika is criticized for not providing enough or of the right
quality.
•
Ntsika was founded as a “wholesale” institution intended to provide
resources to local “retail” service providers. However, several of Ntsika’s
divisions are involved with retail services because of internal confusion
over the organization’s role as well as outside pressures from the
government and SMMEs to make services available quickly. This has
often forced Ntsika to play a role which it was not intended to undertake,
namely, dealing directly with the SMME community. Its communications
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policy has intensified this confusion by giving the SMME community the
impression that Ntsika is a retail service delivery body.
•
Ntsika was founded as an organization to support services providers in
their effort to assist local SMMEs. These retail service providers are
supposed to be self sustaining, even though they are delivering services to
the poorest groups of the economy who, by and large, cannot pay for the
full cost of the services they receive. This sets up the local service
providers for failure unless they have other sources of revenue to crosssubsidize these services.
The study also noted the following as Ntsika’s performance short falls:
•
Measuring results
Part of Ntsika’s mission is to track the results of its programmes. However,
measuring the quality of its results in the SMME sector is inherently difficult.
Trying to measure job creation, for example, from training and mentoring
services is an exceedingly difficult task. The organization has not been given
sufficient funds to do so, and even with these resources, methodologies are
controversial and expensive to implement. Ntsika’s current system principally
tracks quantitative results, namely, how many people have been trained, as
opposed to a combination of quantity and quality that would indicate how
people benefited from Ntsika-funded services they received.
•
Sector focus and orientation
Most of Ntsika’s activities concentrate on the micro and survivalist sectors, not
on the small and medium sectors. Assistance to the micro-survivalist is, by its
very nature, developmental and social in orientation, a sector where the job
creation potential, in terms of expanding the firms’ workforce, is more limited
than small and medium size firms. As such, Ntsika is evolved into playing
more of a developmental role, requiring subsidization of its target population,
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than a business development role, in which service providers are capable of
becoming financially self-sustaining.
•
Information dissemination/communication strategies
Much of Ntsika’s information and marketing is inappropriate and ineffective for
the population it is serving, i.e., the micro/survivalist sector. Significant funds
are spent on sophisticated English-language brochures and presentation, illadapted for Ntsika’s target population. Very little research has been
undertaken on how to reach these populations most effectively. For example,
the medium of radio, especially effective with the rural population, has been
underutilized, and use of established local groups for dissemination
information has rarely been explored. Ntsika’s approach is also misleading,
leaving the impression that it is a retail provider.
•
Working with existing service providers
Many high-quality non-financial service providers have been ignored by
Ntsika. Some of them do not want to be affiliated because of what they claim
are Ntsika’s centralized, prescriptive processes. Others, however, provide
high-quality services and have long-standing relationships with local
population, making them ideal delivery agents. In many cases, Ntsika chooses
not to use such groups, creating instead new, or using inexperienced NGOs at
substantially higher cost than working with existing organizations.
•
Cooperation with Khula in the field
Most of Ntsika’s managers admit that they do not have contact with Khula.
This lack of interaction starts at the very top and continues down the
management chain. In the field, there is rarely cooperation between Khula’s
RFIs and Ntsika’s LBSCs, even when operating in the same geographical
area with the same category of SMMEs
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•
Cooperation with provincial SMME desks
Ntsika seldom works closely with provincial authorities. This lack of
cooperation has led closely to serious alienation between the provinces and
Ntsika, leading to wasteful duplication and lack of constructive feedback from
provinces.
10.3.2.6
Research proposition with regard to Ntsika
The research proposition with regard to the Ntsika was formulated to test the
responses given by the research subject in order to determine how effective
Ntsika is achieving its mandate with regard to the development and promotion
of the Small Business sector as stipulated in the White Paper on National
Strategy for the development and promotion of small business in South Africa.
The analysis and the related observation of Ntsika will be used to evaluate the
following proposition:
Proposition Two:
Ntsika Enterprise Promotion Agency has provided
its wide range of non-financial services to local
service
meeting
delivery
the
groups
objectives
successfully
of
the
thereby
government’s
National Strategy.
10.3.2.7
The study
Study findings with regard to Ntsika
found out that, Ntsika has tried to be all things to all people,
launching a flurry of programmes with little connection among them, weak
follow-through, little leveraging of existing public and private initiatives, little
coordination with provincial authorities, and virtually no coordination with its
sister institution, Khula.
The study also noted that there is a general view in the provinces that Ntsika
has become wasteful bureaucracy in its own right, and in many areas out of
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touch with the SMME community. It is also generally perceived in the field to
be a scattered, unfocussed, and inefficiently managed institution. The study
leads to concur with this perception, that Ntsika’s mandate is probably too
ambitious and not clearly focused.
The study further noted the following difficulties in Ntsika’s performance with
regard to its breadth of its mandate:
Whereas Ntsika’s mandate requires the organization to be responsible for the
entire gamut of non-financial services, less is done to prioritize these
according to sector or type of enterprise as a result of this Ntsika is not
providing enough or of the right quality.
Whereas Ntsika was founded as a “wholesale” institution intended to provide
resources to local “retail” service providers, several of Ntsika’s divisions are
involved with retail services because of internal confusion over the
organization’s role as well as outside pressures from the government and
SMMEs to make services available quickly. This has often forced Ntsika to
play a role which it was not intended to undertake, namely, dealing directly
with the SMME community and its communications policy has intensified this
confusion by giving the SMME community the impression that Ntsika is a retail
service delivery body.
The study had also noted the following issues which Ntsika has fallen short of:
Measuring results.
Ntsika’s current measuring of results system principally tracks quantitative
results, as opposed to a combination of quantity and quality that would
indicate how people benefited from Ntsika-funded services they receive.
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Sector focus and orientation
Most of Ntsika’s activities concentrate on the micro and survivalist sectors, not
on the small and medium sectors. Assistance to the micro-survivalist is, by its
very nature, developmental and social in orientation, a sector where the job
creation potential, in terms of expanding the firms’ workforce, is more limited
than small and medium size firms. As such, Ntsika is evolved into playing
more of a developmental role, requiring subsidization of its target population,
than a business development role, in which service providers are capable of
becoming financially self-sustaining.
Information dissemination/communication strategies
Much of Ntsika’s information and marketing is inappropriate and ineffective for
the population it is serving, i.e., the micro/survivalist sector. Significant funds
are spent on sophisticated English-language brochures and presentation, illadapted for Ntsika’s target population. Very little research has been
undertaken on how to reach these populations most effectively. For example,
the medium of radio, especially effective with the rural population, has been
underutilized, and use of established local groups for dissemination
information has rarely been explored. Ntsika’s approach is also misleading,
leaving the impression that it is a retail provider.
Working with existing service providers
Many high-quality non-financial service providers have been ignored by
Ntsika. Some of them do not want to be affiliated because of what they claim
are Ntsika’s centralized, prescriptive processes. Others, however, provide
high-quality services and have long-standing relationships with local
population, making them ideal delivery agents. In many cases, Ntsika chooses
not to use such groups, creating instead new, or using inexperienced, NGOs
at substantially higher cost than working with existing organizations.
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Cooperation with Khula in the field
Most of Ntsika’s managers admit that they do not have contact with Khula.
This lack of interaction starts at the very top and continues down the
management chain. In the field, there is rarely cooperation between Khula’s
RFIs and Ntsika’s LBSCs, even when operating in the same geographical
area with the same category of SMMEs
Cooperation with provincial SMME desks
Ntsika seldom works closely with provincial SMME desks desks. This lack of
cooperation has led closely to serious alienation between the provinces and
Ntsika, leading to wasteful duplication and lack of constructive feedback from
provinces.
Proposition test
The proposition that Ntsika Enterprise Promotion Agency has provided its
wide range of non-financial services to local service delivery groups
successfully thereby meeting the objectives of the government’s National
Strategy (Proposition Two), is rejected because the findings confirm that
Ntsika Enterprise Promotion Agency has not provided its wide range of nonfinancial services to local service delivery groups effectively.
10.3.3
Khula Enterprise Finance Limited
Khula Enterprise Finance Limited was mandated to undertake an ambitious
task for the country, namely, improving access to finance for the country’s
large SMMEs sector, with special emphasis on its previously disadvantaged
population. Khula’s mission is a critical composition of the National Strategy’s
long-term success.
Since its establishment in 1996, a number of loan schemes to increase
access to finance SMMEs through Retail Financial Institutions (RFIs), which
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are SMME departments for commercial banks or accredited NGOs, have
been initiated. RFIs apply their own minimum lending criteria (the most basic
is the provision of a business plan) as the responsibility of risk assessment
lies entirely with the RFIs. This might explain why only four of every 300
applications had been granted a loan in 2003 (Khula Website report for 2003).
10.3.3.1
Analysis of Khula’s mission and objectives
Statement of objectives
In its Corporate Plan and Business Strategy, Khula articulates its (1)
“overriding” objective, (2) its “four main objectives”, and (3) its “general
external and internal objectives”. These statements of purpose are critical in
judging its overriding objective of providing “increased and affordable access
to finance” for SMMEs. The overriding objective reflects the White Paper’s
requirement that the National Strategy should improve access to finance.
Khula’s overriding objective can be broken down into four components which
include the following:
•
Increasing the level of banking lending to SMMEs.
•
Improving the outreach of alternative financial institutions, particularly in
un-served rural areas.
•
Providing start-up and small scale equity products.
•
Expanding the number of SMMEs with external equity participation.
As operational objectives, Khula has positioned both an external and an
internal goal, summarized as follows:
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External
•
Facilitating the mobilization and flow of resources (both public and private)
for SMME development.
•
Increasing awareness of Khula.
•
Promoting a favourable legislative environment.
•
Cooperating closely with “sister organizations, such as Ntsika, LBSCs and
provincial SMME desks.
Internal
•
Maintaining a skilled, effective, and motivated professional staff.
•
Maintaining Khula as a lean organization.
•
Meeting the expectations of shareholders as defined in the mission
statement.
•
Effectively managing business risks of the organization.
Realism of the objectives
Khula has established itself as a self-sustaining institution designed to make
business credit more accessible to the SMME sector. As a statement of
purpose, Khula’s objectives closely reflect the role envisioned for it in the
White Paper.
While these objectives are consistent with the intent of the White Paper, the
reality of the small business lending, whether in South Africa or any other
developing country, makes Khula’s objectives difficult to attain. In the view of
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the study Khula will continue to find itself falling short of these objectives on
several counts irrespective of how well it organizes its effort. The lack of
differentiation among the various components of the SMME sector forces
Khula to adhere to objectives that might well be realistic for one segment of
the SMME, but not for others. Khula is forced to live with this conflict,
presented to it in its charter, of satisfying the needs of two distinct sectors, one
that is “commercial” and another that is “developmental”.
On one hand, Khula’s mandate is to stimulate and promote bank lending to
the small business sector (as distinguished from the micro-survivalist
category) by offering guarantees of up to 80% of the loan amount. By nature,
banks are commercially disinclined to lend to this sector for several reasons.
First, there is more money to be made elsewhere. Second, the sector by
definition is high risk because small business management is typically
inexperienced and unable to formulate sound business plans, and adequate
asset collateral is difficult for these firms to produce. Third, transactions cost
for such small loans is excessively high for banks to sustain in their
increasingly competitive environment.
On the other hand, with respect to the micro-survivalist enterprises that Khula
services mainly through Retail Financial Intermediaries, Khula requires these
institutions to be self sustaining while their clients are largely unbankable.
Khula’s charter effectively prohibits it from working in a “development” mode in
which it would bear a far higher level of risk of loan non-repayment.
Khula supports and promotes financial intermediaries that are expected to be
financially self-sustaining while lending to essentially “unbankable” borrowers.
The objective of developing lending processes of this nature has been the
break out of the traditional cycle of dependency and loan non-payment that
has characterized much of the “development-oriented” lending in the small
business sector. The expectations that most RFIs are able to operate
according to strict banking principles and services, these special target
groups, remains a difficult goal.
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In short, in its charter, Khula has been given objectives that will be difficult to
obtain even under the most favourable circumstances. There is a permanent
tension between its goals of assisting a development sector of the economy
and its requirement to be financially self-sufficient.
10.3.3.2
Analysis of Khula programmes and their performance
Khula’s management philosophy
From its inception, Khula has strived towards the creation of a lean, welldisciplined organization that reflects the best practices of a commercial
finance institution. Its philosophy has been to distance itself from the
development finance organizations of the previous government that engaged
in concessional lending to disadvantaged groups. These institutions,
perceived largely as welfare-oriented non-governmental organizations with
very low repayment rates, were seen as the model not to be replicated.
Therefore, a key objective of the National Strategy has been to break out of
the tradition of financial dependency that characterized small business
support in the past.
Structure of Khula’s operations
To meet its objectives, Khula has created three functional divisions to
undertake its programmes:
•
Loan division
In practice, the most active component of Khula’s operations is the loan
division with the responsibility of lending to Retail Finance Intermediaries for
forward lending to the Strategy’s target population. The RFIs are principally
responsible for lending to micro/survivalist enterprises. To put these groups on
a more business-like basis, Khula has established conditions for them before
it will lend between R1 million to R100 million. For RFIs that have limited
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experience, Khula typically restricts its business loans to less than R10
million.
Apart from business loans, Khula also provides seed loans to new RFIs of
between R50 000 to R20 million to assist the start-up of new RFIs. These
loans revert to grants if the RFI can meet Khula’s performance targets. Finally,
grants are provided to these groups for capacity building.
Lending through the RFIs has been intended to serve the previously
disadvantaged population, namely blacks, women, youth, the disabled, and
the rural areas in general.
The RFI system has been plagued by problems relating to the inexperience of
their management, problem in management and financial control, and inability
or refusal to comply with their agreement with Khula. Khula has strict criteria
for the candidate RFIs to satisfy before they can be approved. For many RFIs,
these criteria are too prescriptive and ultimately unrealistic, reflecting the basic
problems faced by Khula. RFIs are expected to be self-sufficient by lending to
the unbankable.
Nevertheless several RFIs have been able to claim good performance, usually
due to their managerial and financial competence, but also the result of being
focused on a specific sector or community. This latter factor has been critical,
in that the RFI has a good knowledge of its borrowers and their sector, making
monitoring more effective. Furthermore, the successful RFIs have been
steadily shifting their loan portfolio into larger, more formal, more sustainable
enterprises.
The mandate of the Loan division is to expand substantially the loan portfolio
in terms of the number of SMME borrowers as well as loan amounts. Despite
its difficulty in identifying qualified RFIs, developing their internal capacity, and
maintaining acceptance levels of risk, Khula seeks to continue an expansion
of its RFIs network. One path being followed is to attempt to engage more
private sector financial groups that do not have the same capacity building
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needs, to become part of Khula’s network of financial providers. Khula’s
reliance heretofore on Section 21 companies is causing it, in its own view, to
fall short of its goals of both broader outreach and acceptable risk.
The largest RFIs tend to be those that make the smallest loans (between
R300-R600) since these loans are exempt from the Usury Act and therefore
can carry higher interest rates. By contrast, loans between R50 000 to R100
000, which usually would be directed towards more formal enterprises with a
specific market opportunity, are the least frequent. It is therefore assumed that
most lending goes to sustaining people’s livelihood rather than creating new
jobs and little assistance is available to assisting in the conversion from
survivalist mode to an enterprise activity.
•
Credit guarantee division
The Credit Guarantee programme is the centrepiece of Khula’s efforts to bring
the commercial banking sector into SMME lending. The underlying concept of
Khula was for it to act as a leverage agent, encouraging and enabling the
banking sector to participate more actively in SMME finance. Khula has based
its marketing programme on the argument that it is assisting the banks to
increase their market share.
Khula took the credit guarantee from the former Small Business Development
Corporation (now Business Partners). Even though Khula is a quasigovernment organization, it decided to register under the Insurance Act for
two reasons: First, to give credibility to Khula in the market place, and second,
to permit Khula adequate protection for itself. However inasmuch as the
Insurance Act strictly regulates credit guarantees, as a means to protect both
guarantor and consumers, Khula felt the need to closely control its guarantees
with the banks.
The Credit Guarantee programme has been disappointing for several
reasons. Apart from the all-important market factors that have dissuaded most
banks from actively participating in small business lending, Khula’s own
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surveillance requirements imposed on the distribution of the guarantees have
been restricted by the banks as undue interference in how they make their
loans. The process associated with the granting of credit guarantee has been
seen by the banks as excessively bureaucratic, involving double approvals,
both by the banks as well as by Khula.
Based on the study, however, it appears that banks are still fundamentally
reluctant to lend to the SMME sector. This factor has serious implications for
Khula’s ultimate success in its mission. It is the banking sector that is the
principal lender to small and medium business (as opposed to the
micro/survivalist sector). Inasmuch as job creation potential is greatest in this
category of enterprises, the banks’ unwillingness to lend to these firms
seriously compromises the National Strategy.
Banks have been slow to use Khula guarantees for a variety of reasons. Apart
from the higher risk factors and high transactions costs associated with small
scale lending, South Africa’s banks themselves are undergoing fundamental
restructuring to improve their competitiveness. Relationship banking through
branches is being rapidly de-emphasized as banks centralize their operations
in head office, computerized operations and standardized procedures. A new
inflexibility in the lending process is the result. Furthermore, since securitybased lending, as opposed to cash-flow lending, is the norm, small firms, even
though submitting excellent business plans with good market prospects, are
often disqualified due to their inability to produce adequate assets for security.
Apart from these factors, Khula has been slow, if not inactive, in developing a
strong marketing and communication programme aimed at the banking sector.
Very few banks concerted efforts have been undertaken to make Khula
guarantees known to banks. Khula has not been effective in identifying its real
market for the guarantees, which is the banking sector, not the enterprises
themselves. Khula has marketed itself in a generic way to the public without
focus on those groups that will determine the success of the credit guarantee
programmes.
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•
Institutional support services (ISS) division
This division provides support to the Loan and Credit Guarantee divisions.
This is in an effort for Khula to effectively deliver credit to SMMEs.
The ISS was established as a direct response to the lack of institutional
infrastructure within the RFI network to conduct onward lending to SMMEs
using Khula capital.
The ISS by contracting consultants delivers the following services to the RFIs:
Strategy and board development; Loan officer training; Management
information systems; Accounting and auditing; Legal issues and Human
resources.
In addition, given the lack of RFIs, ISS created the KhulaStart programme
designed to help new RFI organizations establish operations in order to begin
to develop their lending activities. KhulaStart therefore helps with the essential
set up costs needed to launch operations.
Khula’s marketing communications strategy
Reference is frequently made among stakeholders that Khula’s reputation
varies widely from being totally invisible and unknown to being understood as
retail source of finance. Khula’s lack of marketing strategy of any form, other
than sophisticated brochures and logos, makes this criticism warranted. Even
among the staff of Khula, their failure to clarify to the SMME community what
it does is widely recognized.
Making Khula known to the SMME community as a source of small business
finance creates two problems. First, it misleads borrowers into thinking that
they must deal directly with Khula. Second, it has the perverse effect of
transmitting the idea to borrowers that Khula is a “government lender”, which
within the micro/survivalist sector often implies softer conditions and even
tolerance of non-payment.
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Khula should have two targets for its communication policy. First, the
commercial banking system, in particular their branch network in the fields,
needs to be persuaded to work with Khula credit guarantees. Second, Khula
needs to market its RFIs, not itself, to the local SMME communities, so that
serious borrowers will work directly with these groups. It would appear selfdefeating for Khula to create widespread public image of itself.
Monitoring, evaluation and reporting
Unlike Ntsika, Khula faces a simpler task in monitoring its lending results.
Tracking credit guarantees and activities with RFIs is a straightforward task.
Indeed, the statistics show whether Khula is reaching its target population as
a wholesaler.
Problems remain however with reporting from many of the RFIs which do not
have solid systems in place. It is difficult for Khula to gauge the effects of
lending by the RFIs themselves as the financial retailers. What is known is
that the overwhelming percentage of their lending is to survivalist enterprises,
particularly women. The extent to which such lending is used for productive
purposes as opposed to personal consumption is difficult, if not impossible to
track effectively.
Tracking the impacts of lending from banks using Khula credit guarantees is
less difficult to undertake. Business plans are submitted with specific market
objectives. Since Khula as a wholesaler is one step removed from these firms,
it is difficult for Khula to track what the employment impacts of these loans
might have been. Estimates are made, however, based on established ratios
of funding to economic activity.
Khula’s corporate governance
Khula has played a relatively passive governance role, limiting its attention
primarily to its statutory commitments in terms of overseeing the financial
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results of Khula’s operations. Khula seems to be composed of individuals with
only limited experience in either banking or SMME affairs, which has restricted
the extent to which it has been able to oversee Khula’s management of the
results of its operations.
Human, financial and internal management
Khula’s management has taken the pride in structuring and operating a lean
organization, much in line with well-managed commercial banking institutions.
However the internal co-ordination among divisions needs work. There
appears to be inadequate co-ordination among divisions. The study noted a
frequent lack of familiarity within divisions about what other divisions are
doing.
Similarly, co-ordination with the CSBP and Ntsika was seen to be minimal.
The study revealed strong complaints that Khula officials made little efforts to
keep provincial desks informed, much less seek advice or cooperation in local
activities. It also seems that Khula does not have specific assignments to
maintain contact with the provinces.
10.3.3.3
Related observations and findings
Khula’s potential for success has been compromised by several internal
contradictions in the mission and structure of the organization, each of which
limits Khula’s ability to reach its stated goals.
Contradictions in Khula’ mission
Khula contradictions with regard to its mission can be explained by the
following facts:
•
While Khula’s mission is to facilitate the flow of credit to the high risk small
business sector, it is simultaneously expected to operate according to
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conservative banking principles, maintain high loan recovery rates, and
achieve a favourable return on equity.
•
The success of Khula’s credit guarantee program depends almost entirely
on the commercial banking sector’s willingness to lend to small, previously
disadvantaged businesses, which banks are, by nature, generally
disinclined to do.
•
Khula loan programme encourages its Retail Financial Intermediaries to
lend to “unbankable” micro-enterprises while simultaneously remaining
financially self-sustaining.
•
Khula was conceived as a “wholesale” institution, yet is under constant
pressure to act and market itself as a retail organization that offers
financial services to businesses.
Findings and observations on Khula’s performance
The following findings and observations were noted during the study:
•
Khula seems to have fallen short of its long-term job creation objectives of
providing broader access to finance for those companies most likely to
stimulate job creation in South Africa, namely the “small” business
category (as opposed to the “micro-survivalist” category).
•
Khula’s activities are disproportionately concentrated in the microsurvivalist sector through its Retail Intermediaries.
•
In practice, Khula’s credit guarantee programme has benefited white,
male-owned businesses.
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•
Within the small and medium business sector, Khula is heavily dependent
on commercial banks, yet it has not developed effective mechanisms for
bringing the banking sector into small business lending as a partner.
•
To date Khula has not yet launched an effective marketing programme, its
communications with the commercial banking system and the public at
large have been passive.
•
Khula relies heavily on Section 21 (non-profit) companies as its financial
service providers that typically have neither banking nor business
experience.
•
Many of Khula’s RFI’s are unsustainable. To reach viability these groups
need to achieve huge volumes of lending turnover, targets that are beyond
the reach of most of these Section 21 companies.
•
Operationally, Khula’s management has been more focused on financial
results than development impacts of its lending operations. It remains a
conservative, rules driven organization. It has mainly focused on its
financial performance rather than long-terms results for the SMME sector.
•
Khula has virtually no cooperation with Ntsika in offering services to SMME
borrowers, neither at the headquarters nor field programmes.
10.3.3.4
Research proposition with regard to Khula
The research proposition with regard to Khula was formulated to test the
responses given by the research subjects in order to determine how effective
Khula is achieving its mandate with regard to the development and promotion
of the small business sector as stipulated in the White Paper on National
Strategy for the development and promotion of small business in South Africa.
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The analysis and the related observation of Khula will be used to evaluate the
following proposition:
Proposition Three:
Khula has improved access to finance for the
country’s SMME sector with special emphasis on
the
previously
disadvantaged
population
as
mandated by the government’s National Strategy
successfully.
10.3.3.5
Study findings with regard to Khula
The study found out that whereas Khula’s mission is a critical component of
the government’s National Strategy’s long term success, its potential for
success has been compromised by several internal contradictions in the
mission and structure of the organization, each of which limits Khula’s ability
to reach its stated goals as the following issues demonstrate:
•
While Khula’s mission is to facilitate the flow of credit to the high risk small
business sector, it is simultaneously expected to operate according to
conservative banking principles, maintain high loan recovery rates, and
achieve a favourable return on equity.
•
The success of Khula’s credit guarantee program depends almost entirely
on the commercial banking sector’s willingness to lend to small, previously
disadvantaged businesses, which banks are, by nature, generally
disinclined to do.
•
Khula loan programme encourages its Retail Financial Intermediaries to
lend to “unbankable” micro-enterprises while simultaneously remaining
financially self-sustaining.
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•
Khula was conceived as a “wholesale” institution, yet is under constant
pressure to act and market itself as a retail organization that offers
financial services to businesses.
With regard to Khula’s performance the study found out the following:
•
Khula has fallen short of its long-term job creation objectives of providing
broader access to finance for those companies most likely to stimulate job
creation in South Africa, namely the “small” business category (as
opposed to the “micro-survivalist” category).
•
Khula’s activities are disproportionately concentrated in the microsurvivalist sector through its Retail Financial Intermediaries.
•
Within the small and medium business sector, Khula is heavily dependent
on commercial banks, yet it has not developed effective mechanisms for
bringing the banking sector into small business lending as a partner.
•
To date Khula has not yet launched an effective marketing programme, its
communications with the commercial banking system and the public at
large have been passive.
•
Khula relies heavily on Section 21 (non-profit) companies as its financial
service providers that typically have neither banking nor business
experience.
•
Operationally, Khula’s management has been more focused on financial
results than development impacts of its lending operations. It remains a
conservative, rules driven organization. It has mainly focused on its
financial performance rather than long-terms results for the SMME sector.
•
Khula has virtually no cooperation with Ntsika in offering services to SMME
borrowers, neither at the headquarters nor field programmes.
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Proposition test
The proposition that Khula has improved access to finance for the country’s
SMME sector with special emphasis on the previously disadvantaged
population as mandated by the government’s National Strategy successfully
(Proposition Three) is rejected because the findings confirm that with
Khula’s many technical and structural contradictions, Khula has not been able
to effectively improve access to finance the country’s SMME sector.
10.3.4
Analysis of the effectiveness of the National Strategy
A complaint overheard during this study was that the headquarters
organizations (namely the CSBP, Ntsika and Khula) have little familiarity with
what is actually happening on the ground in the regions. According to these
critics, their preoccupation with institutional and programmatic issues and their
lack of realistic monitoring systems have created a major disconnect between
them and their retail services providers and ultimately the recipients of the
assistance.
The study was structured in such a way that the analysis should focus on the
services provided by both financial and non-financial service provider
organizations and the perceptions of how successful these services are in
meeting the objectives of their mandates. In the case of the SMMEs that have
received their services, the study sought to understand what types of
assistance were received from the service providers, how the assistance
benefited their businesses, and what other types of assistance would be
useful. Both providers and recipients were asked in detail their perception of
successes and failures, and finally to make several recommendations on
ways to change and improve the National Strategy’s approach to promoting
small business and creating jobs.
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Based on the results of this study, the study identified several successes and
failures of the National Strategy as perceived by those service providers and
SMMEs surveyed in the four provinces.
10.3.4.1
Summary of the findings
The findings of the study could be summarized as follows:
Success factors in service delivery
The study revealed a number of success factors that have been experienced
by service providers since the National Strategy was implemented. These
success factors could be summarized as follows:
•
Clear focus on markets and goals
Most of the service providers said that the focusing on identifiable targets and
business goals are essential for successful intervention with SMMEs.
•
Information sharing
Most service providers believe that when they communicate with other
providers (e.g. non-financial and financial), they all benefit and create a more
integrated community of services.
•
Combining financial and non-financial services
Almost all service providers indicate that SMMEs are more likely to be
successful when access to finance is combined with appropriate non-financial
support.
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•
Capacity building/training
Most service providers agree that specific, targeted capacity building and
training are essential for SMME development. The service providers also
agree that if the services are generic and not specifically tailored to the
targeted group, the activities will not be successful.
•
Aftercare services
The service providers indicated that aftercare services are essential
components of SMME services for ensuring that services are having the
required effect.
•
Community participation
Most service providers said that one of the key components to successful
training or financial services is community participation. When the community
knows about, and has invested in the services provided, assistance to the
SMMEs is much more likely to be successful.
•
Skills transfer
The service providers indicated that the services they provided are most
successful when combined with skills transfers to SMMEs.
•
Response to market demand
The service providers said their training is most successful when it is in
response to what the market demands, i.e. what the SMMEs are looking for
and need, as opposed to generic training.
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Problems and failures in service delivery
The study also revealed a number of problems and failures that have been
experienced by service providers since the National Strategy was
implemented. These problems and failures could be summarized as follows:
•
Generic training
Most service providers claim that there is too much training for training’s sake.
They argue that training needs to be specific and targeted to be successful,
and that it has to incorporate business training, not just skills training.
•
Lack of awareness about Ntsika
Most service providers find that Ntsika has ineffective communication
strategies with all levels in the provinces (SMME desks, service providers and
SMMEs). They indicated that most of the marketing material and educational
materials are in English, not in local languages, and poorly adapted to the
realities of most local, especially rural, SMMEs, therefore missing their target
market.
•
Provincial government input
Most services providers and SMMEs only approach the government when
they have a problem, for example, when they need money. The service
providers indicated that they need to establish better communication with
provincial government officials, especially the SMME desks.
•
Cost recovery and sustainability
The service providers expressed their frustrations at having to focus so
heavily on cost recovery and sustainability in their organizations when they
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are dealing with a population that is largely a welfare sector, with a “hand-out”
mentality towards services, i.e. they do not expect to have to pay for services.
•
Centralization of Khula and Ntsika
The service providers feel that both Khula and Ntsika could be much more
effective if they were physically located in the provinces at the local level,
adapting their programmes to local circumstances. Most service providers
suggested that Khula and Ntsika should have provincial offices.
•
Khula and Ntsika do not cover operational expenses
The service providers expressed frustration at having to target their services
to the poorest of the poor (as indicated by Khula and Ntsika) while neither
organization provides funding for operational expenses so that the service
providers might retain the most qualified staff. Further more, Ntsika uses a
“claim back” reimbursement system for programme costs, requiring the
providers to finance the services upfront and then seek reimbursement from
Ntsika, often with three months delay.
•
Restrictions and constraints on loan amounts to SMMEs
The service providers said that there is not enough access to finance for
SMMEs through RFIs, and even when SMMEs are successful in getting loans,
the loans are often not adequate for borrowing firms to make a success of
their projects.
•
Khula credit scheme does not work
The banks do not want to lend to SMMEs, especially black SMMEs. The
banks often use Khula loan guarantees for loans that would qualify regardless
of the guarantees.
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•
Banks do not know Khula
Regional bank employees usually claim they do not know about the Khula
guarantee scheme, or say have heard of it but it is not in place in their region.
•
Funding/financing “gap”
Most service providers said that while there are RFIs to conduct micro lending
and the banks to conduct lending for larger, even medium size businesses,
there is a significant “gap” between the two. Small businesses, those needing
between R30 000 and R200 000 are too big for Khula RFIs, yet too small for
the banks. Frequently these small to medium businesses are the ones that
have the greatest potential for job creation.
•
SMMEs are too small to qualify under DTI’s definition of “trade and
industry”
Even though DTI is the department tasked with assisting SMMEs, most
SMMEs are still too small to benefit from many other DTI’s programmes, and
get ignored by most of the groups within DTI.
•
Lack of business marketing strategies
Most SMMEs are too small and too busy trying to survive to develop a clear
marketing strategy for themselves. This is also true of service providers.
Service providers try to be all things to all people, instead of trying to focus
and be very successful in certain things.
•
Lack of role for provincial SMME desks
The service providers feel that they do not get enough support from the
provincial SMME desks, and that neither the service providers nor the SMME
desks themselves know exactly what the SMME desks’ mandate is.
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•
Lack of political voice for the SMME community
Even before the NSBC and its structures, the PSBCs, folded, the services
providers felt that they did not do their job well. They did not feel that it was a
voice for them or that it represented small business issues effectively.
•
Culture of non-payment
Most service providers agree that there is a definite culture of non-payment
among poor people in South Africa. People being trained do not understand
why they should pay for training services.
•
Lax financial controls for financial service providers
Some of the financial providers were critical of Ntsika’s funding. They want
funding for their operational costs, with increased, appropriate monitoring, as
well as more timely distribution of funds. The service providers said Ntsika
funds take months to reach them.
Ntsika and Khula related issues
An analysis of Ntsika and Khula issues was a major part of this investigation
as they are institutions directly involved in the National Strategy. The critical
issues identified by the study in the two institutions are as follows:
Issues with regard to Ntsika
With regard to Ntsika, the study noted the following issues:
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•
No sustainability of financial support
The service providers were critical of Ntsika’s funding. They want funding for
their operational costs, with increased, appropriate monitoring, as well as
more timely distribution of funds. The service providers said Ntsika’s funds
take months to reach them.
•
Cover operational costs
Most service providers would like Ntsika to cover at least some of their
operational costs so the service providers can focus more on delivering
services to their target markets.
•
Changes to contractual requirements
The service providers would like Ntsika to relax or change their contractual
requirements for training and counseling because they are too constraining.
They would like Ntsika to take into account repeat training and counseling
sessions where a trainee is receiving more advanced services, instead of just
first time visits.
•
Aftercare training should be established
Both the financial and non-financial service providers agree that aftercare is a
very important part of their services, yet Ntsika does not provide for this.
Aftercare is one of the best ways to avoid defaulting on loans and to get the
most out of previous training.
•
Satellite offices need to be established
Ntsika is in a great rush to set up as many LBSCs as possible, yet for each
LBSC accredited there is limited kilometer radius than can be serviced. The
service providers would like to expand their kilometer radius or perhaps set up
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satellite offices in locations where there is need for services, but perhaps not
need for a full LBSC.
Issues with regard to Khula
With regard to Khula, the study noted the following issues:
•
Better financing options for small to medium businesses
The service providers feel that while there is reasonable coverage for those
who need micro loans, there is limited coverage for small to medium
businesses. The service providers cite the need to fill that gap since these
businesses are mostly the greatest job creators.
•
Should improve accreditation process
The service providers find the Khula accreditation process time consuming
and cumbersome, noting that there are long delays before decisions can be
made.
•
Broaden lending scope to RFIs
The service providers, especially the RFIs, feel that their ability to provide
loans is stymied by Khula’s strict procedures.
10.3.4.2
Research propositions with regard to the effectiveness of the
government’s National Strategy
The research propositions with regard to the effectiveness of the
government’s National Strategy were formulated to test the responses given
by the research subjects in order to determine how effective the National
Strategy is with regard to service delivery.
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The responses of the research subjects will be used to evaluate the following
propositions:
Proposition Four:
Khula’s financial service providers have provided
their finance services to SMMEs effectively.
Proposition Five:
Ntsika’s
non-financial
service
providers
have
provided their services to the SMME sector
effectively.
Proposition Six:
The sourcing of both financial and non-financial
services by SMMES through the institutional
framework of the government’s National Strategy
was effective.
10.3.4.3
Study findings with regard to the effectiveness of the
government’s National Strategy
The study found out that whereas there have been some success factors with
regard to service delivery there also has been a great deal of problems and
failures with regard to service provision as the following issues demonstrate:
ƒ
Much of the training is just for training’s sake and that it is not targeted to
specific needs for example incorporation of business training, not just skills
training.
ƒ
Ntsika has ineffective communication strategies with all levels in the
provinces (SMME desks, service providers and SMMEs) as most of the
marketing material and educational materials are in English, not in local
languages, and poorly adapted to the realities of most local, especially
rural, SMMEs, therefore missing their target market.
ƒ
Services providers and SMMEs only approach the government when they
have a problem, for example, when they need money. The study further
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established that there is no better communication with provincial
government officials, especially the SMME desks.
ƒ
Service providers are frustrated at having to focus so heavily on cost
recovery and sustainability in their organizations when they are dealing
with a population that is largely a welfare sector, with a “hand-out”
mentality towards services, i.e. they do not expect to have to pay for
services.
ƒ
Both Khula and Ntsika could be much more effective if they were
physically located in the provinces at the local level, adapting their
programmes to local circumstances.
ƒ
Services are targeted to the poorest of the poor, as indicated by Khula and
Ntsika, while neither organization provides funding for operational
expenses so that the service providers might retain the most qualified staff.
Further more, Ntsika uses a “claim back” reimbursement system for
programme costs, requiring the providers to finance the services upfront
and then seek reimbursement from Ntsika, often with three months delay.
ƒ
There is not enough access to finance for SMMEs through RFIs, and even
when SMMEs are successful in getting loans, the loans are often not
adequate for borrowing firms to make a success of their projects.
ƒ
The banks do not want to lend to SMMEs, especially black SMMEs. The
banks often use Khula loan guarantees for loans that would qualify
regardless of the guarantees.
ƒ
Regional bank employees usually claim they do not know about the Khula
guarantee scheme, or say have heard of it but it is not in place in their
region.
ƒ
While there are RFIs to conduct micro lending and the banks to conduct
lending for larger, even medium size businesses, there is a significant
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“gap” between the two. Small businesses, those needing between R30
000 and R200 000 are too big for Khula RFIs, yet too small for the banks.
Frequently these small to medium businesses are the ones that have the
greatest potential for job creation.
ƒ
Even though DTI is the department tasked with assisting SMMEs, most
SMMEs are still too small to benefit from many other DTI’s programmes,
and get ignored by most of the groups within DTI.
ƒ
Most SMMEs are too small and too busy trying to survive to develop a
clear marketing strategy for themselves. This is also true of service
providers. Service providers try to be all things to all people, instead of
trying to focus and be very successful in certain things.
ƒ
Service providers do not get enough support from the provincial SMME
desks, and that neither the service providers nor the SMME desks
themselves know exactly what the SMME desks’ mandate is.
ƒ
There is no political voice for the SMME community.
ƒ
There is a definite culture of non-payment among poor people in South
Africa. People being trained do not understand why they should pay for
training services.
ƒ
Ntsika takes a long time to pay for the service providers’ operational costs.
The study found the following issues which strongly came against Ntsika and
Khula:
ƒ
Ntsika need to relax or change their contractual requirements for training
and counseling because they are too constraining and it needs to take into
account repeat training and counseling sessions where a trainee is
receiving more advanced services, instead of just first time visits.
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ƒ
Ntsika does not provide for after care service, yet it is one of the best ways
to avoid defaulting on loans and to get the most out of previous training.
ƒ
While there is reasonable coverage for those who need micro loans, there
is limited coverage for small to medium businesses. This gap needs to be
filled as these businesses are mostly the greatest job creators.
ƒ
The Khula accreditation process is time consuming and cumbersome, and
that there are long delays before decisions can be made.
ƒ
The ability of Khula’s RFIs to provide loans is stymied by Khula’s strict
procedures.
Propositions test
The propositions with regard to the effectiveness of the National Strategy
(Propositions Four, Five and Six) are rejected because according to the
findings of the study, there was a great deal of problems and failures which
confirms that both financial and non-financial service provision to SMMEs has
not been effective.
10.3.5
Analysis of other institutions influencing small business
development
10.3.5.1
Overall findings
A clear understanding of the contribution of the government’s National
Strategy in facilitating the development of South African SMMEs emerges
when the Strategy is followed through its process of evolution. This can be
seen in three inter-linked phases:
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Pre-conceptualization phase
The study revealed that the strengths of the National Strategy diminished as it
progressed through the three phases. The pre-conceptualization phase
received considerable praise from a wide range of actors, who commended it
mainly for its inclusivity. During this phase, there seemed to be a remarkable
openness to ideas and input and considerable international input was sought
and integrated into the strategy. This phase had a clear focal point in terms of
leadership and guidance by the Department of Trade and Industry. Because
of the involvement of the President as champion of the Strategy, the profile of
the SMME sector was considerably raised nationally, inside and outside
government. Thus, considerable goodwill towards, and level of interest in,
SMME development was generated.
The stakeholder consultation process and assessment of the state of SMME
development greatly assisted in providing a thorough understanding of the
needs of SMMEs and shortfalls in service delivery. This provided a good basis
to formulate a thorough and sufficiently grounded National Strategy and to
develop a comprehensive support service mix.
Conceptualization and design phase
The study illustrated that there was a general agreement that the Strategy
was a reasonable policy framework for the development of SMME. Based on
a reasonably complete understanding of the needs of SMMEs and shortfalls in
service delivery, the Strategy developed a comprehensive support service mix
while emphasizing the importance of ensuring easy access by SMMEs to a
range of services. Crucially, the Strategy clearly acknowledged that to achieve
desirable results, government cannot be expected to do this alone.
The study also determined that there is a need for full involvement and
participation by a wide range of actors including the business sector. The
latter would play a critical role in key areas of support provision to SMMEs –
facilitating access to markets and technology transfer. The Strategy also
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University of Pretoria etd – Chalera, C S (2007)
acknowledges that for its long-term success in terms of facilitating the
development of small business and entrepreneurship per se, there is a need
to go beyond merely focusing on support provision to SMMEs, important
though this is. To complement this focus and to lay the foundation for longterm success, a need exist to move towards “mainstreaming” enterprise
development by integrating it into the country’s education system. Lastly, the
Strategy also emphasizes the importance of government action to create an
enterprise-friendly environment with minimum impediments to business
formation, survival and growth.
However, without downplaying the importance of the above factors and,
based on the strengths of the Strategy itself, certain weaknesses began to
emerge during the conceptualization and design of the Strategy. Key among
these was the focus on developing new institutions. While the rationale behind
this approach may be clear and easy to understand, being the need to better
co-ordinate and channel SMME support activities, its result was to marginalize
already existing organizations, some of which were doing some good work in
terms of providing services to SMMEs. In time, these organizations were to be
starved of resources that they previously depended on to continue their
activities as these were now channeled to government’s created institutions.
The task of setting up new institutions also proved long and complex, thus
delaying the actual operation of these institutions. During this process there
was considerable loss of momentum and goodwill among various actors.
When the institutions had finally reached a stage where they actually began
operations, problems were encountered with initial approaches, for instance
the accreditation of LBSCs.
A further conceptual and design complication was the fact that Khula and
Ntsika were given the wholesaler rather than the retailer status. This meant
that although they bore full responsibility for facilitating access to all support
services envisaged under the Strategy, they were one level removed from the
SMMEs
and therefore had limited direct interaction with them. They
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University of Pretoria etd – Chalera, C S (2007)
depended on the capacity and the quality of a range of intermediaries to be
able to deliver their services.
Implementation and management phase
As is commonly the case with similar large-scale interventions, this is where
most problems in the entire National Strategy process have been
experienced. At the highest level, that is, within government, there no longer
exists a clear champion and focal point for the coordination of the Strategy.
This task seems to have been left entirely to Khula and Ntsika, a situation that
is found by many as inappropriate. As a result, although many government
departments have initiated their own SMME programmes, there is little
evidence of efforts to co-ordinate and integrate these. In fact, almost all
departments interviewed singled lack of co-ordination as the most critical
problem in the management of the Strategy. This opens up scope for
duplication of programmes and activities and therefore wastage of resources.
While some departments have initiated collaborative mechanisms with Khula
and Ntsika in the implementation of their programmes, some point out that
they find the institutional set-up confusing and are therefore reluctant to work
through government created institutions. One department, for instance, which
is a key player of SMME development, said that it finds it unacceptable that it
has to deal with extra-governmental institutions and insists on working with
DTI. Another department has decided not to work through Khula but to deal
directly with an RFI because Khula is “confusing”. These factors emphasize
the importance of a clear initiative within government to foster good interdepartmental communication and understanding of government institutions,
something that many departments currently see as lacking. They say they are
not informed of developments in the implementation of the Strategy.
At the institutional level there are further difficulties. First of all, Khula and
Ntsika are not communicating and collaborating as effectively as they should.
Some have questioned the very physical separation, in location terms,
between Khula and Ntsika, and argue that that these institutions should exist
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side-by-side in order to strengthen communication and collaboration.
Operationally, the institutions are seen not to have done enough to draw in
the business sector in the delivery of their services, but to have relied too
heavily on NGOs, many of which lack capacity and a business-like approach
to SMME development.
Also, given their reliance on intermediaries for the delivery of their services,
Ntsika and Khula have ran into other difficulties, at least in the early days of
their operations, and, to some extent, up to now. Given that many of these
intermediaries had either been disillusioned by the lengthy processes of
establishing Ntsika and Khula, which kept them unclear for a long time as to
what their extent future role would be, and that some had, in the meantime,
experienced declines in capacity, Khula and Ntsika embarked with a few good
institutions and a number of weak ones. This meant that a lot of focus had to
go to developing new institutions and building the capacity of existing ones,
rather than going straight to services delivery. This has caused further delays
in service delivery.
Also, it had been noted by the study, that because of pressure to deliver and
perhaps also lack of experience on the part of Khula and Ntsika, some of the
initial capacity building programmes of these institutions were ill-conceived
and therefore had a number of weaknesses which will take time to iron out.
Khula’s institutional support programme, for instance, is seen to have been a
major failure, as evidenced by Khula’s inability to spend most of its money
allocated for this task. Some questioned whether this activity and its resources
should not be transferred to other institutions outside Khula which have more
experience in and are dedicated to undertaking this kind of activity.
There is a good deal of interest and varying levels of involvement in SMME
development among business organizations and other actors. Firstly, a major,
traditionally corporate-based business organization, has credited the Strategy
with enabling the organization to develop a high degree of “sensitivity”
towards SMMEs. Furthermore, some of its local affiliates have either started
LBSCs or become LBSCs themselves. This is a new development within that
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organization, which bears witness to the effect the Strategy had had on its
thinking.
The major black business organization, the National Federated Chamber of
Commerce (NAFCOC) is involved to a more or lesser degree in some
activities under the National Strategy and it agrees that there is more
involvement from the business sector. However there is a feeling that not
enough is done by Ntsika and Khula, or even by government, to proactively
draw in the business sector. For instance, the South African Chamber of
Business (SACOB) pointed out that although it once took the initiative to invite
Khula and Ntsika to make presentations on their programmes, there has been
no subsequent follow-up on this contact on the part of either of the institutions.
Business organizations hold divergent views on one key aspect of the
Strategy – the need to strengthen the voice of small business. Although there
is unanimous agreement that small business needs to be represented better
in policy-making, there are differences of opinion on how this should come by.
One view holds that there was no need to come up with a new institution - the
now defunct National Small Business Council (NSBC) – in order to do this.
According to this view, the NSBC was an unnecessary institutional
duplication, which led to the marginalization of existing small business
representative bodies. This view cautions very strongly against any attempts
to set up bodies such as the NSBC in future. Instead, efforts should be
directed towards strengthening already existing bodies so that they can better
represent small business.
Another view hails the establishment of the NSBC and attributes this to
government’s commitment to the elevation of small business and its interests.
According to this view, the demise of the NSBC was a major loss to small
business. An urgent need therefore exists, it is believed, to put something else
in the place of the NSBC, charged with the same task as the NSBC that is,
strengthening the voice of small business in the policy making. It is not clear
where existing representative bodies feature within this frame of thinking.
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10.3.5.2
Awareness of the government’s National Strategy and its
institutions
Awareness within government departments
Almost all government departments that were contacted during the study are
aware of the National Strategy, as embodied in the SMME White Paper, and
have sufficient understanding of its objective of fostering the country’s small,
medium and micro enterprises.
The objective of the Strategy has been
captured by various departments in the following terms:
•
The creation of an enabling environment for small business to grow.
•
To address the imbalances of the past by giving priority to small business
development and creation.
•
To capacitate small business and provide them with opportunities, which
they never had before, by way of giving them access to training and
finance.
•
To provide holistic support to emerging SMMEs by way of providing
financial and non-financial services to SMMEs.
•
To transform small business into the driving force for job creation.
•
The objective is to develop the SMME sector in South Africa with particular
emphasis on assisting the previously disadvantaged groups.
•
The objective is to enhance the competitiveness of SMMEs and to provide
accessible advisory and training services on a cost-effective and
sustainable basis.
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These formulations indicate a generally good grasp of the essence of the
National Strategy and its objectives by various government departments. In
addition the departments reflect an adequate understanding of the nature
(wholesale) and the level of operation (intermediate) of the key SMME support
institutions falling under the national strategy – Khula and Ntsika.
Departments also view the strategy as a good policy framework, which lays
sufficient basis for the development of SMMEs.
This understanding of the National Strategy was gained in two different ways
and times. Some departments became aware of the strategy during the very
early days of its formulation when the Ministry of Trade and Industry led an
extensive process of consulting with various stakeholders as a means of
making the process as inclusive as possible. Various departments were
involved in these consultations, hence many of them consider this inclusivity
as one of the hallmarks of the National Strategy. Other departments came into
contact with Khula and Ntsika in the course of implementing their own
(departmental) SMME Support programmes. This led to an awareness of the
National Strategy and its institutions.
Awareness within business organizations
The general awareness of the National Strategy and its institutions is even
stronger among some business organizations. Virtually all organizations
interviewed pre-date the National Strategy and its institutions in terms of
existence and activities in the SMME support field. Many of these were
involved in one way or the other in the processes of formulating the National
Strategy – submitting input/position papers, participating in task teams and
attending a series of workshops and the two Presidential conferences on
small business. Generally, the Strategy is viewed as comprehensive, although
some have pointed to some perceived weaknesses and inconsistencies within
the Strategy.
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10.3.5.3
Perceived strengths and weaknesses of the government’s
National Strategy and its institutions
Perceived strengths
Three aspects stand out as being the hallmarks of the National Strategy. The
first of these is historical and relates to the comprehensive stakeholder
consultation approach that was followed in the formulation of the Strategy.
Most respondents view this as having been exemplary, ensuring that as wide
a range of views as possible was taken into account in seeking to understand
the challenge of SMME development in the country and formulating an
appropriate strategy. Largely because of this approach, many describe the
National Strategy as a good policy framework.
The second is the role played by the Strategy, both historically and at present,
in elevating the profile and status of SMMEs as an important component of
the economic development of the country. This moved the country from a
situation where there was no unified policy on SMME development, which
resulted in the implementation of ad hoc initiatives by various actors, to one
where there is a comprehensive policy framework setting the vision and
institutional infrastructure for SMME development. This had the effect of
focusing attention on SMME and enterprise development within government
and society as a whole.
To a certain degree, therefore, the current range of SMME initiatives within
various government departments could be associated, even if remotely, with
new awareness. There is a wide view that the National Strategy played an
important role in this regard. The most direct acknowledgement that “the
development of the strategy itself and focus on small business at government
level did contribute to an increased sensitivity on the part of the South African
Chamber of Business (SACOB) in its representational role to small business
issues”.
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Thirdly, although there is a certain degree of difference of opinion on this
aspect, there is a view that the Strategy, being a result of widespread
consultation and multi-stakeholder input, generally reflects a reasonable
understanding of the problems and constraints facing SMMEs. As such, the
Strategy is “grounded” in the operational realities of SMMEs. The support
requirements of SMMEs as elaborated in the Strategy and the proposed
support mix to meet these requirements reflects this understanding.
Perceived weaknesses
While the pre-conceptualization phase of the Strategy is seen as having
played a critical role in mobilizing a wide range of SMME development
stakeholders to participate in the formulation and implementation of the
Strategy, most of its perceived weaknesses relate to its conceptualization,
implementation and management.
The first of these has a historical basis and relates to the establishment of
support institutions under the strategy. There is widespread view that the
establishment of the National Small Business Council, Khula and Ntsika led to
unnecessary duplication at institutional level. What should have happened,
instead, was to strengthen existing institutions that were already involved in
SMME development rather than “re-inventing the wheel” by setting up new
institutions.
Some argue that the establishment of Khula and Ntsika and the fact that these
institutions have grown into very large entities has had a displacement effect
in as far as certain previously existing institutions are concerned. This is so
because most of the resources for SMME development that were in the past
channeled to previously existing institutions are now channeled to Khula and
Ntsika, thus denying other institutions access to necessary resources and
therefore weakening their capacity to service the SMMEs.
Secondly, the wholesale nature of Khula and Ntsika means that they are not
able to deliver services directly to SMMEs. There are two problems in this
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regard. Many of the retail institutions that Ntsika and Khula rely on for delivery
of services are weak in terms of capacity. For instance, some view Local
Business Service Centers as weak institutions staffed by people with
insufficient knowledge of and experience in the SMME sector.
Designing these institutions as wholesalers was based on an erroneous
assumption that there was sufficient capacity within existing institutions to
deliver services to SMMEs. The reality identified through the study, however,
shows otherwise. The second problem is that confusion is caused among
SMMEs on whom to actually approach for services. SMMEs hear about Ntsika
and Khula and approach these institutions for services only to be turned away
and sent to some other organizations that they may not know of. The quality
of service that they receive from retail institutions depends on the capacity
and quality of the institutions themselves, which is limited in many cases.
Thirdly, the co-ordination of the Strategy within and outside of government is
weak. There is limited, if any, communication of the Strategy. As a result,
various government departments develop and embark on their SMME support
programmes with little knowledge of what is currently happening within the
National Strategy framework. This raises prospects for duplication of initiatives
leading to wastage of resources and minimization of opportunities for
integrating and leveraging various departments’ initiatives and resources.
The Department of Trade and Industry (DTI), which bears the responsibility for
co-ordinating initiatives around SMME development is not seen as being
successful in playing this crucial role. One department has complained that
when it approached DTI on SMME matters, they get referred to Ntsika and
Khula, which causes problems because they know little about these
institutions. This department says it prefers to work directly with other
departments rather than with institutions based outside of governments.
Another department has suggested that DTI should implement the National
Strategy itself through an internal directorate.
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Outside government, Ntsika and Khula are criticized for failing to work closely
with each other. This has led to some even questioning the rationale behind
physically separating the two institutions in locational terms. Some observers,
the study found, have argued that the two institutions should be compelled by
government to work together in order to provide a “one-stop” service facility to
SMMEs.
Fourthly, the marketing of Khula and Ntsika and their services to SMME
development stakeholders and SMMEs themselves, in particular, is
considered poor. As a result, SMMEs do not know who to approach for
services. The exact role of Ntsika and Khula is therefore not generally
understood at SMME level. The problem of poor marketing and publicity is
also attributed to the strategy itself. There is a strong view that the National
Strategy needs to be aggressively promoted to various SMME development
stakeholders and SMMEs themselves. This would help communicate the roles
of various players both within and outside government.
The study also found out that the Strategy has been criticized by some
departments and private bodies for failing to integrate all economic sectors
into a single SMME support plan. One sector that has been singled out as a
clear case is agriculture. The Department of Agriculture, the South African
Agricultural Union and the National African Farmer’s union is unanimous in
pointing out that the Strategy has failed to address the needs of emerging
farmers.
At programme level, government departments have indicated a much lesser
understanding of the developments and the current situation with regard to the
implementation of the Strategy. This indicates that the initial momentum and
level of interest and engagement that characterized the strategy formulation
process was lost during the implementation process. Perhaps partly as a
result of this, many departments run their own SMME programmes entirely on
their own with little, if any, effort to integrate efforts with the DTI’s SMME
support institutions. Also, most departments indicated that they were not
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University of Pretoria etd – Chalera, C S (2007)
aware of any actual programmes emanating from the National Strategy and
run under the auspices of the national SMME support institutions.
Given this situation, government departments have generally limited their
assessment of the National Strategy to comment on its formulation and coordination within government. Thus, most of the comment on the
appropriateness and efficacy of the Strategy and its institutions at programme
level has come from organizations outside of government.
Business
federations
view
national
strategy-driven
SMME
support
programmes as relevant to the needs of SMMEs. However, there is a view
that in terms of outreach to SMMEs in general, current programmes still fall
short, as the current focus on the part of both Ntsika and Khula is perceived to
be on micro-enterprises, which means that the upper echelon of SMMEs are
not effectively serviced. Moreover, the prospects for success and participation
of other players could have been improved if there was a clear plan on how
the objectives of the National Strategy were to be accomplished in the short,
medium and long term. The absence of such a plan makes it difficult to
determine exactly how the various programmes implemented by Ntsika and
Khula fit together.
Ntsika’s programmes are seen as too generic and inflexible in terms of
accommodating the specific needs of SMMEs in various localities and stages
of development. As such, these programmes have been characterized by
some as not being sufficiently client-focused and demand-driven. There is
need for strategies and programmes that are “opportunity focused” based on
a thorough understanding of opportunities within various economic sectors.
Given the perceived weaknesses at programme level, a view has been
expressed that the National Strategy has fallen short of its objectives in
addressing the needs of SMMEs. Reasons for this are seen to include:
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University of Pretoria etd – Chalera, C S (2007)
•
A lack of recognition of the scale and intensity of support required by small
businesses which result in resources being devoted to projects that are
insufficient to ensure success.
•
An excessively centralized and bureaucratic approach towards the
management of projects and the development process.
•
The adoption of projects that are not sufficiently targeted and which seek
to achieve too wide an array of objectives, some of which may be in
conflict with one another.
There has, however been a contracting view in this regard, which attributes
success to Khula in establishing Retail Financial Institutions (RFIs), providing
a credit guarantee scheme and initiating a mentorship scheme for small
entrepreneurs who have received financial support from retail institutions.
Ntsika’s own achievement is seen in the area of accrediting a number of
community-based organizations at Local Business Service Centers however,
the effect of these perceived successes on SMMEs themselves has not yet
been determined.
10.3.5.4
Effects of the government’s National Strategy on the
operations of these organizations
Surprisingly, although various departments have initiated and run SMME
support programmes initiated after the National Strategy came into being, the
majority of them do not acknowledge any role for the National Strategy in
inspiring these programmes. The only exception here is the Department of
Public Works, which acknowledges that the National Strategy inspired the
department’s Programme “to a small extent” by enabling a greater level of
awareness of SMME support needs.
Perhaps less surprisingly, given their existence prior to the formulation of the
Strategy, none of the organizations outside the government attributes any role
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University of Pretoria etd – Chalera, C S (2007)
to the National Strategy in inspiring their SMME programmes. One exception
in this regard is a corporate sector group, the Corporate SMME Development
Forum (CSDF), which says it came into existence for the sake of pursuing the
aims and objectives of the National Strategy. Thus, the Forum acknowledges
a direct role of the Strategy in inspiring its creation.
However, while the majority of organizations do not give strong credit to the
National Strategy in terms of inspiring their own programmes, all of them view
their programmes as fully complementary to those of the Strategy and its
institutions. Moreover, there are indications that some National Strategydriven programmes for instance, NAFCOC, has established a Tender Advice
Centre (TAC), modeled on Ntsika’s Tender Advice Centre programme. Some
of the local Chambers affiliated to NIC and SACOB have been accredited at
Local Business Service Centers (LBSCs).
Based on this reality, these organizations have argued that there is a need to
ensure greater collaboration between themselves and the National Strategy
institutions to more closely align and integrate their programmes and activities
in order to achieve greater impact. Collaboration is relatively weak at this
stage.
10.3.5.5
Collaboration with the National Strategy institutions
The extent to which departments involve the SMME support institutions in
their work varies from one department to the other. The department of the
Minerals and Energy for example, has pioneered a programme to support the
development of small-scale mining enterprises (the sector which will be
studied in the second phase of this study). This facilitates the formulation and
implementation of the programme, the department has established a National
Steering Committee (NSC) of service providers, including Ntsika and Khula, to
support the development and implementation of its programme on small-scale
mining enterprise support and promotion. According to the department, Khula
and Ntsika are playing a crucial role in this initiative, with the former handling
the financial aspects whilst the latter advises the committee on small
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enterprise development issues. At this stage, the department expresses
satisfaction with the role played by each of the service providers represented
in the NSC, including Khula and Ntsika.
The Department of Public Works, which runs, among others, the Contractor
Entrepreneurship Training (CET), has involved Ntsika in its Training and
Advisory Focus Group which co-ordinates the development of the CET
programme. According to the department, the involvement of Ntsika in the
Focus Group has been useful in terms of keeping group members informed
about pertinent development in the implementation of the National Strategy.
On the other hand, the Department of Arts, Culture, Science and Technology
has complained that Ntsika and Khula has done very little to help SMMEs
within cultural industries, with the exception of crafts. Similarly, the department
of Environmental Affairs and Tourism says it is easier to deal with retail
financial institutions rather than Khula, which associates with longdrawn-out
processes which delay implementation. For this reason the department is
negotiating with Get Ahead (GA), a retail financial institution, in terms of which
the department will provide funding to GA which will in turn provide loans to
SMMEs in the tourism industry.
Within the organizations outside government, collaboration with Ntsika and
Khula ranges from very limited to extensive. The Alliance of Micro-enterprise
Development Practitioners, a national body representing about several
organizations in the SMME development field, for instance reports virtually no
collaboration of any kind between itself and both Khula and Ntsika. In fact, the
organization reports very little success in its various attempts to link up with
and collaborate with these institutions.
On the other hand the National Industrial Chamber and the South African
Chamber of Business (SACOB) have had closer interaction with Ntsika in
particular. Some of the former organization’s satellite offices have been
accredited by Ntsika as Local Business Service Centers and have been
receiving funds to render Ntsika-sponsored services to SMMEs. Some of
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SACOB’s-affiliated
local
Chambers
of
commerce
are
either
LBSCs
themselves or have established LBSCs in conjunction with other organizations
at regional or local level. Chambers also participate in the boards of Directors
of Regional Manufacturing Advisory Centers, and Ntsika programmes.
10.3.5.6
Research propositions with regard to other institutions
influencing small business development
The research propositions with regard to other government departments other
than those affiliated with the Department of Trade and Industry, as well as
other organizations outside government, specifically business organizations
were formulated to test the responses given by the research subjects in order
to assess their views and their current and future roles with regard to the
National Strategy.
The responses of the research subjects will be used to evaluate the following
propositions:
Proposition Seven:
There
is
awareness
within
government
departments of the National Strategy for the
development and promotion of SMMEs.
Proposition Eight:
There is awareness within business organizations
of the National Strategy for the development and
promotion of SMMEs.
Proposition Nine:
There is collaboration between government’s
department and other business organizations with
the
institutions
Strategy.
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created
under
the
National
University of Pretoria etd – Chalera, C S (2007)
10.3.5.7
Study findings with regard to other institutions influencing
Small Business development
With regard to government departments, the study found out that almost all
government departments are aware of the National Strategy, as embodied in
the SMME White Paper on National Strategy for the development and
promotion
of
small
business
in
South
Africa,
and
have
sufficient
understanding of its objective of fostering the country’s small, medium and
micro enterprises. The study also found out that there is a generally good
grasp of the essence of the National Strategy and its objectives by various
government departments. In addition the departments reflect an adequate
understanding of the nature and the level of operation of the key SMME
support institutions falling under the government’s National Strategy i.e. Khula
and Ntsika.
The study further found that this understanding of the National Strategy was
gained in two different ways and times. Some departments became aware of
the Strategy during the very early days of its formulation when the Ministry of
Trade and Industry led an extensive process of consulting with various
stakeholders as a means of making the process as inclusive as possible while
others came into contact with Khula and Ntsika in the course of implementing
their own (departmental) SMME support programmes.
With regard to business organizations, there is a general awareness of the
National Strategy and its institutions which is even stronger among some
business organizations. Virtually the organizations interviewed pre-date the
National Strategy and its institutions in terms of existence and activities in the
SMME support field. Many of these were involved in one way or the other in
the processes of formulating the National Strategy – submitting input to the
position papers of the National Strategy, participating in task teams and
attending a series of workshops and the two Presidential conferences on
small business. Generally, the Strategy is viewed as comprehensive, although
some perceived weaknesses and inconsistencies within the Strategy have
been pointed out.
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University of Pretoria etd – Chalera, C S (2007)
With regard to the collaboration with the institutions created under the
National Strategy, government departments’ involvement of the SMME
support institutions in their work varies from one department to the other whilst
business organizations’ collaboration with institutions created under the
National Strategy ranges from very limited to extensive.
Propositions test
The propositions with regard to the awareness and collaboration with
governments’ departments and other business organizations with institutions
created under the National Strategy (Proposition Seven, Eight and Nine)
are accepted because, according to the findings, there seems to be a great
awareness
form
both
the
government
departments
and
business
organizations of the institutions created under the government’s National
Strategy. The study also revealed that there seems to be collaboration
(though differing) between the governments’ departments including the
business organization with the institutions created under the National
Strategy.
10.3.6
Analysis on the role of parastatal enterprises and provincial
SMME desks on the National Strategy
Parastatal enterprises
Parastatals impact the government’s National Strategy for small businesses in
the following ways:
•
Parastatals have developed progarmmes through their tender boards and
other means to procure services from SMMEs. This is the principal means
by which they impact on small business throughout the country.
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University of Pretoria etd – Chalera, C S (2007)
•
Some parastatals offer services that SMMEs use in their business
processes. For example, parastatals offer training to SMMEs in order to
build technical competence and skills in the SMMEs e.g. the South African
Bureau of Standards (SABS) offer training to SMMEs on welding.
•
Some parastatals offer training programmes to SMMEs on skills that will
help them to effectively deliver services for which they have been
contracted to supply, e.g. Transnet offers training to SMMEs who have
been contracted to provide garments to them.
•
Parastatals are also involved in the Strategy through their participation in
other general business forums that address SMME issues, e.g. the
NAFCOC, of which parastatals are members.
The direct involvement of parastatals with the institutions and programmes
expressly established by the government’s National Strategy can be
described as follows:
•
They interface with Ntsika services for information on foreign contacts
when they go on trade missions overseas.
•
They run SMME programs for which they require input from Ntsika and
sometimes from Khula.
•
The mandate of most parastatals, as government-related institutions,
requires them to engage SMMEs in their day-to-day business activities.
This has resulted in them setting up units to work with SMMEs.
In order to link the parastatals more close to the government’s National
Strategy, the parastatals, suggest that the following activities should be
undertaken:
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University of Pretoria etd – Chalera, C S (2007)
•
A forum for the exchange of information on SMME Strategy programmes
and other relevant aspects.
•
Regular access to a CSBP representative that could provide them with
information on how to work with SMMEs.
•
Participation by Strategy institutions (e.g. Ntsika and Khula) in the
parastatal SMME programmes.
10.3.6.1
Observations on parastatal enterprises
Interviews with the parastatals highlighted the following aspects in relation to
the government’s National Strategy:
Level of awareness of the government’s National Strategy by the
parastatal community can be described as follows:
•
They view the Strategy as a long-term effort by the government to create
jobs and alleviate poverty.
•
Their knowledge of the Strategy is derived mainly from press articles.
•
The Strategy is the government’s attempt to include previously
disadvantaged people in the economic growth process.
Parastatals have the following expectations of the government’s
National Strategy:
•
The Strategy should guide their own initiatives that relate to SMME’s by
providing information and expertise.
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University of Pretoria etd – Chalera, C S (2007)
•
The Strategy, through its institutions and other infrastructure, should
identify market and training opportunities to the SMME sector that
emanate from the parastatal community.
•
The Strategy should conduct research that will be used as inputs in the
development of other parastatal programmes to assist SMMEs.
The study found that parastatals have experienced the government’s
National Strategy in the following different ways:
•
The Strategy has not provided them with clear guidelines on how to design
and implement their own SMME programmes.
•
They have found that CSBP is not suitably staffed to be able to provide the
required levels to support their needs.
•
They have used Ntsika services to support their programmes, however
they have not used Khula services. They have rather referred people to
Khula directly.
•
The Strategy’s institutions have not been proactive in contacting and
relating to the Parastatal organizations.
The lack of coordination of the Strategy has resulted in the parastatal
community running their own SMME programmes:
•
Parastatals run similar progarmmes, which should have been coordinated
to eliminate duplication, e.g. the Land Bank runs a Step-up loan program
that addresses agricultural sector needs, which could have been run
through Khula.
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University of Pretoria etd – Chalera, C S (2007)
•
SMMEs working with parastatals have missed the opportunity for
accessing Khula financial products because of lack of contact between
Khula and parastatals.
Parastatals suggested the following initiatives to integrate them more
effectively in the government’s National Strategy:
•
The Strategy institutions should provide information for parastatals to use
in their procurement and other SMME programmes.
•
Closer co-operation with the institutions that implement the Strategy in
order
to
foster
the
alignment
of
programmes
and
a
common
understanding.
•
The Strategy institutions through their own representatives should actively
involve themselves in Parastatal SMME progarmmes.
•
The Strategy institutions should create an information exchange to share
experiences and opportunities.
•
The Strategy institutions should develop products that will support the
Parastatal procurement initiatives that support SMMEs.
Provincial SMME desks
The role of provincial SMME desks is to co-ordinate the National Strategy’s
initiatives at both provincial and local levels. The study covered the following
scope in conducting the evaluation of the SMME programme in the provinces:
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The provincial SMME desks are involved in the SMME strategy in the
following ways:
•
Provincial SMME desks are responsible for the co-ordination of the SMME
strategy in the provincial and local levels.
•
These provincial SMME desks also influence and create laws that will
impact SMMEs at the levels where provincial governments have authority.
•
The provincial SMME desks are intended to interact with the CSBP on how
the Strategy is co-ordinated and the relevant policies are implemented.
•
Provincial SMME desks also run local and provincial SMME programmes
of their own. These programmes are mostly focused on meeting local
needs that have been met by the Strategy’s programmes.
The direct involvement of the provincial SMME desks in the
government’s National Strategy activities can be described as follows:
•
In most instances they attend meetings at DTI to be briefed on the
Strategy activities
•
The provincial SMME desks also get involved through various committees.
•
There is insufficient evidence to suggest that they provide any significant
input into local strategies and programmes.
•
They represent the interest of the CSBP at the local level. This is made
difficult by the fact that the Strategy’s institutions do not usually liaise with
them directly. Their constituencies get confused about the role of these
institutions that are operating on the ground.
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In order to link the provincial SMME desks more closely to the
government’s National Strategy, the following are suggested:
•
CSBP should provide information to these desks on SMME activities
emanating from DTI. They would in turn utilize the information for
developing their own programmes.
•
The provincial SMME desks should be given the opportunity and authority
to develop their own strategies and products that would suit local
conditions. This will bridge the gap created by the lack of understanding by
national institutions of local SMME issues and needs.
•
The provinces where the interviews were conducted do not possess the
requisite skills and expertise on some of the SMME development issues.
They would need access to expertise from CSBP and other groups to
assist them with their planning and related activities.
•
The role and status of co-ordination of the SMME Strategy should be
elevated to work across all the other government departments on matters
related to the Strategy.
•
The provincial SMME desks, together with the provincial development
corporations, should be reconfigured to support the creation of a unified
provincial and local SMME Strategy.
10.3.6.2
Observations on provincial SMME desks
The interviews in the four provincial SMME desks (Mpumalanga, Limpopo,
Gauteng and North-West) highlighted the following:
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The SMME desks have the following expectations of the SMME strategy:
•
The government’s National Strategy should be customized to suit local
conditions e.g. in the agricultural Mpumalanga, the Khula finance products
should be oriented towards agricultural businesses.
•
The government’s National Strategy should empower the provincial
authorities to make decisions based on their unique local conditions.
•
The government’s National Strategy should provide guidelines to the
provincial institutions on policies and strategies for SMME development.
•
The government’s National Strategy should be based on a higher level of
risk taking if it is going to engage enterprises that are considered “nonbankable” by the banking sector.
•
When products or services are being developed for SMMEs by the various
strategy institutions, they should take cognizance of local conditions.
The study found that provincial SMME desks experience the SMME
strategy in the following different ways:
•
The government’s National Strategy has not provided them with clear
guidelines on how to design and implement their own SMME programmes.
•
They have found that CSBP is not suitably staffed to be able to provide the
required levels of support of their needs.
•
They have used Ntsika services to support their programmes; however,
they have not made extensive use of Khula services. They have rather
referred people to Khula on their own.
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•
The government’s National Strategy’s institutions have not been proactive
in contacting and relating to the various provincial desks.
•
They believe that they have been instructed by DTI to work directly with
various programmes from Khula or Ntsika.
The government’s National Strategy has resulted in the provincial SMME
desks and local government structures running their own SMME
programmes, e.g.:
•
Limpopo province has created a NGO to co-ordinate a LBSC that will
incubate SMMEs.
•
Mpumalanga is running the SMME programmes through its local metro
structures.
Provincial SMME desks have suggested the following initiatives in order
to involve them in the government’s National Strategy
•
CSBP should provide access to the information for the provincial
authorities to use in their local SMME programmes.
•
The provincial structure would like to be involved in research that is
conducted on SMMEs at the local level. This would provide them with
access to research funding from CSBP.
•
The authorities see the need for creating an enabling SMME legislative
environment that will encourage or support private sector involvement in
the government’s National Strategy.
•
There is need for a reconfiguration of the provincial development
corporations to support provincial SMME strategy development.
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•
The provincial or local strategy should be moved to the premier’s office to
send a message of its importance and urgency to achieve results.
10.3.6.3
Research propositions with regard to parastatal enterprises
and provincial SMME desks
The research propositions with regard the parastatal enterprises and the
provincial SMME desks were formulated to test the responses given by the
research subjects in order to assess their role in the government’s National
Strategy.
The responses of the research subjects will be used to evaluate the following
propositions:
Proposition Ten:
Parastatals
National
are
aware
of
Strategy
for
the
the
government’s
development
and
promotion of SMMEs and are satisfied with the
way the National Strategy has contributed to their
own SMME initiatives.
Proposition Eleven:
Provincial SMME desks are effectively and directly
involved in the government’s National Strategy’s
activities.
10.3.6.4
Study findings with regard to parastatal organizations and
provincial SMME desks
With regard to parastatal organizations, the study found the following:
•
The government’s National Strategy, through its institutions and other
infrastructure, should identify market and training opportunities to the
SMME sector that emanate from the parastatal community.
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•
The government’s National Strategy has not provided them with clear
guidelines on how to design and implement their own SMME programmes.
•
They have found that CSBP is not suitably staffed to be able to provide the
required levels to support their needs.
•
The government’s National Strategy’s institutions have not been proactive
in contacting and relating to the parastatals.
•
Parastatals run similar progarmmes, which should have been coordinated
to eliminate duplication, e.g. the Land Bank runs a Step-up loan program
that addresses agricultural sector needs, which could have been run
through Khula.
•
SMMEs working with parastatals have missed the opportunity for
accessing Khula financial products because of lack of contact between
Khula and parastatals.
•
The
government’s
National
Strategy’s
institutions
should
provide
information for parastatals to use in their procurement and other SMME
programmes.
•
There is no closer co-operation with the institutions that implement the
government’s National Strategy in order to foster programme alignment
and a common understanding.
With regard to the provincial SMME desks, the study found the following:
•
The government’s National Strategy is not customized to suit local
conditions and conditions.
•
The government National Strategy does not empower the provincial
SMMEs desks to make decisions based on their unique local conditions.
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•
The government’s National Strategy does not provide guidelines to them
on policies and strategies for SMME development.
•
The government’s National Strategy is not based on a higher level of risk
taking to engage enterprises that are considered “non-bankable” by the
banking sector.
•
Products and or services do not take cognizance of local conditions when
being developed for SMMEs.
•
The government’s National Strategy has not provided the provincial SMME
desks with clear guidelines on how to design and implement their own
SMME programmes.
•
They have found that CSBP is not suitably staffed to be able to provide the
required levels of support of their needs.
•
The government’s National Strategy institutions have not been proactive in
contacting and relating to the various provincial desks.
Propositions test
The propositions with regard to the role of the parastatal enterprises and
provincial SMME desks in the National Strategy (Proposition Ten and
Eleven) are rejected because according to the findings of the study,
parastatals are not satisfied with the way the government’s National Strategy
has contributed to their own SMME initiatives and provincial SMME desks are
not effectively and directly involved in the National Strategy’s activities.
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10.4
Study of the small black economic empowerment mining
companies
This study constituted phase two of the study and embarked on the evaluation
of the awareness of the small black economic empowerment mining
companies with regard to the government’s National Strategy for the
development and promotion of the SMME sector and as to whether the
National Strategy has created an enabling environment for their businesses to
succeed thereby contributing to the National Strategy’s objectives of job
creation and economic growth.
10.4.1
Study
findings
with
regard
to
small
black
economic
empowerment mining companies
The findings of this phase of the study are as follows:
•
Fifty nine percent (59%) of the small black economic empowerment miners
know of some programmes including the government’s National Strategy
for the development and promotion of Small Businesses. The remaining
forty one percent (41%) though involved in the small scale mining
operations have no idea of any programmes including the government’s
National Strategy for the development and promotion of Small Businesses.
•
Out of the fifty nine percent of the respondents who know of some
programs including the National Strategy, seventy percent did not know
how the National Strategy go about its business and how to get access to
it. They have had no contact at all with any of the institutions formulated
within the framework of the National Strategy. The remaining thirty percent
of those who knew the Strategy had a general idea of how the Strategy
goes about its business, in fact only about fifteen percent knew precisely
how the Strategy conducts its business and have at least been in contact
with either Khula or Ntsika.
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•
With regard to the miners’ satisfaction with the way the government has
implemented the Strategy, eleven percent of the respondents who knew of
the National Strategy were fairly dissatisfied with the way the government
has implemented the National Strategy. A further eleven percent was very
satisfied and the remaining seventy eight percent were fairly satisfied.
These findings could be interpreted as follows: Since only fifteen percent
knew precisely how the National Strategy goes about its business, it is no
surprise that the majority of the respondents could be unknowingly
referring to the way the Department of Minerals and Energy is supporting
them
through
the
department’s
Broad
Based
Socio-Economic
Empowerment (BBSEE) policy aimed at assisting small black economic
empowerment mining companies to actively be involved in the South
African mining industrial sector which is dominated by big companies
predominately “white-owned”.
•
Almost all the respondents who knew National Strategy for the
development of small businesses feel that the Strategy has created
opportunities for them. This could partly be for the reason already
mentioned above i.e. the DME’s initiative with regard to the BBSEE policy.
Lack of finance and competition, especially from the big players in the
mining industry, were major weaknesses and threats mentioned by the
respondents.
•
With regard to training and training needs the study revealed that seventy
three percent of the mine owners have not had any formal training in most
business and management business disciplines. The need for business
training with regard to the mine owners is huge; almost every one
mentioned the need for formal business training to run their businesses
successfully.
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•
With regard to whether the government has provided necessary support
for their businesses successfully, the findings of the study could be
summarized as in Table 10.1:
Table 10.1: Opinion on government’s provision of the necessary support
for small business on a point 1 to 10 scale
Scale
Frequency
Percentage
Weight
1
4
18
0.18
2
3
14
0.28
3
3
14
0.42
4
6
27
1.08
5
3
14
0.70
6
0
0
0.00
7
0
0
0.00
8
1
4
0.32
9
0
0
0.00
10
2
9
0.90
22
100
3.88
Referring to Table 10.1, it can clearly be concluded that the government
has not done enough in the provision of the necessary support for the
small business sector as the score of just below 4 by the respondents
portrays, where a 1 indicated the lowest score and a 10 the highest score.
•
With regard to when the miner owners started their businesses, the study
showed that twenty five percent of the miners started their businesses
between 1999 and 2000, ten percent started between 1994 and 1996,
sixteen percent started in 1995, six percent started in 2001 and eight
percent started in 2002. The study also noted that on average these small
mining companies employ four people on a full time bases and eight
people a part-time base. The study finally concluded that the small black
economic empowerment companies average their annual turnover
between three million to four million.
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10.4.2
Research propositions with regard to small black economic
empowerment mining companies
The research propositions with regard to the small black economic
empowerment mining companies were formulated to test the responses given
by the research subjects in order to assess as to whether the government’s
National Strategy for the development and promotion of the small business
sector has created an enabling environment for that particular sector.
The responses of the research subjects will be used to evaluate the following
propositions:
Proposition One:
Small black economic empowerment mine owners
know
some
government’s
programmes
National
including
Strategy
for
the
the
development and promotion of Small Business.
Proposition Two:
Small black economic empowerment mine owners
know how the government’s National Strategy go
about its business, how to get access to it and they
have had contact with the institutions formulated
within its framework.
Proposition Three:
Small black economic empowerment mine owners
have been very satisfied with the way the
government
has
implemented
the
National
Strategy.
Proposition Four:
The National Strategy has created opportunities for
the small mining sector which in turn has
minimized their weaknesses and barriers for
growth thereby enhancing their strengths.
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Proposition Five:
Small black economic empowerment mine owners
have had formal training and do not require any
formal training in most business disciplines.
Proposition Six:
Small black economic empowerment mine owners
think that the government has succeeded in the
provision
of
necessary
support
for
their
businesses.
Proposition Seven:
Most small miners opened their businesses after
1994 and that there has been significant growth in
their businesses with regard to the number of
employees and their annual turnover.
10.4.3
Testing the propositions of the study with regard to small
black economic empowerment mining companies
The study on the small black economic empowerment mining companies
found the following:
•
Fifty nine percent (59%) of the small black economic empowerment miners
know of some programmes including the government’s National Strategy
for the development and promotion of Small Businesses. The remaining
forty one percent (41%) though involved in the small scale mining have no
idea of any programmes including the government’s National Strategy for
the development and promotion of Small Businesses.
According to this finding, the proposition (Proposition One) that small black
economic miners know some programmes including the government’s
National Strategy for the development and promotion of Small Business is
rejected.
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•
Out of the fifty nine percent of the respondents who know of some
programs including the National Strategy, seventy percent did not know
how the National Strategy go about its business and how to get access to
it. They have had no contact at all with any of the institutions formulated
within the framework of the National Strategy. The remaining thirty percent
of those who knew the Strategy had a general idea of how the Strategy
goes about its business, in fact only about fifteen percent knew precisely
how the Strategy conducts its business and have at least been in contact
with either Khula or Ntsika.
According to this finding, the proposition (Proposition Two) that small black
economic miners know how the National Strategy goes about its business and
how to get access to it and that they had contact with all the institutions
formulated within the framework of the government’s National Strategy is
rejected.
•
With regard to the miners’ satisfaction with the way the government has
implemented the Strategy, eleven percent of the respondents who knew of
the National Strategy were fairly dissatisfied with the way the government
has implemented the National Strategy. A further eleven percent was very
satisfied and the remaining seventy eight percent were fairly satisfied.
According to this finding, the proposition (Proposition Three) that small
black economic miners have been very satisfied with the way the government
has implemented the National Strategy is rejected.
•
Almost all the respondents who knew National Strategy for the
development of small businesses feel that the Strategy has created
opportunities for them.
According to this finding, the proposition (Proposition Four) that the
government’s National Strategy has created opportunities for the small black
economic empowerment miners is accepted.
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•
With regard to training and training needs the study revealed that seventy
three percent of the mine owners have not had any formal training in most
business and management business disciplines. The need for business
training with regard to the mine owners is huge; almost every one
mentioned the need for formal business training to run their businesses
successfully.
According to this finding, the proposition (Proposition Five) that small black
economic empowerment mine owners have had formal training and do not
require formal training in most business disciplines is rejected.
•
With regard to whether the government has provided necessary support
for their businesses successfully, the study found out the government has
not done enough (well below average) in the provision of necessary
support for the small miners.
According to this finding, the proposition (Proposition Six) that small black
economic empowerment mine owners think that the government has
succeeded in the provision of necessary support for their businesses is
rejected.
•
With regard to when the small miners started their businesses, the study
showed that twenty five percent of the miners started their businesses in
1999 and 2000, ten percent started in 1994 and 1996, sixteen percent
started in 1995, six percent started in 2001 and eight percent started in
2002. It was also illustrated that on average these companies employ four
employees on a full time bases and eight employees on a part-time bases.
The study finally concluded that the small black economic empowerment
companies average their annual turnover between three million to four
million.
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According to this finding, the proposition (Proposition Seven) that most
miners opened their businesses after 1994 and that there has not been any
significant growth in their businesses with regard to the number of employees
and their annual turnover is accepted.
10.5
Conclusion
In this chapter the research results and findings of both phases of the study
were outlined.
A summary of findings, conclusions, recommendations and suggestions for
future researches on the small business sector will be discussed in the
following chapter.
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CHAPTER 11
CONCLUSIONS AND RECOMMENDATIONS
11.1
Introduction
In the previous chapter the research results and findings were discussed. In
this final chapter of this thesis the discussions focus on the conclusions and
recommendations of the investigation. Final conclusions on findings of the
study will be presented. Recommendations for further research will also be
suggested.
The conclusions and recommendations of the entire study could be
summarized as follows:
11.2
Centre for Small Business Promotion
11.2.1
Principal conclusion
The Centre for Small Business Promotion (CSBP) was conceived as the
central policy making, co-ordinating and performance monitoring group of the
government’s National Strategy. Specifically, the White Paper states the
following:
“Within the national government the DTI is the co-ordinating body for all
policies responsible for all matters related to the small business sector and for
all SMME-supported programmes directly or indirectly assisted by the
government. It is also responsible for the co-ordination of small business
strategies pursued by the provincial government within the national policy
framework”.
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The White Paper states that “a Chief Directorate for Small Business will be
responsible for all matters related to the government’s support for small,
medium and micro and emergent enterprises”. Thus, the White Paper gives
the CSBP a large measure of authority to lead the entire government’s
programme related to the National Strategy.
A principal and critical conclusion of the study is that the CSBP as currently
structured, does not come close to performing the role that was intended for it
in the White Paper. In practice, it has not been accorded the stature and
authority needed to co-ordinate all policies within government related to small
business sector. The CSBP remains a small entity, one of many Chief
Directorates in one ministry of the government. In practice, it has little
leverage over other parts of the government other than requesting
consultations through interdepartmental committees.
Because of the inadequate role of the CSBP, the government’s National
Strategy is largely leaderless. As a result, assistance to the SMMEs sector
has become increasingly scattered and disconnected, marked by duplication
and lack of co-ordination. Performance standards have generally not been
established and where they have been they are not effectively monitored.
There is, in effect, no strong, forceful stewardship of the National Strategy at
the policy or the operational level.
Even within the DTI-family of organizations, namely Ntsika and Khula, the
CSBP’s authority has been severely circumscribed. While the CSBP does
have the final authority through its approval of budgetary allocations, its lack
of personnel and financial resources, and the political pressures to maintain
existing programmes, have meant that the Centre has been able to have little
impact on the organization it is intended to oversee. In practice, it essentially
operates as a rubber stamp for existing operations.
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11.2.2
Principal recommendations
It is critical that government fill the leadership vacuum in the National
Strategy. A critical body for policy, programme coordination and performance
monitoring of all government activities in the SMME sector is needed for the
National Strategy to succeed. Consideration should be given to elevating the
status of the CSBP, or creating another coordinating mechanism, so as to
ensure that it is recognized as such within all government departments.
Adequate resources should be accorded to the Centre to perform its functions
as a policy and co-ordinating unit for the national government as well as with
provincial governments. Qualified personnel should be assigned to full-time
co-ordination of programmes with other ministries, provincial governments,
and non-governmental organizations.
The Centre should redefine its role as focused strictly on policy research, coordination, and the monitoring and evaluation of results. It should exit from its
current service delivery activities and assign these to organizations such as
Ntsika, and other government departments, as appropriate.
Conversely, the policy and research functions that are currently being
performed by Ntsika are misplaced in a service delivery institution and should
be commissioned into the Centre.
The Centre should have professionals to liaise full time with Khula and Ntsika
so as to ensure proper communication, co-ordination, and monitoring and
evaluation. These individuals should also serve as policy advisors to these
organizations and be in frequent working contact will all programmes and
division heads. Similarly, others should be contracted to work with other
SMME sectors in the same manner.
The Centre should be required to produce an annual report on the state of the
National SMME Development Strategy, demonstrating progress that has been
made at all levels of government.
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The Centre should interact more directly with the governing boards of groups
like Ntsika and Khula to ensure that the boards are fully informed of
government policies, enabling them to play a more effective governance role.
11.3
Ntsika Enterprise Promotion Agency
11.3.1
Principal conclusion
Under the government’s National Strategy for SMME development and
promotion, Ntsika Enterprise Promotion Agency was given the mandate to
provide a wide range of non-financial services to local service delivery groups
on a “wholesale” basis, meaning delivery of resources to local providers that
work directly with SMMEs. These services include institution building of these
organizations, training programmes for entrepreneurs, mentoring of individual
firms, marketing and procurement advice, technological assistance, among
others. Given the sheer range of these activities, it is clear that Ntsika’s
mandate is critical to the success of the government’s National Strategy.
Ntsika’s task has been a daunting one, one conducted without the benefit of a
clear focus of prioritization from the National Strategy or from government
bodies. It was established as a quasi-independent organization under the
National Small Business Act of 1996, outside of normal government
bureaucracies, so as to be able to focus exclusively on the delivery of
services. It has struggled to succeed at the tasks laid out for it, but has had
mixed results.
This mixed record is due to several factors. First, it is an institution without the
benefit of clear working precedents. It has had to develop its own internal
procedures from the beginning. Second, there has been little consensus
within the organization itself on its priorities and also very little assistance from
the designated policy group within the DTI, the Center for Small Business
Promotion. Third, there has been rapid turnover of personnel and internal
dissention over the direction and management of the organization as well as
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serious lack of direction from its own board. Fourth, there are serious internal
contradictions within the National Strategy itself, which has limited Ntsika’s
potential.
In short, Ntsika has tried to be all things to all people, launching a flurry of
programmes with little connection among them, weak follow-through, little
leveraging of existing public and private initiatives, little co-ordination with
provincial authorities, and virtually no co-ordination with its sister institution,
Khula.
During the study, it was noted that the general view is that Ntsika has become
a wasteful bureaucracy in its own right, and in many areas out of touch with
the SMME community. Its board has taken a largely passive role in
questioning the direction of the organization and has little familiarity with the
actual results of Ntsika’s operations. For its part, the CSBP, because of its
own limitations has played the role of budget watchdog, leading to serious
dissention and even animosity between the two groups.
Despite several successful programmes (such as Tender Advice Centers and
its technology programmes), Ntsika is generally perceived to be a scattered,
unfocussed, and inefficiently managed institution. The study leads it to concur
with this perception, even accepting that Ntsika’s mandate is probably too
ambitious and not clearly focused.
11.3.2
Principal recommendations
Based on the findings of the study Ntsika’s recommendations could be
summarized as follows:
Ntsika’s mandate
With regard to Ntsika’s mandate, the following issues need to be considered:
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•
Ntsika should revisit its original mandate and restructure several of its
programmes.
•
Decentralization of its operations, and substantially lower budgetary
allocations to headquarters-based programmes.
•
Resident representatives should be established in each province to work
closely with local groups, provincial authorities, and Khula’s RFIs.
•
De-emphasis on launching its own “retailing” of services.
•
Substantially greater co-operation with existing regional and local service
groups, both NGO and private profitable (Pty) groups.
•
Linkages with Khula to service SMMEs in the field.
•
Formal co-operation with provincial small business desks in the design and
delivery of services in each province.
Composition of Ntsika programmes
Regarding the composition of Ntsika’s programmes, the following issues need
to be considered:
•
There needs to be consensus and formal recognition among stakeholders
on whether Ntsika should be more selective in its targeted assistance
(more in-depth assistance with follow-up and mentoring) or whether Ntsika
should continue to provide generic services to a large cross-section of
SMMEs.
•
Before creating new service delivery groups, Ntsika should first focus on
supporting existing institutions in the regions with established delivery
systems.
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•
Recognizing regional and sectoral differences, Ntsika should be less
prescriptive/standardized in its assistance programmes, and support the
direction of successful local service providers that have first hand
knowledge of what services local SMMEs need.
•
Ntsika must work much more closely with Khula so that SMMEs can
receive the combined benefits of financial and non-financial support.
Ntsika and Khula (with their LBSCs and RFIs) should be required to work
more closely together in the regions, in some cases sharing common office
space in the provinces. Serious consideration should be given to putting
Ntsika and Khula headquarters under the same roof as well as to foster
much closer co-operation.
Governance and management of Ntsika
With regard to governance and management of Ntsika, the following need to
be considered:
•
The Minister needs to appoint a more activist board, composed of
individuals with business experience and with direct experience with
SMMEs.
•
The board of Ntsika needs to ensure that Ntsika’s management is highly
experienced in running complex organizations and programmes and make
sure it hires competent divisional managers, many with business as
opposed to academic or NGO backgrounds, who have demonstrated
experience in small business issues.
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11.4
Khula Enterprise Finance Limited
11.4.1
Principal conclusion
Khula Enterprise Finance Limited was mandated to undertake an ambitious
task for the country, namely improving access to finance for the country’s
large SMME sector, with special emphasis on its previously disadvantaged
population. Khula’s mission is a critical component of the National Strategy’s
long-term success. However, Khula’s potential for success has been
compromised by several internal contradictions in the mission and structure of
the organization, each of which limits Khula’s ability to reach its stated goals.
Khula’s contradictions with regard to its mission can be summarized as
follows:
•
While Khula’s mission is to facilitate the flow of credit to the high risk small
business sector, it is simultaneously expected to operate according to
conservative banking principles, maintain high loan recovery rates, and
achieve a favourable return on equity.
•
The success of Khula’s credit guarantee programme depends almost
entirely on the commercial banking sector’s willingness to lend to small,
previously disadvantage businesses, which banks are by nature, generally
disinclined to do.
•
Khula’s loan programme encourages its Retail Financial Intermediaries
(RFIs) to lend to “unbankable” micro-enterprises while simultaneously
remaining financially self-sustaining.
•
Khula was conceived as a “wholesale” institution, yet it is under constant
pressure to act and market itself as a retail organization that offers
financial services directly to businesses.
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11.4.2
Principal recommendations
Khula needs to segment its market both strategically and operationally,
making a clear distinction between purely commercial lending, oriented
towards small and medium enterprise, and development-oriented lending for
micro-survivalist enterprises requiring higher risk tolerance.
A major effort should be undertaken to work with the banking sector through
mechanisms or institutions other than credit guarantees. Khula should take
the lead in rallying the banking community to undertake joint efforts and
develop lending mechanisms involving shared risk to support access to credit,
particularly by the small business category.
Khula’s charter should be altered so as to tolerate greater risk taking and
lower loan repayment targets, permitting Khula to sustain a greater level of
risk to meet its stated goals.
Khula should remain a “wholesale” organization, focusing its marketing
programme at the banking community on behalf of its RFI network, as
opposed to marketing to the general public.
Khula should work increasingly with profitable (Pty) groups that are already
experienced and competent to undertake lending operations, as opposed to
NGOs that do not possess the requisite skills and experience, or mentality.
Khula and the banking sector should jointly participate in and finance
mentoring services for small business borrowers.
Mentoring should be attached to LBSCs or other service providers to assist
potential borrowers with all necessary business plans and loan application
preparations, complying with bank criteria, to be submitted to the banks.
Application would be submitted to banks with 80% guarantees, whereupon the
banks would undertake due diligence only.
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Khula’s monitoring and evaluation should be focused not only on financial
results but also on lending results and impacts.
Khula and Ntsika need to operate together at the local level and at
headquarters; strict separation of the two organizations is self-defeating for
both. While they should obviously not be merged, they would benefit from
being physically housed under the same roof.
11.5
Effectiveness of the National Strategy
11.5.1
Principal conclusion
Based on the results of the study with regard to the effectiveness of the
National Strategy, the study clearly identified several successes and failures
of the National Strategy as perceived by those service providers and small
businesses surveyed. The study has also outlined issues emanating from
Khula and Ntsika as already discussed.
11.5.2
Principal recommendation
Given the changes in the environment in the last ten years the following
recommendations according to the findings of study need to be considered:
Ntsika and Khula must work more closely with the provincial SMME
desks
Both Khula and Ntsika have limited contact with people in the provinces. The
SMME desks are a key component to the development of SMMEs because
they are more knowledgeable about local conditions and markets.
There must be increased communication between service providers
Service providers often do not communicate with other service providers on
the most basic issues, leading them to miss many obvious synergies. Most of
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the service providers surveyed indicated that they see the possibility of
working together in the future on activities, like combining training and
financing.
Better linkages between financial and non-financial service providers
are crucial
If financial and non-financial serves are not closely co-ordinated, many
benefits are lost. It is extremely beneficial to combine financial and nonfinancial services – to conduct training and mentoring before and after an
SMME owner receives a loan to make sure that the best and most appropriate
use of the borrowed funds are made.
There must be changes in the banking laws
Changes in the banking laws need to occur to facilitate the banks to be more
“SMME friendly” and willing to deal with the sector.
Provincial monitoring of Khula and Ntsika programmes is essential
Khula and Ntsika do not have a complete idea of what is happening on the
ground. The quality of the training should be taken into account, as well as
people who receive a second or third round of training on more advanced
subjects.
Change in criteria for funding for service providers is necessary
Presently, a service provider must have been in business for a stipulated
amount of time in order to be accredited by Ntsika. Service providers find it
difficult to survive without Ntsika funding for very long. Also, those that are
affiliated with other organizations are ineligible for Ntsika certification because
of that affiliation.
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Funding of some service providers’ operating expenses must be
provided
Service providers are trying to work with a very poor sector of the population
that does not have resources to pay for services. Therefore these service
providers have a difficult time sustaining themselves. They need Khula and
Ntsika to fund some of their operating expenses in recognition of the realities
of the population they are serving.
National voice for small business needed
There is a need for a voice for small business at the national level. The study
pointed out that even while the NSBC was in operation, it did not represent
effective representation. Similarly, there are doubts that NAFCOC is able or
motivated to represent the issues facing small business in this country.
11.6
Other institutions influencing Small Business development
11.6.1
Principal conclusion
All government, business organizations and other SMME development
practitioner bodies who participated in this component of the study are aware
of the National Strategy and the majority of them consider it a reasonable
policy framework.
The pre-conceptualization phase of the National Strategy formulation process
is commended for having played a key role in mobilizing a wide range of
SMME stakeholders behind the Strategy and securing their early buy-in by
giving them an opportunity to make input into the Strategy.
However, weaknesses in the National Strategy began to emerge as the
process progressed from initial consultations to the actual design of the
Strategy and its institutions to its implementation and management. These
relate to the establishment of new institutions instead of utilizing existing ones,
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perceived lack of a clear plan of action and focus on the part of Khula and
Ntsika, poor overall communication around the Strategy, and lack of
collaboration among various players.
Despite this lack of clarity and, in some cases disagreement on certain
aspects of the Strategy, however, various government departments and
organizations outside government have initiated and implemented their own
SMME development programmes. Some of these are implemented in
collaboration with Khula and Ntsika, albeit on a less than desired scale.
There is a need for the review and re-focusing of the Strategy and its
objectives and redirecting of the operations of the National Strategy
institutions. A need to broaden the outreach of current programmes to
accommodate small and medium enterprises has been pointed out. There is a
view that programmes currently reach micro-enterprises only to the exclusion
of the rest.
11.6.2
Principal recommendations
There is a need to formulate inter-departmental mechanisms to facilitate coordination
of
departmental
SMME
programmes
and
the
overall
implementation of the SMME strategy.
The role of the DTI itself with regard to the co-ordination of the Strategy needs
to be clarified and DTI needs to be more actively involved in monitoring the
implementation of the Strategy.
The marketing and communication of the Strategy both within and outside of
government needs to be considerably improved.
The focus of the two national support institutions needs to be reviewed and
more narrowly defined. These organizations may need to be streamlined and
reduced in size in order to be more focused. There is also need to foster
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closer co-operation between the institutions. Duplication of programmes –
such as a Mentorship Programme – and services should be eliminated.
SMME support institutions need to develop and implement mechanisms to
interact and collaborate with existing institutions, especially business
representatives’ bodies which have a direct interest in the effective delivery of
support services to SMMEs, especially their members.
The government’s National Strategy needs to be reintegrated into the overall
macro economic policy of the government (GEAR). SMME development
should also be integrated into and clearly articulated in all local economic
development initiatives. It is necessary to strike a careful balance between
redistributive objectives and growth and efficiency objectives. The current
focus on micro-enterprises is seen as addressing only redistributive objectives
to the exclusion of growth and efficiency ones. It is proposed that the latter
objectives can be more effectively addressed through a stronger focus on
small and medium size enterprises, which do not feature strongly in current
programmes.
In future the focus should be more on strengthening and working through
existing institutions of various types than creating new ones.
Programmes should be tailored as much as possible to the needs of SMMEs
in specific locations rather than generic and inflexible. Programmes should be
based on clear understanding of sectoral opportunities and prospects and a
thorough analysis of the support needs of SMMEs in various sectors of the
economy.
The National Strategy should be reviewed regularly. Firm targets should be
set and progress around these should be documented and communicated
widely.
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11.7
Parastatal Enterprises and provincial SMME desks
11.7.1
Principal conclusion on parastatal enterprises
Based on the interviews conducted on parastatal enterprises and its findings,
the study has come up with the following conclusions:
•
Parastatal’s involvement in the National Strategy is primarily through
procurement services.
•
There is a need to create a method of sharing and providing information to
parastatals by CSBP and its supporting institutions. A closer relationship
between the Strategy’s institutions and the parastatals is essential in order
to maximize opportunities that are created through procurement and other
parastatal programmes.
11.7.2
Principal conclusion on provincial SMME desks
Based on the interviews conducted with provincial SMME desks and its
findings, the study has come up with the following conclusions:
•
The level of awareness of the National Strategy and its implications is
insufficient in order for these structures to effectively implement it at
provincial level.
•
Provincial structures are limited by their inability to get services and
information from the core Strategy institutions.
•
The current provincial development corporations are not well suited to
implement the Strategy in their regions.
•
The implementation structures need to report directly to the premier.
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•
There should be more information sharing to assist the provincial
structures in implementing the Strategy at the provincial level.
•
The National SMME Strategy should be revived to emphasize the unique
local conditions for SMME development.
11.7.3
Principal recommendation on the parastatal enterprises
The study of parastatals has resulted in the following recommendations:
An information network that will assist parastatals on all matters that
would be relevant to their mandates as well as assist SMME
development
•
A web site with information on matters that relate to the SMME Strategy
needs to be instituted. This information should serve as a resource for their
own research on SMME matters.
•
An information exchange forum where the Para-statals could share
experiences on working with SMMEs.
•
An exchange of information with the CSBP to discuss constraints that the
CSBP or other institutions could help to resolve.
Provision of expert information about SMME support opportunities,
either through a DTI representative, other SMME institutions, or through
access to recommended specialists.
•
Provision of information on financing of SMMEs from Khula and Ntsika
institutions.
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•
Some programmes require that they should liaise with other government
departments on matters related to SMMEs. A DTI or relevant institution
should provide them with relevant information.
A relationship between parastatals, CBSP and other relevant institutions
should be developed. This will facilitate the involvement of the
parastatals in the SMME Strategy
•
A CSBP representative should be appointed to co-ordinate relationships
with parastatals.
•
The CSBP representative could act as a liaison between the other
institutions within the SMME Strategy and the parastatals. This relationship
could facilitate a better understanding of the mandate of the various
institutions and how the Para-statals could contribute opportunities to the
SMME sector as they arise.
Strategy institutions and the CSBP should actively participate in
parastatal SMME programmes
•
Their participation could link the para-statals’ SMME activities to services
that are offered by these institutions, such as Ntsika and Khula, e.g.
access to bridging finance for SMMEs who have contracts with
parastatals.
•
The SMME programme seeks to identify market opportunities for SMMEs.
The involvement of the Strategy’s services providers would provide
product development opportunities offered by the parastatal community.
11.7.4
Principal recommendation on the provincial SMME desks
The findings on the provincial SMME desks have resulted in the following
recommendations:
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The provincial management and co-ordination of the Strategy of the
provincial level should be moved to report to the premier’s office.
•
The SMME desks should report to the premier’s office to facilitate working
across the various functions of the government that are implementing the
Strategy.
•
The transfer of this function to the premier’s office should also indicate the
seriousness of the SMME strategy.
The SMME desks and the provincial development institutions should be
reconfigured into one local and provincial development service delivery
corporation or agency.
•
This reconfiguration would provide an opportunity to unify the Strategy.
This would also eliminate duplications of programmes and resource
applications.
•
This consolidation of the SMME programmes would improve access to
services that are offered by the national institutions, e.g. access to finance
for SMMEs that have won contracts with parastatals.
•
The reconfiguration would also facilitate the management of the provincial
corporations. It would also facilitate access to physical resources that
could be of value in the implementation of the Strategy, e.g. some
provincial development corporations own infrastructure that could facilitate
SMME growth.
•
The CSBP should co-ordinate a forum for Parastatals with provincial
SMME desks to exchange information on opportunities and constraints in
the Strategy.
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An information network that will provide access to information to assist
provincial desks on all matters that would be relevant to their mandates
and SMME related activities
•
A web site with information on matters that relate to the SMME Strategy.
•
Information exchange forum where provincial desks could share
experiences on SMMEs with each other.
•
The network should serve as a resource for their own research on SMME
matters.
•
Exchange information on constraints that CSBP and other institutions
could address.
Provide expert information about SMME related aspects either through a
DTI representative, Strategy service providers, or through access to
recommended specialists.
•
Provision of information on financing of SMMEs that are making use of
Khula-based facilities.
•
In the development of their own programmes, the provinces need advice
on how best to achieve their goals, thereby needing information on these
issues.
11.8
Small black economic empowerment mining companies
11.8.1
Principal conclusion
Almost half of the small black economic empowerment miners (i.e. 41%) do
not know of any government programs including the National Strategy for the
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development of Small Businesses. This finding negates our proposition
number one that small black economic empowerment miners know of some
programs including the government’s National Strategy for the development
and promotion of small business do not.
This could directly point to the
government’s inability to promote the other programmes including the National
Strategy to the target audience, for example the small miners.
Out of the fifty nine percent of the respondents who know of some
programmes including the National Strategy, seventy percent did not know
how the National Strategy goes about its business and how to get access to it.
They have also had no contact at all with any of the institutions created within
the framework of the National Strategy. Fifteen percent of those who know the
National Strategy, a mere fifteen percent, knew precisely how the Strategy
goes about its business and have been in contact with either Khula or Ntsika.
This finding also sustains the claim that the government has not marketed the
National Strategy to the target audience effectively i.e. there is no aggressive
communication strategy.
Out of the respondents who knew the National Strategy eleven percent was
fairly dissatisfied, a further eleven percent was very satisfied and the
remaining seventy eight percent were fairly satisfied. The conclusion to these
findings is controversial as it is not clearly known to what their satisfaction
referred to between the BBSEE initiative by the Department of Minerals and
Energy and the National Strategy itself. This controversy brings the conclusion
that small black economic empowerment mine owners have not been very
satisfied with the way the government through the Department of Trade and
Industry has implemented the National Strategy specifically.
Almost all the respondents who knew National Strategy for the development
of small businesses feel that the Strategy has created opportunities for them.
This could partly be for the reason already mentioned above i.e. the DME’s
initiative with regard to the BBSEE. Lack of finance and the major competition
especially from the big players in the mining industry were major weaknesses
and threats mentioned by the respondents. Since it is not precisely clear as to
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whether the small miners were referring to the BBSEE initiative and that
finance and competition from bog players in the industry still remain an
obstacle to their operation, it can be concluded that the National Strategy has
not created opportunities for the small miners which in turn has minimized
their weaknesses and barriers to growth in the mining industry.
Seventy three percent of the small miners have not had any formal training
and they need formal training with regard to the success of their businesses.
The finding clearly negates the proposition that small miners have had formal
business training with regard to the success of their business ventures.
The statistical analysis and findings as to whether the government has
succeeded in the provision of support for their businesses successfully shows
that all small miners on average feel that the government has not provided the
necessary support for their businesses. This is sustained by the average
score of 4 on a 1 to 10 point scale where 1 is the lowest score and 10 the
highest.
Finally, the study determined that twenty five percent of the miners started
their businesses between 1999 and 2000, ten percent started in 1994 and
1996, sixteen percent started in 1995, six percent started in 2001 and eight
percent started in 2002. The study also showed that on average these
companies employ four employees on a full time bases and eight employees
on a part-time bases. The study finally concluded that the small black
economic empowerment companies average their annual turnover between
three million to four million rands.
Considering the average employee and financial turnovers it clearly shows
that these mines are stuck at the medium sized enterprises which clearly
show that there has not been any significant growth in their business
operations. From this finding, it can further be concluded that the small black
economic empowerment mining companies have not sufficiently created jobs,
which is the objective on the government’s National Strategy.
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There seems to be a very serious lack of coordination between the
Department of Minerals and Energy and the Department of Trade and
Industry who is the custodian of the government’s National Strategy. There is
indeed, one would conclude, a duplication of same tasks by the two
government departments, all aimed at the same audience. This is a clear sign
of lack of internal communication within government departments.
The findings of the second phase of the study clearly confirm the findings of
the first phase of the study i.e. there are serious problems especially with the
implementation of the National Strategy. The institutional framework of the
National Strategy clearly needs to be revised (refer to the proposed
institutional framework on appendix ten) and other strategic issues, for
example, sector and size category (i.e. small, medium, micro) strategic
orientation need to be seriously considered as all these differences create
specific dynamics indifferent from each other. The “fit-all” characteristics and
approach of the current government’s National Strategy for the development
of small, medium and micro enterprises seems not to be the right approach.
11.9
Overview conclusion of the study
11.9.1
Introduction
Ten years of SMME sector development and promotion in this country, the
study has shown that South Africa’s National Strategy for the development
and promotion of the SMME sector has not been able to transform South
Africa’s SMME economy into a vibrant small business sector. This can be
attributed in part to the fact that a small firm’s growth depends to a large
extent on the growth of the macro economy. Since macro-economic growth
over the past years, has at best, been modest (though the Reserve bank has
forecasted 6% economic growth, it has only averaged at 3%), it may be
concluded that SMMEs have not been able to develop to their full growth
potential. Nevertheless, the study clearly argues that the development and
promotion of South Africa’s SMME economy suffers from poor implementation
of policy initiatives, which are in turn, woefully inadequate.
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To date, a serious analysis of the impact of the government National Strategy
on the SMME economy has been lacking, despite an abundance of policy
literature of SMMEs in South Africa, which focuses on various aspects such
as skills, entrepreneurship, finance and others. The problem seems to be the
absence of an existing coherent framework on what all these different aspects
collectively mean in the context of economic growth and the problem of
unemployment. This study aimed to contribute to the building of the “bigger
picture”. This concluding section simply aims to highlight – based on the
findings of the study - the major gaps that still preclude making
comprehensive policy recommendations, specifically in three areas: labour
markets, capital markets and product markets.
All these factors are explanatory factors in the growth of SMMEs. Very little
has been said about crime. Indeed, in South African context, it is one of the
key factors contributing to a hostile environment of investment and SMME
growth in particular.
11.9.2
SMME policies as a part of a wider framework
Important and specific though they may be, SMME growth and prosperity are
clearly not “stand-alone” aims to be pursued in ignorance of the broader
economic policy. In fact, it is easily understandable that SMME growth can be
strongly affected by the macro-economic context. Nevertheless, it makes
much sense to keep SMME policies within a separate and coherent
institutional responsibility.
11.9.2.1 Macro-economic policy and its impact on SMME growth
It is generally difficult to arrive at solid conclusions about the impact of macroeconomic policy on SMMEs. Globally, the relationship between SMME (or
entrepreneurship) and economic growth is complex with “opportunity
entrepreneurship” being stimulated by a growing economy, while “necessity
entrepreneurship” is
rather counter cyclical but creates very precarious
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employment (Kesper, 200). Increases in the numbers of enterprises should
therefore not necessarily be regarded as a positive effect on the economic
context.
In South Africa, there is a lively debate on whether macro-economic policy in
almost the past ten years has acted as a catalyst or deterrent to overall
growth. Since the adoption of the GEAR strategy in 1996, the South African
government has successfully reduced its fiscal deficit and contained inflation –
albeit by means of raising the real interest rate. To what degree this hindered
new investment in the SMME economy is less clear, for the following reasons:
•
The impact of macro-economic policies on the private sector is often very
intricate.
•
Macro policies affect not just the SMME sector, but also the private sector
as a whole.
Fiscal restraints, for example, appear to have an indirect impact on SMME
growth by affecting levels of government expenditures on procurement and
hence the demand side of SMME growth. Monetary policy has increased the
cost of formal credit as a capital source for new investments. Fluctuation in
the exchange rate impact negatively on SMMEs, which are highly dependent
on imported input and equipment, while its depreciation was seemingly
insufficient in making South African products more competitive in export
markets. It is the differential impact on the spectrum of micro to medium firms
and the sectors in which they operate which matters and needs to be
investigated further.
This raises a whole set of questions which can only be dealt with through a
comprehensive evaluation of the soundness of the SMME sector, and not just
of the numbers.
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11.9.3
The labour market and SMMEs
11.9.3.1 Labour regulation and employment dynamics
The promotion of SMMEs is seen as an instrument to foster the creation of
employment. According to Kesper (2000), there is, however, little empirical
evidence on how strong this effect might be in South Africa. Current research
on SMMEs in South Africa is limited to the use of entrepreneurs’ perceptions,
which inevitably point to the constraining effects of labour market regulations,
and in particular minimum wages. However, the study has not analytically
investigated the functioning of the labour market, and this in turn impacts on
growth in SMME employment.
The functioning of the labour market is likely to affect employment in SMMEs
because small firms tend to be more labour intensive than their larger
counterparts. Indeed, SMMEs are disproportionably found in labour-intensive
industries like mining, and within a given industry they are more labour
intensive than their larger counterparts. It is accordingly expected that high
labour costs would deter new SMME formation and employment increases in
existing firms.
As a middle-income economy country, South Africa has a largely
heterogeneous labour force with a high dispersion of labour productivity
(owing to a high variance in skills, which correlates with wage levels if left to
the forces of the market). While the existence of a large supply of low-skilled
labour should allow SMMES to employ such labour at low wages, labour
regulations may deter the skill-productivity-wage balance. There are
indications that wages matter more to SMMEs than to larger firms, and that
the application of too high a minimum wage makes SMMEs either exit, or
become less labour intensive, i.e. to become more like larger firms. So far,
however, the effect of wage levels on employment growth or decline in the
SMME sector has not been rigorously analyzed and quantified.
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11.9.3.2 Flexibility of labour
Another issue of concern is the flexibility of South Africa’s labour force. The
typical growing SMME does not expand smoothly or continuously. Instead, its
employment often fluctuates, reflecting the arrival of competition into the niche
it was the first to find, the resolution of internal problems or those of the
SMME entrepreneur and so on. There are indications that regulations that
limit the flexibility of “hiring and firing” cause some of the SMMEs that supply
very volatile product markets to close down. Unfortunately, it is difficult to
assess just how much merely provides a pretext for unfair dismissal. Likewise,
the enforcement of basic conditions of employment such as paid maternity or
sick leave especially burdens SMMEs because the monetary and labour
replacement costs involved are not spread over a large enough work force.
One of the objectives of the dialogue with this respective is to clarify the
difference between the area where there is a true trade-off between the
welfare of existing employees and the potential to create more jobs vs. those
other areas where no such trade-offs exist. This involvement of the state is to
bear costs, which neither of the two parties should bear. There is a
widespread tendency of the burden of labour reallocation of the firms, while at
the same time avoiding a situation where the workers are forced to pick up
that burden.
11.9.3.3 Future research on labour and SMMEs
In order to assess the impact of labour market dynamics and regulations on
SMME growth, data on employment changes by size and sector and on
wages differentials among different sizes of firms is needed to answer the
following questions among others:
•
Is South Africa’s labour structure different from other middle-income
countries, in particular with regards to self-employment in the microenterprise sector?
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•
Does measured open unemployment obscure survivalist or microenterprise activities?
•
Are there large wage differentials between small and large firms, and are
the associated wage/employment elasticities different (apart from variation
across sectors?).
•
To what degree does current market legislation negatively impact on
actual (not planned) employment creation in SMMEs? To what extent do
SMMEs (indirectly) generate employment through subcontracting as a
response to labour regulation?
•
What is the potential for a combined unemployment insurance retraining
system that eases the burden of labour market adjustment for both the
worker and the firm?
11.9.4
Capital markets and financial intermediation
11.9.4.1 Some policy framework guidelines
A major challenge facing the government is how best to use its finite
resources to support SMMEs and how its overall support interfaces with
access to finance and the role of private financial institutions in service
provision.
At one level there are enterprises that present viability problems per se, and
thus are a high risk. It appears that these enterprises, when they are able to
borrow, are charged high interest rates by institutions to make up for the risks,
but the cost of finance makes them even more vulnerable. It is argued that the
support needed by these enterprises is primarily non-financial, although it
makes sense to accompany, for example, marketing support by an enabling
framework to accompany growth.
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A major challenge is to ensure that if firms become viable entities on the (nonfinancial side) then the financial market should not prejudice them should they
require finance. The predicament of financial intermediation only becomes a
problem if there are enterprises that could make effective use of finance but
cannot get it. There is a range of factors that explain the problem of financial
intermediation.
First, general factors are linked with the size and risk of the firms, such as: risk
ceilings of financial institutions; lack of information and credit records, making
the credit assessment very difficult; high for the size of the loan. These factors
are typical explanations for market failures on SMME financing.
Second, there are factors specific to previously disadvantaged communities,
such as lack of valuable collateral, or the inability to provide adequate
security/own contribution, as well as cultural barriers. Unfortunately, there are
no known recipes for dealing with these factors. Removing interest rate
ceilings to enable the development of high-risk lenders may be counterproductive if enterprises are too vulnerable to bear higher interest rates.
Simplification of procedures and better control of costs are the responsibility of
individual financial institutions, but pushing them into that direction raises the
risk of an even more “blanket approach” and worse service quality. Subsidies
are not likely to be sustainable.
11.9.4.2 Further research needs
More research is certainly needed to arrive at reasonable conclusions as to
where the most pressing needs are, and how capital markets, or government
intervention in the capita markets, can facilitate better access.
The central vision of a needed research output to deliver a better basis for
policy-making would be a “map of demand and supply”, which would
encompass the research of separate studies on a segmental approach. That
project might involve the following steps:
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•
The identification of types of enterprises that are relevant for SME finance
purposes (according to criteria of age, sector, location, size, background,
growth potential), and the main types of finance to consider (equity, shortterm and long-term debt, possibly asset-based vs. pure finance).
•
For each type of enterprise, the identification of the average demand for
various types of external capital, according to their growth potential, their
current financial structure, and typical capital intensity. The desirable
upgrade of a certain number of companies into the next higher category
should also be considered in the model.
•
Similarly, an attempt at identification and quantification of the main sources
of finance on the market (including micro-lenders, buyer-advances, or
supplier-credit, business angels and venture capitalists) and to brake these
amounts down between the types of enterprises, in order to have a first
indication of where the capital supply overshoots, almost meets, or lies far
behind demand.
•
A critical review of the qualitative constraints facing supply and demand,
i.e. the institutional and economic constraints affecting the ability of various
financial institutions to operate on certain segments; and the credit
worthiness and interest-bearing ability of SMMEs, per category. In
addition, an attempt at providing some explanatory guidelines for these
constraints (regulatory obstacles, main sources of costs and risk, and so
on).
Such a “cartographic exercise” is a considerable challenge, especially for the
types of finance that are very badly researched (such as trade credit and
lease/installment finance) and even more for some under-researched types of
enterprises (such as informal firms and rural enterprises). It probably needs to
be fulfilled by the puzzle technique, i.e. investigating various samples in
various settings and aggregating the various pictures obtained to a coherent
representation of various (sub-) market equilibria.
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Further useful research might also involve:
•
A review of cultural barriers impeding the implementation of a working
venture capital scheme. At present, venture capital is under-developed on
the SMME segment because of both lack of interest of many venture
capital firms, and lack of readiness of SMMEs. For example, entrepreneurs
tend to be discouraged from when they consider the need to give up part
of the control on what they consider to be their ownership. Whether these
barriers are definitive or whether the strong economic case for equity may
reverse the trend and increase the demand for capital should be
investigated.
•
An analysis of the flows of credit to SMMEs in South Africa, and the way
the monetary policy has influenced such flows over the last decade.
•
A more accurate analysis on South African banks’ activities towards
SMME including:
o Comparison of South African bank’s SMME loans (and repayment
experience) with similar developing countries. Anecdotal evidence,
indeed, suggests that the share of loans to SMMEs in South Africa
is lower than some developing countries. This may or may not be
the result of low density in the SMME sector, but to understand this
better will require data from banks.
o An investigation into the likely success of cost-reduction practices or
higher competition among the banks, to encourage it to service the
SMME sector better. If competition generates a shift in loan books
of banks from large corporates to SMME clients, SMMEs are likely
to benefit. (However certain SMMEs’ dependence on larger firms,
e.g. through subcontracting, may sometimes offset this effect).
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o A review of the effects of bank regulation. Currently the regulatory
system to which banks and other financial institutions must respond
is becoming tighter, a trend which makes riskier types of business
more and more capital-intensive. The need and justification of an
innovative regulatory framework, which would allow “SMME banks”
to function with lighter capital bases under certain conditions,
should be investigated.
11.9.5
Trade and Market structures
Supply-side measures alone are not sufficient enough to make SMMEs grow
if there is lack of access to potential markets. Indeed, falling demand levels
are a core concern of South African SMMEs. Micro-enterprises largely
complain about increased competition as a result of rising unemployment and
lack of purchasing power in their immediate markets, while more established
SMMEs maintain that their target markets are dominated by large firms or are
shrinking. Identifying insufficient demand as a primary constraint is not
surprising in South Africa where both small and large firms suffer from low
aggregate demand. Nevertheless, small firms may be most prominent in
sectors, industries and market segments that are more affected than those
where large firms dominate.
Some sense of demand parameters may assist government in not creating
overly high policy targets. More information would be needed on what SMMEs
are producing and what market segments they occupy or target. One way in
which the government could harness this kind of information is by linking
SMME specialists to the sector directorates. Government’s ability to harness
information on the SMME sector will depend less on generic SMME
specialists but more on sector/economy-wide specialists with an SMME focus.
With slow economic growth, which has tampered the performance of the
SMME sector, what initiatives can be taken by the DTI to boost their
performance? Are there “growth pockets” in the SMME economy, where by
virtue of their size and other attributes, are they able to grow even in the face
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of overall stagnation? Published data, used as background by Ntsika (2001)
for their State of Small Business report could be a useful starting point as it
offers considerable sector detail in terms of manufacturing sectors over a long
period, although it only offers those SMMEs that are captured by the various
manufacturing census released by Stats SA. The Global Entrepreneurship
Monitor (2002) report could provide additional insights to corroborate the
findings of this urgently needed research.
11.10
Conclusion
The basic thrust of this conclusion section is that we are far from having
sufficient knowledge of the supply and demand parameters/factors that impact
on SMME growth in South Africa. This partly reflects the incomplete
understanding of these issues in developing countries in general and also the
short history of analysis of such issues in South Africa and major change of
the context; hence the challenge since the new dispensation in 1994. What
are the important priority areas where increased information for government
decision-makers will be especially important if success is to be achieved in
accelerating SMME growth?
South Africa’s SMME sector is expected to fulfill a number of roles ranging
from
poverty
alleviation
and
employment
creation
to
international
competitiveness. Not only are these very divergent policy objectives, but also
the policy instruments introduced to meet these objectives can be equally
different, ranging from literacy training to technological advice. Accordingly
(and presumably for political reasons), determining clear priority groups is
urgent, be it the targeting of more efficient promotion activities towards the
more productive SMMEs, or to better assist survivalist, mainly black-run
endeavours.
One of the greatest difficulties confronting policy makers is how best to
develop an approach to SMMEs that achieves a sufficient degree of coordination between supply-side efforts and demand potential. Although there
is the risk of investing resources of improving supply potential where demand
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constraints are high (e.g. low growth in demand because of regional
stagnation), a major question is whether supply-side incentives have
frequently been ineffective because of such demand problems or whether
mis-specified supply policies/deficient service delivery are the true causes of
lack of success.
Ultimately, however, it is the generation of detailed information about the
functioning and working of the SMME sector that determines, first and
foremost, the success or failure of a redesigned SMME policy framework.
Small business performance seemingly depends not only on the removal of
constraints by means of (supportive) public policies and regulations, but
decisively on industrial and organizational structures, the adaptiveness of the
businesses and, above all, the capabilities and aspirations of the
entrepreneur.
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Rogerson, C. M. (1996): Rethinking the Informal Economy of South Africa.
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Rogerson, C. M. (1997): SMMEs and Poverty in South Africa. Input report for
the National Project on Poverty and Inequality, Johannesburg.
Rogerson, C. M. (1998a): The Gauteng manufacturing SMME economy:
Present status and future prospects. Paper on Education, Training and
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Rogerson, C. M. (1998b): In Search of an African miracle: Enterprise in Africa.
Report
prepared
for
the
Centre
for
Development
and
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Rogerson, C. M. (1998c): Small Enterprise Development in Post-Apartheid
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Rogerson, C. M. and Reid J. M. (1997): Towards a framework for Rural Small
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presented at the 2000 TIPS Forum, September, Johannesburg.
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Appendix One: Questionnaire
Initials
Date
Start Date: 2003
Survey:
Questionnaire No:
Back checked by:
Edited by:
Analysed by:
This questionnaire is the property
of:
Queries/
Refusals:
Question
Nos.
Clement Stanley Chalera, a PhD student at the
University of Pretoria
P.O. Box 12179, The Tramshed, Pretoria 0126
SURVEY TITLE: AN IMPACT ANALYSIS OF SOUTH AFRICA’S NATIONAL STRATEGY
FOR THE DEVELOPMENT AND PROMOTION OF SMMEs
INTRODUCTION:
Good morning / afternoon my name is (Name of interviewer). I am
conducting the interviews on behalf of Clement Chalera, a PhD student
at the University of Pretoria. We are currently conducting these interviews
for a PhD thesis for Clement and would greatly appreciate your views on
the subject.
Who should be interviewed: OWNERS OF SMALL BLACK EMPOWERMENT MINING
COMPANIES
Company Name:
Company Address:
Phone Number:
Fax:______________Date:_________________
Respondent Interviewed:
Respondent’s Position:
Interviewer’s Name:
I hereby certify that this is a true interview and that it is an accurate reflection of the respondent’s
comments.
Interviewer’s Signature:
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University of Pretoria etd – Chalera, C S (2007)
1.
Which government programmes or NGO’s do you know that are active in the development of
small businesses?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
2.
Have you ever heard of the National Strategy for the Development and Promotion of Small
Business?
Yes
3.
No.
IF YES – what do you know about the National Strategy – what are its aims?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
4.
How does it go about its business?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
………………………………………………………………………………………………………….
5.
How would you gain access to the programme?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
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University of Pretoria etd – Chalera, C S (2007)
6.
Have you ever had contact with any of the institutions formulated within the framework of the
National Strategy
Yes
7.
No
Don’t know
IF YES - With which of the institutions have you had any contact?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
8.
On a scale of 1 to 5 where 1 indicates your least satisfaction and 5 your greatest satisfaction how satisfied are you with the way government is implementing the National Strategy – on a
5-point scale of very satisfied to very dissatisfied.
9.
ƒ
Very satisfied
ƒ
Fairly satisfied
ƒ
Neither
ƒ
Fairly dissatisfied
ƒ
Very dissatisfied
IF LESS THAN VERY SATISFIED – Why are you not more satisfied?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
10. What are your particular strengths as regards your own business activities?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
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University of Pretoria etd – Chalera, C S (2007)
11. And what would you say are your weaknesses?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
12. How could the National Strategy for the Development and Promotion of Small Business help
overcome the weaknesses?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
13. What opportunities do you have to grow your business?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
14. And what are the barriers to the growth of your business?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
…………………………………………………………………………………………………………
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University of Pretoria etd – Chalera, C S (2007)
15. In which of the following disciplines have you ever had any formal training: (READ OUT
AND RECORD BELOW)
16. And in which of these disciplines would you like assistance? (READ OUT AND RECORD
BELOW)
Trained in
-
Finance
-
Production
-
Administration
-
Human Resources
-
Sales and marketing
-
Import/ Export procedures
-
Promotion
-
Distribution
-
Any other trained in– Please state
Required assistance
which…………………………………………………….……………
-
Any other require assistance in– Please state
which…………………………………………………….……………
17. Which training bodies/ teaching organisations have you attended?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
18. Finally on a scale of 1 – 10 where 1 indicates the lowest score and 10 the highest – please
score the government on its success in providing the necessary support for a small business in
South Africa
Score:
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University of Pretoria etd – Chalera, C S (2007)
19. Why have you given Government that particular score?
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
Demographics
Finally I would like to ask you a few questions about your company –
20. Into which of the activities on this list (SHOW LIST OR READ OUT) or any other does
your company fall:
ƒ
Small Scale mining
–
Gold
–
Coal
–
Diamond
–
Quarry
–
PGMs
–
Ferrous Minerals
–
Non-ferrous Minerals
–
Industrial Minerals
–
Other Minerals
21. When was your company established?……………………………….……………….…………
22. How many directors/ partners/ members do you
have?…………………………….………………………………………………………..……
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University of Pretoria etd – Chalera, C S (2007)
23. How many employees do you have?
Full time………….
Part time………….
24. Into which of the following turnover categories does you company fall: (SHOW LIST OR
READ OUT)
ƒ
Below R500 000
ƒ
R500 001 to R1 000 000
ƒ
R1 000 001 to R1 500 000
ƒ
R1 500 001 to R2 000 000
ƒ
R2 000 001 to R3 000 000
ƒ
R3 000 001 to R4 000 000
ƒ
R4 000 001 to R5 000 000
ƒ
R5 000 001 to R10 000 000
ƒ
More than
`
R10 000 000
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University of Pretoria etd – Chalera, C S (2007)
Appendix Two: Ntsika’s non-financial service providers
interviewed
Service Provider
Contact Person
Province
Location.
Tel/Fax No.
Business Opportunity Centre
Noman Makgato
Gauteng
5 Khoza Street
22 Solomon Road
Braamfontein
Johannesburg
2000
Tel: (011) 839 2750
Fax: (011) 839 1897
Hemix Projects
Mr. Bongani Mhlophe
Gauteng
3 Floor, Pretoria Trust
Building
273 Paul Kruger Str.
Pretoria
0001
Tel: (012) 323 0220
Fax: (012) 493 7156
Centre for Opportunity Development
Ms. Jan Beeton
Gauteng
PO Box 61540
Marshalltown
2017
Tel: (011) 832 2632
Fax: (011) 832 2637
Highveld Enterrenerial Development
Centre
Ms. Hanie De beer
Mpumalanga
HEDC Industrial Park
Zuid Street
Middleburg
1050
Tel: (017) 781 94081
Fax: (01781) 94081
Highveld Ridge Business Dev. Centre
Ms. Londani Mashila
Mpumalanga
South Wing of TLC
Building Lorgi Square
Secunda
2302
Tel: (017) 634 4339
082 356 7771
Fax: (017) 631 4005
Midveld Industrial Chamber Advice
Centre
Mr. S. Skhosana
Mpumalanga
Stand
No.
2994/5
Kwaggafontein C
Empumalanga
0458
Tel: (013) 968 0737
Fax: (013) 986 0737
Akani Local Business Centre
Mr. Paul Moropane
Limpopo
Giyani Road
Shirley Village
0960
Tel: (015) 556 3551
083 977 7867
Fax: (015) 556 3133
Centre for Opportunity Development
Mr. P Madziwo
Limpopo
Palabora Foundation
Ms. Joyce Makhema
Limpopo
Centre for Opportunity Development
Mr. Themba Nkosi
North West
Enterprinuarial Support Centre
Mr. Itumeleng Ditlhoiso
North West
rd
th
- 332 -
Office No. 07 /5 Floor
Rentmeester Bld.
58 Schoeman Str.
Polokwane
0699
Tel: (015) 291 1509
082 495 0097
Fax: (015) 291 1518
Cnr. Calvin Ngobeni &
Tambo Str.
Namakakgala
Plabors
1390
Tel: (015) 769 5000
Fax: (015) 769 5028
Potchefstroom
Tech.
College
Cnr. Auret & Retif Str.
Potchfstroom
2531
Tel: (018) 293 3905
Fax: (018) 293 3904
Montshioa
Industrial
Township
Kgotleng Road
Tel: (018) 384 4148
Fax: (018) 384 4149
University of Pretoria etd – Chalera, C S (2007)
Appendix
Three:
Khula’s
financial
service
providers
interviewed
Service Provider
Contact Person
Province
Location.
Tel/Fax No.
Ms. Noxolo Ngwazi & Alex
Quntana
Gauteng
5 Khoza Street
Attiredgeville
00008
Tel: (012) 373 9574
Fax: (012) 373 9574
Amumunene Servces
Noman Makgato
Gauteng
134 Unie Avenue
Lyttelton
0140
Tel: (011) 839 2750
Fax: (011) 839 1897
Shisa Business
Enterprise
Mr. Elvin Nel
Gauteng
PO Box 16494
Lyttelton
Centurion
0147
Tel: (011) 341 0118
Fax: (011) 341 0118
Tombo
Small
Business
Financial Services
Mr. Wish Nkosi
Mpumalanga
Block C
2467 Thuthukani Centre
Nelson Mandela Drive
Emelo
2351
Tel: (017) 781 94081
Fax: (01781) 94081
Hemix Projects Initiatives
Ms. Hanie De beer
Mpumalanga
HEDC Industrial Park
Zuid Street
Middleburg
1050
Tel: (017) 781 94081
Fax: (01781) 94081
Path Development Solutions
Ms. Londani Mashila
Mpumalanga
South Wing of TLC
Building Lorgi Square
Secunda
2302
Tel: (017) 634 4339
082 356 7771
Fax: (017) 631 4005
Khupuka Financial Services
Mr. P Madziwo
Limpopo
Office No. 07
th
5 Floor
Rentmeester Bld.
58 Schoeman Str.
Polokwane
0699
Tel: (015) 291 1509
082 495 0097
Fax: (015) 291 1518
Siyenda Financial Services
Ms. Joyce Makhema
Limpopo
Cnr. Calvin Ngobeni &
Tambo Str.
Namakakgala
Plabors
1390
Tel: (015) 769 5000
Fax: (015) 769 5028
Zenzele Enterprises
Mr. S. Preez
Limpopo
Cnr Waterval & Giyani
Rd.
Elim
0960
Tel: (015) 556 3207
Fax: (015) 556 3087
Kithlile
Support
Mr. Itumeleng Ditlhoiso
North West
Cnr Waterval & Giyani
Rd.
Elim
0960
Tel: (015) 556 3207
Fax: (015) 556 3087
Mr. Aubri Moabelo
North West
Cnr Waterval & Giyani
Rd.
Elim
0960
Tel: (015) 556 3207
Fax: (015) 556 3087
Montshioa
Industrial
Township
Kgotleng Road
Tel: (012) 256 0015
Fax: (012) 258 0001
Small Business
Enterprise
Support
Partners
Enterprinuarial
Isibane Resources
Enterprinurial
Centre
Support
Mr. VJoe Fitzel
North West
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University of Pretoria etd – Chalera, C S (2007)
Appendix Four: SMMEs interviewed
Service Provider
Tombo Metal Works
Kathorus Civils
Khuphuka Designs
Rivoni Industries
Contact Person
Mr. Liphaso Njienge
Mr. Litteya Mabuya
Mr. Jan Zondi
Ms. Hanie Mpeqeka
Province
Gauteng
Gauteng
Gauteng
Mpumalanga
Location.
Site B7
Mofolo, Soweto
PO Box 2130
Doorpsville
2926
64 Mabusela Road
Attrigville
2345
PO Box 89342
Westpark
0164
Thokoza Centre
Thokoza
1421
PO Box 163
Thokoza
1421
Community Park
Chamber of Business
Foundation
Tel/Fax No.
Tel: (011) 484 3996
Fax: (011) 484 3943
Tel: (011) 623 0104
Fax: (011) 623 0107
Tel: (011) 864 3652
Fax: (011) 864 3415
Tel: (013) 797 1870
Fax: (013)797 1880
PO Box 25567
Empumalanga
0458
Furncol Projects Construction
Mr. Calvin Mashakeng
Mpumalanga
Kwagaansfontein Centre
Giyani Road
Kwagaansfontein
Tel: (013) 986 0737:
Fax: (013) 986 0737
Po Box 1263
Kwagaansfontein
2302
Kithilile Texile Supplieres
Nicro Services
Manguang Industries
Altak Enterprises
Ms. S. Skhosana
Mr. Paul Moropane
Mr. Lemmy Mule
Ms. Joyce Makhema
Mpumalanga
Limpopo
Somatho Complex
Office No. B6
Ermelo
2351
PO Box 1353
Ermelo
2351
Lingelethu Centre
Palabora
1390
Limpopo
PO Box 1289
Palabora
1390
Hani Building
First Floor
Elim
0960
Limpopo
PO Box 1857
Elim
0960
Stand Number 528
Mankweng
Sovenga
0727
PO Box 971 Sovenga
- 334 -
Tel: (013) 242 2050
Fax: (013)242 2050
Tel: (015) 994 4583
Fax: (015) 992 4220
Tel: (015) 761 2116
Fax: (015)960 4714
Tel: (015) 559 9087
Fax: (015) 554 9175
University of Pretoria etd – Chalera, C S (2007)
Ekuseni General Dealers
Thekwin Enterprises
Kalahari Developers
Mr. Themba Nkosi
Mr. Itumeleng Ditlhoiso
Mr. Hunter Mabilo
North West
North West
North West
Office 101 Safari Centre
Van Velden Street
Brits
0250
PO Box 58
Brits
0250
Enna Murray Street
New Industria Sites
Easttleigh
Orkney
2620
PO Box 911
Orkeney
2620
Protea Centre
Cnr Martin & Station Rd.
Mafikeng
2745
PO Box 211
Potchefstroom
2531
- 335 -
Tel: (012) 252 2090
Fax: (012) 252 2094
Tel. (018) 473 1213
Tax: (018) 473 1213
Tel: (018) 381 6531
Fax: (018) 381 6537
University of Pretoria etd – Chalera, C S (2007)
Appendix Five: Provincial Financial and Economic Affairs
departments interviewed
Province
Head of
Department
Interviewed
Postal address
Tel/Cel. No.
Fax No.
Gauteng: Department of
Finance and Economic
Affairs
Ms. T Chikane
Private Bag X091
Marshalltown 2107
94 Main Street, 7th
Floor, Marshalltown,
2001
(011) 355 8707
(011) 834 1972
Mpumalanga:
Department of Finance,
Economic Affairs and
Tourism
Mr. J I Mabena
Private Bag X11215
Nelspruit 1200
Building 6, Riverside,
Government Complex
Neilspruit
(013) 766 4544
(013) 766 4617
Ms. I Thase
Private
Bag
X90
Mmabatho 2745
Private Bag X9486,
Polokwane, 0700
58 President Street,
Polokwane
(018) 384 1024
(018) 384 1026
(015) 295 7090
(015) 297 0937
North West: Department
of Economic and Tourism
Limpopo; Department of
Finance
Mr. B. Mphahlele
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University of Pretoria etd – Chalera, C S (2007)
Appendix
Six:
Provincial
Public
Works
departments
interviewed
Province
Head of
Department
Interviewed
Gauteng: Department of
Public Transport, Roads
and Works
Ms. J
Merwe
Mpumalanga:
Department of Public
Works and Roads
North West: Department
of Roads and Public
Works
Limpopo: Department of
Public Works
Postal address
Tel/Cel. No.
Fax No.
Private Bag X091
Marshalltown 2107
94 Main Street, 7th
Floor, Marshalltown,
2001
(011) 355 8707
(011) 834 1972
Mr. S.J. Mabena
Private Bag X11302
Nelspruit 1200
Building
7,
Riverside,
Government
Complex Neilspruit
(013) 766 6804
(013) 766 8462
Ms. K L Sebego
Private Bag X65
Mmabatho 2735
(018) 387 2064
(018) 387 2061
Mr. S Phillips
Private Bag X9490,
Polokwane, 0700
Cnr
Tster
and
Bouberg
Street,
Polokwane
(015) 293 9043
(015) 293 1520
van
der
- 337 -
University of Pretoria etd – Chalera, C S (2007)
Appendix Seven: Parastatal enterprises
Institution
Purpose
To develop and monitor the
South African Bureau of implementation of standards
Standards
To provide finance for agricultural
Land Bank
enterprises
To
provide
infrastructural
Development Bank of development finance
Southern Africa
To provide transport services
Transnet
To
provide
telecommunication
services
Telkom
To provide electrical services
Eskom
To conduct scientific research
CSIR
Industrial Development To provide finance in manufacturing
Corporation (IDC)
sectors
To provide energy resources
Sasol
Production of steel products
Iscor
National
Housing Provide access to finance for
Finance Corporation
housing
Independent
Implement government community
Development Trust
programs
- 338 -
Interviewed
Yes
Yes
Yes
Yes
Yes
Yes
No
No
Yes
Yes
No
No
University of Pretoria etd – Chalera, C S (2007)
Appendix Eight: Provincial SMME desks
Provincial
Name
Postal address
Tel/Cel. No.
Fax No.
Interviewed?
SMME desk
Eastern
Cape
Province
Mr.
Mcebisi
Jonas/Mr.
Box
11197
Goppie Reddy
Southernwood
(043)7432158/
(043)7431157
0835411742
No
5213
Free
State
Mr. Mari Tsiki
Province
Box
520
Bloemfontein
(051)4054229/
(051)4033424
0825623488
No
9300
Gauteng
Mr.
Dann
Province
Morgan
Box
63203
(011)3558049/
(011)3558049
Marshalltown
Yes
2107
Kwazulu
Natal
Province
Ms.
Ntokozo
Majola
Private Bag X001
(031)3105300
Bishopsgate 4008
0826329876
(031)3105413
No
Mpumalanga
Mr.
Province
Mduli
Lemmy
Private
Bag
(013)7554004
(018)3847479
X11215 Nelspruit
Yes
1200
North
West
Province
Northern
Cape
Province
Annoinette
Private Bag X90
(018)3841020
Baepi
Mafikeng 2745
0838394022
Vincent
Private
(053)8394022
Mothibi
X6108 Kimberley
Bag
(053)8326805
Yes
(018)3847479
8300
Limpopo
Mr.
Stan
Province
Mathabatha
Private
No
Bag
(015)2987000
(015)2958750
X9484
Pietersburg 0700
Western
Province
Cape
Dudley Adolf
Yes
P o Box 979 Cape
(021)4838751
town
0834127340
- 339 -
(021)4833483
No
University of Pretoria etd – Chalera, C S (2007)
Appendix Nine: List of small black economic empowerment
companies interviewed
NAME
ACTIVITY
OWNER
Mzintlava Quarry
Quarry
Ms. Agnes Mzobotshi
Mimpex Minerals
Quarry
Mr. Henry Mhlongo
Endulwin Resources
Coal
Mr. Sipho Dube
Eyesizwe Mining
Coal
Mr. Mandla Mncunu
Cloverdane Pr. Metals
Gold
Mr. Grey Thibela
Ukhozi Mining
Coal
Mr. Rudy Phillis
Kuyasa Mining
Coal
Mr. Ayanda Bam
Shisa Minerals
Coal
Mr. Solly Pillay
Vula Coal Mine
Coal
Mr. Pat Mkhize
Af-Renais Diamond
Coal
Mr. Emmanuel Nhlapo
Nhlapo Mining
Diamond
Ms. Beauty Kwena
New Ventue Mining
Gold
Mr. Victor Mojalefa
Sandland Stone Active
PGMs
Mr. Vuyo Ntshona
Umnothe we Sizwe
Various Commodities
Mr. Gopolang Makokwe
New Diamond Corporation
Granite
Mr. Aubrey Somana
Nala Mining
Diamond
Mr. Pius Mokgokong
Sebenza Mining
Diamond
Mr. Briss Mathabane
Imbani Mining
Coal
Mr. Malcom Goliath
Sedibeng Mining
Coal
Mr. Sindi Sibankulu
Tsantsabane Mining
Coal
Mr. Constance Nkosi
Lidonga Mining
Diamond
Mr. Musa Mayambo
Kwena Minerals
Iron Ore
Mr. Mr. Vuyo Vanga
- 340 -
University of Pretoria etd – Chalera, C S (2007)
Appendix Ten: Proposed structure for job creation and small
business promotion
President or Deputy President
Business Associations,
Industry Federations, Labour
National Commission for
Job creation and Small
Business Development
Donors
CSBP
Parastatals
Other government
departments
Provincial
Premiers
Department of Trade
& Industry (DTI)
SMME
Ntsika
Khula
Banking
Community
Provincial Small
Business Finance
Corporations
LBSCs
Others
Micro/Survivalist Sector
TACs/MACs
RFIs
Small and Medium Business Sector
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