With votes for the 2019 National Elections counted, and the ANC retaining power, how can the ruling party make good on its promise of ‘growing South Africa together’? President Cyril Ramaphosa has inherited a growth rate of barely 1%; we’ll need a growth rate of at least 5% per year for twenty years to create enough jobs for everyone in our country… We simply can’t achieve this through the bloated public sector or struggling corporate sector. The answer, at least in part, will be creating an environment that allows small and medium businesses to thrive and create sustainable jobs.
All over the world, the economic contribution from small business is burgeoning. In the US, 70% of what is produced comes from SMEs. Unfortunately, locally a range of factors are stacked against a flourishing entrepreneurship sector, but these are certainly not unsurmountable.
One of the issues in our country is the widespread belief that it’s the government’s responsibility to create jobs. There’s a prevailing sense of employment entitlement, fueled in no small way by campaign promises like those seen in these national elections. It is highly problematic for any economy to be too reliant on the government for employment. We have already seen the impact of government creating too many public servant jobs over the past few decades. The government’s salary bill is a major contributor to South Africa’s sky-high debt.
One South African entrepreneur recently set the scene brilliantly in a videothat was widely shared. Marnus Broodryk pointed out that most political party manifestos claimed that they would create jobs for South Africans. But with a swollen civil service more likely to shrink than grow and a corporate world struggling in extremely tough economic times, it doesn’t seem viable for the jobs to come from these sectors. Our best bet, in his view, is SMEs.
Another big issue in terms of our sustained unemployment – which stands at around 27% - is that there is a fundamental structural mismatch in our economy. The sectors that it is built on – mining and agriculture – are no longer where the growth is coming from. Growth is coming from services – retail, banks, education, media, property and the like – a sector which predominantly relies on its workforce to have an education level of grade 12 or above. However, our education deficit means that vast numbers of our unemployed are not sufficiently skilled to hold a job in the services sector. So, we can’t expect traditional employment creators to create new jobs.
Nowhere in the world is labour guaranteed a job. Countries like the US, where people start businesses and aren’t afraid to fail and try again, are the ones that have the best economic outcomes. We all need to try to make things happen for ourselves. And entrepreneurship is one of the best ways to do so.
But first we need the right climate. Where do we begin? I believe the time is right to finally actively break down all the well documented barriers that make it so difficult to start a business in South Africa. Factors such as South Africa’s labour laws, make it unviable for companies to grow past 49 employees as many businesses cap their employee complement - and therefore their growth – to avoid being subject to the labour law for bigger businesses. Of course, this should not come at the expense of individual rights, but laws which restrict economic growth are not in the nation’s favour.
Budding entrepreneurs have to jump through a range of seemingly insurmountable hoops. A prospective business starter who doesn’t have a bank account will not be granted a loan because there is no financial track record. If you do qualify for a loan the interest rate could be in excess of 20% on the business loan. If you overcome all that, your new business will be set up amidst political, social and economic uncertainty.
The focus, in my view, should move away from the generic message of creating jobs towards a more directed and focused message. South Africans have so much potential. We’re a naturally optimistic nation, so let’s channel the optimism and shift our mindset to one of making our own success in life. Starting with a vibrant small and medium business sector. My hope is that the President puts this very high on his agenda right from the start of this new term.
Written by Professor Andre Roux, Head: Futures Studies Programmes at USB and faculty member at USB-ED