OPINION: SA does entrepreneurs like us no favours
BUSINESS LIVE / 24 APRIL 2019 - 05:07 / DAN BROTMAN AND MPHO MACCHAMBERS
The number of start-up companies has halved because of lack of policy co-ordination
As millennial entrepreneurs who benchmark ourselves against international standards, we can unequivocally state that SA’s environment is not conducive to the growth of small, medium and micro-sized enterprises. The statistics speak for themselves: according to the Small Business Institute, SA now has 250,000 formal small SMMEs, a drop of nearly 45% from a previously reported 554,000.
Though 98.5% of all registered businesses in the country are SMMEs, they only provide 28% of employment, whereas the international norm is 60%-70%. While many laudable initiatives have recently been launched by the private sector to foster SMME growth, we believe these will not optimally achieve their aims, and 70% of SMMEs in this country will continue to fail within their first two years if entrepreneurs and the private sector do not partner to lobby to change the policies that have led us to this unfortunate situation.
One example of a major policy inhibitor is the lack of regulation in the enterprise and supplier development (ESD) industry. Since the amended codes of good practice on broad-based BEE 2013 came into effect and placed a greater emphasis on awarding points for supporting small black-owned businesses, opportunists have launched ESD programmes of varying quality, ranging from top-notch to fly-by-night. It is not uncommon for entrepreneurs, particularly those in the start-up phase, to jump from one ESD programme to another without achieving any tangible growth or measurable success in their ventures. We personally know many entrepreneurs who have participated in seven or eight incubator programmes in a row, but whose businesses are still struggling to survive.
The endless number of support programmes such entrepreneurs get roped into, and barely gain from, can easily be mitigated if incubators, accelerators and ESD programmes functioned under stricter regulation with tight quality controls. Policies should exist for regulating the number of support programmes an individual entrepreneur or business can participate in, as well as for measuring the outcomes of such programmes against the status of the entrepreneur’s business. This would ultimately force these programmes to become more competitive, as their “client base” would have to be more selective of the programmes in which they choose to participate.
More often than not, large companies receive BEE points for supporting SMMEs regardless of whether the enterprise succeeds or fails. Creating policies that allow programmes to only claim 50% of BEE and ESD points for supporting the entrepreneur, and the remaining 50% only if the entrepreneur can prove growth in their business as a direct result of the support, is one way in which the industry of support programmes can be better regulated.
Regulations such as this would ensure a stronger commitment from the programmes to the success of the entrepreneurs they support, and this, in turn, would also ensure entrepreneurs do not keep jumping from one programme to another in search of more impactful growth opportunities.
Unlike SA, SMME-friendly countries such as Singapore, which is ranked number two on the 2018 World Bank ease of doing business index, offer an entrepreneurship visa that grants start-up entrepreneurs residency for two years to launch a new venture and create local employment. To be eligible for this visa, the foreign start-up entrepreneur must have raised funding from a government investment vehicle, venture capitalist or business angel that is recognised by the government. In addition, the foreign start-up entrepreneur needs to have been accepted to a Singaporean incubator or accelerator recognised by the government.
Though the home affairs department desperately needs to introduce “start-up entrepreneur” as a classification to the critical skills list, it would be difficult to ask entrepreneurship support programmes to assist in assessing applications as our investors, incubators and associated umbrella organisations are themselves not vetted for quality control and captured on a central database by a national regulatory authority.
As entrepreneurs, we can continue to allow others to decide our fate and launch programmes that are often slanted to the funder’s benefit, or we can organise as a collective and decide on the policies we most strongly believe need to change for us to thrive.
As we understand our needs best, we have a golden opportunity to work with the private sector to advocate for a healthier SMME policy environment that will benefit our country by leading to higher levels of employment and thus a larger consumer base with disposable income.
• Brotman is founder and CEO of En-novate and MacChambers is founder and CEO of Kula.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER