Small and Medium Enterprises (SMEs) have been identified as productive drivers of inclusive economic growth and development in South Africa and around the world. Some researchers have estimated that, in South Africa, small and medium-sized enterprises make up 91% of formalised businesses, provide employment to about 60% of the labour force and total economic output accounts for roughly 34% of GDP.
While contributing significantly to the economy, SMEs foster diversification through their development of new and unsaturated sectors of the economy. In addition, innovative and technology-based small and medium enterprises can provide a platform for local, regional and international growth, especially in Brazil, Russia, India, China, South Africa (BRICS) economies.
SMEs are considered an important contributor to the economy as drivers for reducing unemployment, especially since the formal sector continues to shed jobs.
Small and medium enterprises in South Africa face a number of challenges, such as:
- Crime and corruption
- Appropriate technology and low production capacity (includes access to electricity)
- A lack of management skills and in adequate skilled labour
- Finance and obtaining credit
- Access to markets and developing relationships with customers
- Recognition by large companies and government bureaucracy
- Knowledge and support for the role that they play in economic development
- Regulatory compliance.
The South African government is cognisant of the importance of SMEs and has built frameworks for SME development and support.
The SME sector of the economy is actively promoted by a number of government initiatives, including:
- The National Small Business Act of 1996, which defines SMEs and provides for the establishment of the National Small Business Council and the Ntsika Enterprise Promotion Agency (Ntsika).
- Khula Enterprise Finance is charged with helping small and medium sized enterprises secure finance, primarily through the provision of security on behalf of small businesses to commercial banks, retail financial institutions, specialist funds and joint ventures, as well as offering loans through partner intermediaries.
In view of the significant potential SMEs hold for the South African economy, it is essential to examine what kind of support and development SMEs receive in a bid to realise their success and potential across the African continent. The Banking Association South Africa and member banks are committed to SME development and support through stakeholder engagement, and involvement or ownership of several initiatives.
Banking Association SME Development Initiatives:
- Financial Sector Charter and BBBEE.
- Finance and Investment Committee – credit extension to distressed SMEs (a response to the global crisis) – NEDLAC
- Financial Sector Program (FSP) – USAID
- SME Financial Literacy - BANKSETA and FSP
- Risk Capital Facility (RCF) - EU fund admin by the Industrial Development Corporation
- Stakeholder engagement - Gauteng Dept. of Economic Development, Industrial Development Corporation, Khula, Small Enterprise Development Agency, South African Micro-Finance Apex Fund, Development Finance Institutions, Department of Trade and Industry, and donors etc
- Research and Knowledge Management
- Downstream banking and Financial Inclusion - Micro-Finance, Co-ops & Co-op banks.