Small business must be the driver of the economy providing growth and jobs

Let me express my appreciation for your kind invitation to this prestigious occasion.

I wish to congratulate the leadership of NAFCOC on the attainment of this landmark achievement, the celebration of the 50th Anniversary

Even though Former President and stalwarts Dr Motsuenyane, Maponya and others are not physically present with us, we know they are with us in spirit. We understand that their mature age they need not physically attend but this conference has their blessings.

I congratulate the visionaries, the founders and the stalwarts who proposed this vision of uniting all African traders and entrepreneurs at a difficult time when apartheid by law prevented black people from trading and kept them away in villages, townships and bantustans. They were only allowed in towns and cities if they were there to serve the white masters.

The black  entrepreneurs back then were restricted and marginalized and could not trade in the country of their birth but they found ways to survive and inspire many as well as supported each other through forums such as this one, NAFCOC.

According to the Department of Trade and Industry, the classification of a business as small is a relative term. In developing countries like South Africa, a small business is one that is usually entrepreneurial in nature, and employs around 100 people.

A majority of South Africa’s small businesses operate in agricultural trade,  transport, tourism and construction industries.

While small businesses in developed countries contribute around 50 percent to the GDP, those in Asia contribute around 40 percent. In South Africa small businesses contribute only 30 percent to the GDP,  70-80 percent in employment, but less than 4 percent to export earnings.

For one, the South African economy is ridden with problems like a low growth rate, raging unemployment, high inflation rates and high taxes, such as value-added tax (VAT). The low performance of small businesses in South Africa can also be attributed to poor education levels, lack of management and work skills, lack of access to working capital, and low outlays for research and development. Yet, there is wide consensus among economic thinkers that small businesses are the means to power South Africa’s economy. The government has recognised the huge potential of small businesses, and has initiated efforts to invigorate this sector.

In the United States of America Small businesses continue to be incubators for innovation and employment growth during the current recovery. The net job gains of small businesses matched those of larger businesses during the last half of 2010, and the gross job gains of small business outpaced those of large businesses by about 3 to 1.

Preliminary data for 2009 and 2010 indicate that both large and small businesses were hit hard by the 2007 recession. The data further indicate that the small business share of GDP held steady in early 2009, but fell further in 2010, as corporate businesses (large-business centric) recovered more quickly than non-corporate businesses (small business centric).

The construction industry, a sector predominate-ly made up of small businesses, was especially affected by the downturn, and has declined as a share of the overall economy.

A survey was done on businesses that were not registered for value added tax (VAT) involving  the  employers and self-employed South Africans. The informal sector’s contribution to gross domestic product has remained at about 5% from 2001 to 2013.

According to the Statistician General Mr Lehohla : “the survey presented little evidence that the informal sector was benefiting from support programmes put in place by government to grow it and dent unemployment.” This suggests a misalignment of government support programmes and the needs of SMMEs.

Government has acknowledged that a more focused approach is needed to help small businesses defined as “survivalists”, which operate mainly on the streets. According to the National Development Plan, these businesses include taxi operators, spaza shops, taverns, casual construction workers, hawkers and informal subcontractors. According to the NDP, 90% of the jobs will be created by the SMMEs in next 20 years.

Of the 1.5-million non-VAT businesses there are 143,000 who pay income tax and are in the formal sector.

The survey showed only 17% had entered the informal sector out of choice as the rest had no other option due to unemployment.

More than 69% of the people who started a business last year had no alternative, up from just under 61% in 2001 when the first survey was done.

A number of measures have been identified in the NDP to promote and support the development of the small business sector, including some mentioned below.

  • Public private procurement needs to be improved to provide more space to support the small business sector. State and state owned enterprises need to take a firm stand not to do business that is not transformed. This must be also extended to engage private sector to support the objective of deracialisation of the economy in their own  procurement policies.
  • Improved access to equity and debt financing by financial institutions and DFI`S  purposefully to build small business sector and proper black industrialists. South African banks generally marginalise black business especially SMMEs as risky even though they are happy to take deposits from them. DFI`s have of late begun to focus on servicing this sector increasingly.

In this regard we need to campaign for creation of a bank controlled by the interests of small business sector and black economic empowerment and revive the objective for which African Bank had been established. Without such a bank dedicated to the financing of small especially black emerging business radical transformation will become an elusive dream. This dedicated bank is in line with experience in many countries who use financial institutions to support a specific sector. This will have to be a commercial bank, which though must be supported by the state, however collects deposits and issues loans and make money in what Professor Prahaland called ” the fortune at he bottom of the pyramid. ”

I urge this conference to debate this matter and take a resolution on it. There are stories of success in lending to small business such as the Grameen  bank of Bangladesh. When such a bank becomes a success maybe the big banks will begin to see the light and support economic deracialisation of the economy and economic transformation.

  • Regulatory processes must be shortened to facilitate creation of  small businesses while compliance issues such as registration, tax regimen, regulation and inspections, etc must be simple and user friendly. The NDP envisages a review of the regulatory processes to provide the best outcomes for this sector. There are examples such as in clothing  and textile sector where various regulations some based on the bargaining processes have forced some operations to close.
  • Small business support institutions must be strengthened and be made more accessible. The one stop shop approach must be encouraged especially consolidation of small business financing and supporting agencies for better impact. Incubation and mentorship are the mainstay mechanisms for small business development that help to reduce the high failure rate of start up small business. This conference must debate and take resolutions on how to partner and create incubators and other mentor ship platforms.
  • Skills development enhancement and building entrepreneurship at an early age to empower the youth. We need to aggressively build a culture of professionalism, excellence, innovation, creativity, competitiveness and creation of better solutions and products and offering a better quality service.

A culture of hard work, well researched products, quality service and high integrity in service delivery must be the basis for successful entrepreneur. Ubuntu must permeate through our culture of doing business.

It is not enough to claim space in the economy simply because we are black and were disadvantaged unless we are prepared to work hard to take advantage of the opportunities opened by the current government policies.

Empowerment of black people, women and youth remains a priority. There is no need to moan and  keep criticizing government but rather to find ways of partnering with various arms of the state for mutually beneficial outcomes. The empowerment policies have gone a long way to create space for inclusivity and begin process of deracialisation  the  economy. However we all agree that a lot more still needs to be done.

That is why the ANC dedicated the election manifesto to the implementation of the National Development Plan as well as the strategy to build our economy to such a growth rate that is capable of eliminating unemployment, inequality and poverty-the so called triple challenges and elimination of the two economies.

The massive investment into infrastructure must deliver a better platform on which the economy will grow at a faster rate. Government has budgeted over one trillion rand for construction of roads, railway lines and coaches, expansion of ports, new dams, power generation and various other aspects.

The concern of NAFCOC must be to follow all these projects and engage government, state owned enterprises as well as potential and appointed contractors to open the space for participation of black entrepreneurs and small business development.  NAFCOC  must vigorously engage all the large corporates that have been awarded multi billion rand contracts and work with government to ensure effective economic transformation, inclusivity and meaningful skills transfer, which must be closely monitored.

This fifth Administration will focus on ICT especially extension of broad band throughout the country which will not only bring about improved access to communication and efficiency but must be of tremendous impact on improving small business operations. The conference must take resolutions on how to fast track the access of ICT to SMMEs as well as how to take advantage of the business opportunities that roll out of ICT will bring.

Self sufficiency in energy is the only way to drive our economy to reduce unemployment to 6% , double our GDP and improve trading with states in our continent to over twenty percent by 2030. Small business must be the driver of that economy providing growth and jobs.

This conference should preoccupy itself with the question: How does NAFCOC  reposition itself for this leadership role as the home of the largest number of  black small business in the country. Failure to do this will render NAFCOC completely irrelevant to economic transformation.

By right this body of NAFCOC should be the partner of choice for government in economic transformation.

As he ruling party, the African National Congress, we will strengthen our partnership with NAFCOC and ensure that your experience helps us as we embark on this phase of radical economic transformation.

In ANC language we define the motive forces as those sectors of our society that stand to benefit from our revolution. This includes black people in general, the workers, rural poor, women, youth and black entrepreneurs.

This makes you, as the entrepreurs a sector of society whose progress and success is a measure of the progress we are making in economic transformation.

Remember that thirty years of NAFCOC were during the days we fought against apartheid. But your last twenty years coincide with the time the ruling party focused on how to move your struggle for economic emancipation forward. This means we look upon you to be in the forefront of the radical economic transformation that President J Zuma has spoken about.

Radical economic transformation  means to us

  • accelerated growth of the economy,
  • rapid expansion of investments through partnership of state and private sector
  • rapid  growth of SOEs investment in the infrastructure  playing leading role in -skills development and creation of millions of jobs directly and indirectly
  • cooperation between labour and business to improve the wages and working conditions and promotion of high levels of productivity
  • Growth and participation of large numbers of SMMEs  in the economy, creating millions of jobs

That explains why President Zuma has created the Ministry for Small Business Development and Cooperatives who will be addressing you later today

Radical economic transformation means rapid deracialisation of the economy and broadening participation in the economy,
It means changing the ownership patterns , management and technical capacity from a few to the majority

The concentration of the economy in the hands of monopolies and oligopolies needs to change, as it is not good for long term sustainability of our economy

It means changing the land ownership patterns based on government policy instruments and our constitution to facilitate access to land for the landless as basis of ensuring employment creation and food security. It also means increasing support to emerging farmers to ensure that reclaimed land remains as productive or more so than it was with previous owner. More support in finance, technical and other forms to ensure that land reforms are a success and that rural development can create a million jobs over the next twenty years.

Radical transformation means a change in mindset of all our people to see themselves not as victims of apartheid but as decision makers with political power to determine their own future and destiny. To stop feeling helpless but to take charge and drive change.

It is important for us to appreciate what change the twenty years has brought about and work together to take South Africa forward. We must fight adventurism, negativism, pessimism, desperation and anarchy as we  focus on solutions and be driven by a positive attitude that concentrates  on what efforts are needed to take South Africa forward.

Our youth are frustrated by unemployment, poverty and are falling prey to ideas of an unsustainable future based false promises. We need to help our youth realise that  no amount of revolutionary sounding slogan will bring economic emancipation, including unconstitutional means of taking over land, mines. We must ensure that any other forms of demagoguery is  not be allowed to create false hopes on our youth.

Promises of easy money without hard work can never be a solution for future South Africa.

We must fight against fronting where individuals sit on boards but have no say in the transformation of the corporations which use their black faces to earn huge contracts from government while not helping the country and our economy to transform.

Corruption, fraud and other forms of criminality must be fought from both state  officials as well as the private sector. The culture of doing business through back hands, bribery and brown envelopes must be stamped out.

NAFCOC  must be the champion  in the fight against corruption as this scourge has created an impression that black business is  successful only if corruption is the source of wealth.
Black entrepreneurs survived apartheid restrictive laws and survived apartheid violence in our townships. Black entrepreneurs should not be suffering now as many township and village business are decimated by the large malls that have mushroomed in the townships. I am also pleased you have done research into the closure of local township shops which have also been bought out by foreign nationals. We need to find solutions to assist local traders to survive and rebuild themselves. government will be your partner n this regard.

You, the black entrepreneurs are by right our real soldiers in the struggle for economic transformation.

For you the struggle for economic transformation has been a long struggle that started long before apartheid was defeated and it demands more focus and discipline to win. It cannot be won through disruption and anarchy.

It has not been a fashion or a show off.

It is real and is about your survival.

It is about making democracy deliver on job creation and fighting poverty and creating a better life.

Our people are now in a far better position to fight for economic emancipation than we  were during apartheid.  while this struggle is more challenging, you now have the advantage.

As NAFCOC, you have three strengths:

You have the numbers

You have the skills and experience of twenty years in a democratic dispensation – you know past successes and failures and the future of our dreams

You have the government elected to create a better life for all our people through your spirit of entrepreneurship

Lastly;

NAFCOC must speak with one voice No one will ignore you.

Let us work together to take South Africa forward !!

>> Mkhize is the Treasurer General of the ANC. The text above is an edited extract from the speech delivered to the NAFCOC 50th Anniversary

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