It's Time for a Change

Billions of Rands later, efforts to transform our economy and create jobs have failed. Now what?

The latest SA unemployment figures – officially the highest in the world – sent a collective shiver through our national psyche. Almost 8 million people without a job is a sobering indictment of our collective failure as a nation to create meaningful opportunities for our people, despite thousands of initiatives and billions of Rands spent trying to build inclusive economic growth.

Our main tool to drive economic inclusion, our B-BBEE laws, compels corporates to spend a percentage of their NPAT to onboard Black suppliers and support the development of small businesses, in part through Enterprise & Supplier Development (ESD) initiatives. From a transformation perspective, this strategy is critical, but the numbers suggest that ESD and BEE in their current guise are not materially improving the lives of SA’s growing pool of unemployed and marginalized people. In fact, statistics show that the gulf between rich and poor has only widened.

The role of small suppliers

There is widespread agreement that Small and Medium Enterprises (SMEs) hold the key to unleashing economic growth and creating jobs. These viewpoints are echoed in our National Development Plan (NDP), which ambitiously projects that by 2030, 90% of all jobs in SA should be created by SMEs.

However, corporate South Africa is struggling to create an environment that supports the growth of small suppliers at scale. The challenge is to do what is right for the long-term competitive advantage of the company and the supplier, whilst meeting the codes, which are often at odds with this. If we are serious about small suppliers being the job-creating machine that will kickstart our economy, we need to take some bold and practical steps in adjusting the codes to match this need.

Broaden the job creation pipeline

Would our pressing needs for inclusive growth be better served if we extended a portion of the benefits of ESD (eg access to skills, markets, and growth funding) to all early-stage, high-growth job-creating businesses irrespective of their ownership structure? This would mean a shift in focus from pure transformation, to a combination of transformation plus growth of the economy and jobs as desired outcomes.

Access to growth finance

Access to affordable growth finance is one of the major challenges facing SMEs, especially in South Africa. Grant Prince, Head of SME Portfolios at Fetola, notes that “this gap is particularly evident in businesses needing between R250,000 and R1million – a bracket that is too big for microfinance, too small for the likes of venture capital and too risky for banks”.

Currently funding opportunities for businesses in SA slant towards ‘unicorns’ – in this context high-risk business models with ambitious projections for rapid replacement of traditional suppliers in the supply chain. Studies show the economic benefit of creating an enabling environment for smaller, less glamorous but resilient and dependable businesses that underpin so many local economies. Many township-based businesses fall under this category, creating a dynamic environment for building inclusive, impactful businesses where they are needed most. The challenge and opportunity lie in delivering affordable early-stage finance to support the rapid expansion of 250,000 businesses that can each create 10 or 15 jobs.

It’s clear that despite pockets of success, South Africa’s current strategies around small business and supplier development are not delivering at the scale needed. We need bold solutions that support the success of all South African SMEs, accelerate growth and remove blockages. It’s time for a change.

Fetola: Founding partners and Technical Lead to Absa Business Day Supplier Development Awards