SA’s SME-unfriendly economy remains greatest threat to employment creation


SME_difficulties.jpgHow often have we heard it? Small businesses are the answer to South Africa’s work crisis. We all nod our heads approvingly, and continue to hope that this wonder will happen sooner rather than later. “I use the word wonder,” says Sean Krige of The Hope Factory, “because short of supernatural intervention, SA’s competitive market seats small and medium enterprises (SMEs) on shaky ground.

“South Africa’s economy is relatively immature by competition standards: in the majority (if not all) of our dominant GDP-contributing industries you are sure to find monopolistic, or at best *oligopolistic conditions (mining, steel supply, power supply, airlines, paper and toilet tissue, fuel, beverages and bottling, banking – the list goes on)”.

*The presence of a few dominant players in an industry (as opposed to one).

Krige shares an example that illustrates the root cause of the vast majority of South African small businesses remaining exactly that – small.

In July’s SmartProcurement “I made reference to a stationery-business owner named Uzi, who, having previously tried his hand at a couple of retail businesses, was hoping to turn a tidy profit. However, for the first two years the business made continual losses, to a point where Uzi was about to walk away, until something miraculous happened…

Stationary supply company Office National offered Uzi critical solutions to his two biggest problems:
• Uzi’s inability to buy in bulk, preventing him from competing with bigger (bulk-buying) stationery suppliers.
• His inefficiency at professionally marketing his products, preventing him from penetrating the bigger, corporate customer market.

Office National’s supplier solutions were simple, yet profoundly effective in their application.
• Uzi was provided the ability (in conjunction with another 39 independent stationery retailers) to purchase his stock at bulk rates through Office National’s bulk-buying programme.
• Uzi received a professional stationery catalogue, including all Office National-stocked products, enabling him to improve the efficiency and add the professional touch his company needed to compete with the bigger players in the industry.

Today, Uzi’s business is in its fourth year with Office National, in which time his company’s turnover has more than quadrupled.

Sean_Krige.jpgUnfortunately, from Krige’s experience, Uzi’s good fortune is anything but the norm; in fact it illustrates the desperate need South Africa has for organisations like Office National across many of its monopolistic- and oligopolistic-controlled industries.

Krige recently worked with a small-scale toilet paper manufacturer in Mafikeng that was granted an IDC loan of R2-million to buy top-class toilet paper manufacturing equipment from Italy – which they did. As a consequence, the quality of their product was suitable for retail purposes. However, the established oligopolistic conditions in the toilet tissue sector took exception, and quickly ensured that the supply of local toilet tissue to this business came to an abrupt halt. “How so? In South Africa the owners of the mills not only supply the market but also own the market,” says Krige.

Other types of small businesses Krige has worked with that would substantially benefit from an Office National-equivalent solution include sewing co-operatives; pallet manufacturers; furniture and couch manufacturers; curtain and bedding manufacturers; shoe manufacturers; and township bakeries.

The toilet paper example in no way detracts from the importance of the role of the business owner, or the value of the mentorship and business support services so often required. However, it is a sobering reminder of the systemic, SME-unfriendly forces at play in our immature economy, forces that if left to themselves, will continue to entrench the status quo.

The revised B-BBEE codes due for release any time now have made provision for the introduction of supplier development, which is a step in the right direction, wherever implementation is a possibility. “However, while this new element of the codes does address the issue of access to the first tier economy for black-owned SMEs, it does not address the capacity constraints and inequalities entrenched in our small-business-unfriendly economy (black and white SMEs included) – something which, in my opinion, remains the greatest threat to job creation within an SME context,” concludes Krige.

To find out about The Hope Factory’s ED programme click here.

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