Small businesses are key to economic growth

Nearly 12-million people rely directly on small businesses for their livelihood, and these enterprises are key to driving South Africa’s economic growth, said Absa as it reiterated its commitment to the development and growth of small businesses in a briefing to media today.

Nico Jacobs, head of Absa Small Business, stated that it was encouraging to note that South Africa continues to climb up the entrepreneurial ladder, with a 40% increase in small business entrepreneurial activity being noted over the past 12 years.

“Small businesses have moved from employing 18% of the South African employable population in 1998 to more than 60% today. However, in comparison, our emerging market counterparts are much higher, with India at 95% and China at 99%,” said Jacobs.

Money-related matters are cited by many small business owners as the main obstacle they faced when starting up. However, Absa believes that it is on the non-financial side that these entrepreneurs require more help.

“We need to create more jobs in the country. It is thus imperative that both public and private sectors play their role in making the environment more conducive for entrepreneurs to thrive,” stated Jacobs.

He added that small business owners are expected to drive the economy, in the process creating much-needed jobs for themselves and others, yet they are the most vulnerable with little or no access to the support and education needed to help them grow and sustain their businesses.

The biggest challenge that the country faces is creating employment through building a culture of entrepreneurship. This is difficult considering that the failure rate of SMEs is as high as 63% in the first two years of trading. Entrepreneurs have a certain set of skills and don’t have the funds to employ the other skill sets to run a successful business.

The reasons, in general, why businesses fail include the lack of vision, poor management, as well as the lack of structure and infrastructure. However, the lack of financial know-how is the single biggest reason.

But this has not deterred new entrepreneurs from entering the market. Currently, the new entrants mainly range from people who are unemployed, retrenched or retirees who realise they cannot survive on their pension. They are then forced to start their own business, but are not equipped to handle the rigours, do not have the financial support or knowledge or enter an overtraded market - only to see their business fail.

Jacobs added that Absa Small Business has undertaken several initiatives to tackle this issue. “One such project is the Enterprise Growth Programme (EGP) that Absa Small Business launched recently in a bid to grow and sustain a culture of enterprise development and offer appropriate non-financial services to its customers.

“The classroom-based mentoring programme was launched in May this year and it is currently piloted within key Absa Enterprise Development Centres across Kwa Zulu Natal, Western Cape, Limpopo and Gauteng.

“Absa Small Business was motivated to design the EGP as an additional solution to provide non- financial support to entrepreneurs. There is definitely a role for mentorship models in South Africa but this programme looks at providing tools and teaching entrepreneurs how to use them more effectively.

“One of the key highlights of Absa’s programme is that it will help develop their entrepreneurial thinking, teach them how to effectively implement their business plan, understand the various aspects of a business and how they all tie in together. This will ultimately help each and every entrepreneur on the programme to grow from strength to strength and assist with their ability to effectively run the business and to manage debt.”

“Absa is South Africa’s leading provider of personal retail banking services to the previously unbanked and under-banked, and it stands to reason that we should take the same approach to small business owners. Too many of them have been excluded from formal banking products and services, and we are committed to assisting them to achieve financial freedom.

“Any intervention by formal banking institutions such as Absa to provide financial expertise, products or services to the small business sector must be able to meet individual business’ needs and expectations. This sector is a diverse one, with widely differing financial requirements, and a ‘one size fits all’ approach will not work. In this sense, Absa Small Business is geared to ensure the best, most innovative solutions for small businesses,” concludes Jacobs.

This article was originally posted on Africa Venture Capital Platform

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