Room for growth

Easing regulatory burdens would go a long way in supporting and nurturing SMEs

Room for growth

When 27-year-old entrepreneur Ncedo Ntsabo took the stage at the 2024 Intervarsity Entrepreneurship finals in November, it was to thunderous applause. As the 2023 winner of the Intervarsity Entrepreneurship competition run by the Entrepreneurship Development in Higher Education (EDHE) programme, Ntsabo – then a second-year student at Walter Sisulu University – won R120 000 in prize money, part of which he has committed to ‘giving back’ to the programme.

‘I was helped by the EDHE programme team to shape and advance my dream, and bring relief to my community. I feel it is my privilege and duty to give back,’ he told the audience in November.

Ntsabo’s business, Qombe Maize, grew out of his community’s need for food during the COVID-19 pandemic. Based in his hometown in the Idutywa area of the Eastern Cape, Qombe Maize produces high-quality yellow hybrid maize using modern agricultural practices to ensure optimum yield and superior grain quality.

Ntsabo has used some of his 2023 winnings to develop his business, by planting an extra 130 ha with maize, and to fence in his farmland. His plans have not stopped there – he’s diversified into growing cabbages, developing an organic fertiliser and bottling organic honey.

Ntsabo’s is not the only small business success story – witness the 20 or so small businesses recognised at the 16th edition of the South African Small Business Awards, hosted by the National Small Business Chamber (NSBC) in November 2024. However, the failure rate of SMEs in the first five years is as high as 80%. And if the latest Global Entrepreneurship Monitor (GEM) is to be believed, it’s a wonder that so many small enterprises even get off the ground.

According to its National Entrepreneurship Context Index (NECI), which evaluates the conditions for entrepreneurship based on 12 entrepreneurial environment conditions (EFCs), SA ranks 47th out of 49 participating countries, beating only Venezuela and Iran, with not one of its EFCs scoring as ‘sufficient’.

Mike Anderson, founder and CEO of the NSBC, says SME owners in SA face significant challenges, especially in terms of access to finance, regulatory complexity and skills development. ‘The administrative challenges for SMEs in South Africa are multifaceted and often overwhelming, especially for small business owners with limited resources,’ he adds.

‘While these regulations are essential for ensuring compliance with legal, tax and safety standards, they can create significant barriers for entrepreneurs who must juggle compliance with running a business. Simplifying these processes, reducing the bureaucracy, and offering more accessible support and education on compliance could help alleviate some of these burdens and foster a more supportive environment for SMEs in South Africa.’

Owen Skae, director of the Rhodes Business School at Rhodes University in Makhanda, says the GEM NECI rankings tell only part of the story. ‘South Africa has an entrepreneurial development paradox due to the coexistence of high entrepreneurial potential and persistent disabling structural barriers. Despite a youthful population, strong informal markets and a culture of innovation, our main systemic challenges of the education system, limited access to capital, bureaucratic red tape and high failure rates of start-ups still prevail,’ he says.

‘This paradox is further reflected in the skew between necessity-driven entrepreneurship, born out of survival needs and a lack opportunity-driven entrepreneurship, which typically drives sustainable economic growth. Addressing this requires targeted interventions to bridge gaps in education, infrastructure, funding and support systems.’

Anderson doesn’t believe the situation is entirely bleak. ‘There are opportunities for improvement, and the entrepreneurial environment is slowly evolving, especially with government support programmes, growing tech innovation and the emergence of entrepreneurial hubs in urban centres,’ he says. ‘Nonetheless, these efforts need to be scaled and tailored to address the systemic barriers to entrepreneurship that exist for many South Africans, particularly those in historically disadvantaged communities.’

One of those ‘opportunities for improvement’ could well be the ease with which SMEs can grow their workforce. According to the UN Conference on Trade and Development’s 2023 National Entrepreneurial Survey, ‘micro, small and medium enterprises (MSMEs) in South Africa account for over 2 million companies, represent over 98% of formal businesses, and have experienced two-digit growth in the last years. However, they contribute to creating less than a third of all formal jobs’.

Anderson agrees that the SME sector has the potential to be a major driver of employment in SA, but that the current labour regulations can make it difficult for small businesses to take on additional staff. ‘Easing some of the legislative burdens, such as simplifying tax and UIF compliance, offering flexible hiring and firing procedures, and providing tax relief for SMEs, could help unlock this potential,’ he says. ‘However, any reforms should carefully balance the need for economic growth with the protection of workers’ rights to ensure that both businesses and employees can thrive in a fair and sustainable way.’

Skae too emphasises the need for a cautious approach to simplifying the legislative and regulatory environment for small businesses. ‘The danger of just lifting restrictions is what has happened with the resultant clampdown in the spaza shops. What we need to do, though, is create an environment that enables performance over conformance, without compromising public safety, illegal business practices and circumventing necessary business regulations.’

Minister of Small Business Development Stella Ndabeni-Abrahams said in June 2024 that her department was up to the task of energising the small-business sector, adding it would have five main focus areas, including exporter development; market linkages; support for manufacturers; and prioritising new growth drivers with low barriers to entry, such as the cannabis industry.

It would also work with the private sector to promote enterprise and supplier development programmes and procurement of products from small enterprises and co-operatives.

Anderson says that ‘collaboration between large corporations, SMEs and the government is essential to building a more inclusive and growth-oriented economy.’

Skae doesn’t believe the private sector should wait for government to energise the SME sector. In addition to ‘promoting supplier development programmes’, he says the private sector can assist by ‘offering affordable financing options and providing mentorship and training initiatives. Large corporations can integrate SMEs into their supply chains, while industry associations can advocate for favourable policies. Collaborative efforts like innovation hubs and networking platforms also empower entrepreneurs’.

One such example is the EDHE programme, established in 2016 under the Department of Higher Education to create an entrepreneurial mindset at a university level, not just among students but also academics.

There’s also a lot that small businesses can do nowadays to work things out for themselves. ‘The internet has so much information and these days ChatGPT can be harnessed in seconds to draft business plans, value propositions, and financial projections. It is a just a question of how it is used,’ says Skae.

‘There are numerous service providers, both in the public and private sector. Many corporates offer support services. SETAs offer programmes. The challenge is establishing the fit, so it requires homework, and commitment to find the right person or institution. It is also helps if the SME is clear about what the need is.’

And what of Ncedo Ntsabo? While his enterprise might have grown out of necessity, he has grown it into an opportunity, not just for himself but for his community. In addition to his new product line, he has – with some assistance from the Department of Agriculture – built the Qombe Greenhouse, where he teaches children from his community how to farm.

‘When I won [the competition], young boys came to me and said, “Boetie, can you teach us how to be like you?”. And I said, “I want you to be better than me”. I began teaching them the basic principles of agriculture.’

Ntsabo is an example of what an entrepreneur can achieve with a good foundation in entrepreneurship, business support, a bit on funding and a whole lot of passion.

By Robyn Leary
Image: Gallo/Getty Images