4 Challenges and Opportunities that SME’s Face in South Africa
Making It Happen Part 3: SECTOR SUPPORT to Unlock SME Growth
The third in our series relates to the sector support that is required to truly unlock SME growth and success.
There are structural challenges that each business will face in South Africa – this is an unavoidable truth. While we know that work is being done in this space, we hope to provide a perspective on the current context to create awareness of the sometime hidden challenges of setting up and growing a business in South Africa to allow entrepreneurs some insights into how these might impact their businesses and to plan accordingly.
- The Localisation Imperative
Operating within a global economy where customers can purchase almost anything from anywhere in the world creates great opportunities for businesses. This same global economy also creates barrier within local markets – and South Africa is no different in this regard.
In many industries, business inputs are sourced from outside South Africa for a myriad of reasons such as quality, supply continuity and guarantees, pricing, and global purchasing agreements. All of these make good fiscal sense for the companies using imported products. However, these purchases create a high barrier to entry for many local companies as the access to potential customers is not available for these companies.
There is much focus from the government and the private sector to improve the access for locally manufactured goods, however there is still a long way to go.
If you are an entrepreneur in an industry with a high prevalence of imported inputs and products, you would be advised to take this into consideration in your business planning and really identify the customer advantages that your business provides.
“Local patriotism for our goods is small compared to how foreign goods are marketed locally” – Tumelo
In addition to the government localisation focus, there is a global upswing in customers wanting locally produced goods, which is more good news for local entrepreneurs. In some sectors this is a more prevalent trend, and in all sectors the competitive advantage for your customers must be clear.
2. Government Support
There are many ways to access government funding for your small business, however the process of accessing this funding can be burdensome and lengthly. There are great benefits to this funding if you can identify the most relevant one for your business and you have a compelling business plan.
Platforms like SME South Africa are a great place to start if you are looking at how to access this support and they have many great resources available.
3. The Burden of the Legislative Environment
We have said before that being an entrepreneur is hard work and the legislative environment is one factor that adds to the complexities of operating a business.
“The SME sector is overburdened with legislative requirements that limits the freedom of these businesses to succeed”- Israel
As a new business owner and particularly when you are looking to grow your business, some of the funding mechanisms as well as the labour requirement will be a heavy burden for a small business to successfully bear.
As the business owner you will need to be prepared to keep up to date on all legislative requirements and ensure compliance within your operations.
This red tape that SME’s have to deal with can be very intimating and we would recommend using resources and platforms to navigate these complexities, particularly if you are at an inflection point and are planning for growth.
4. Developing Entrepreneurial Skills
Another key challenge within South Africa falls outside the business sector. This challenge has to do with the challenges within the education system as a whole and more particularly as this relates to building entrepreneurial skills.
“An education system that teaches students how to manage money, teaches them entrepreneurial skills and has projects that simulate running a business, would go a long way to provide learners with opportunities after school” – Israel
In a country with an unemployment rate of close to 40%, and where 60% of market entrants will not be able to find employment, there is a strong argument for a focus on developing entrepreneurial skills within the schools’ curricula. While this will not help those students who do not complete a high school education, if consistently brought into all levels of schools can improve the starting point for everyone.
There is much that we could address in the ways in which SME growth could truly be unlocked to create the economic equity that is being sought in South Africa, and indeed, much has been written on this topic.
We have highlighted just a few of the challenges that you as a prospective or current entrepreneur will face, not to discourage you, but to show that you are not alone in your struggles to navigate this complex world of business ownership. We hope to help prepare business owners with insights from successful entrepreneurs who have navigated these challenges and built successful businesses themselves.
In conclusion, setting up and running your own business is a hugely rewarding endeavour if you are fully prepared and armed with as much information as possible to turn your great idea into the successful business of your dreams.
Our sincere thanks to Tumelo and Israel for giving their time to us as we consider entrepreneurship and the opportunities facing the SME sector in South Africa.
With his love for the law and business management, Tumelo’s experience spans many complex areas such as connectivity and sustainable technologies. He started his Strategy and Investment Execution business – Thebehali Investments in 2015 and he know what is means to grow your business from the ground up; his experience in turns helps other entrepreneurs achieve their success.
Israel L. Noko
As the Founder & CEO of NPI Governance Consulting, Israel is passionate about the intentions behind Broad-Based Black Economic Empowerment, including the economic transformation of South Africa.
Israel is also the founder of NPI Capital Partners, a private equity fund manager which manages a R500 million fund in partnership with RMB Corvest, and serves on various Boards to focus on Governance and Compliance