There has been questions on whether anymore assistance will encourage small businesses to engage more South Africans who are economically inactive. FinMark Trust’s first FinScope South Africa Small Business Survey 2010 provides a good picture of how a small business is filling about half of the huge and growing gap between the number of adult people available for work and those in formal employment.
The survey indicated that there were 5.6-million people in South Africa who owned about six million small businesses. Most importantly, they provided an additional six million “employment opportunities”, which were not necessarily full-time jobs. The survey was conducted earlier this year from a total of 5,676 interviews of people older than 16 who perceived themselves as owners of a business and employed fewer than 200 people.
Implementers of the survey were rather surprised by the high volume of small businesses operating successfully. But their survey might even have underestimated the number of small businesses in South Africa because it was based on self-perception of people as business owners. Farmers and hawkers, for instance, often do not see themselves as business owners and were not included if they did not define themselves as business owners.
Of all 32-million adults, according to FinMark Trust’s more general FinScope annual survey, 31% derived most of their income from formal employment; 15% had informal work — piecework or self-employment, or a wage from an individual; 38% received money remittances from others; 24% received government grants; and 2% were living on employer pensions. These categories overlapped, of course, because many people were involved in more than one category.
More than half a million people in small businesses in South Africa received government grants. However, a lot of these small business grants are diversified over different income sources due to the limited income and heavy dependence on one business. Foreigners made up 17% of the small business owners interviewed. On average they employed two people, compared with the average of about one person for South African small business owners.
Other salient findings of the survey were that large numbers of small businesses employed only one person who is the owner. Another was that the vast majority of small business owners were self-taught, and few of them got any assistance from anywhere, least of all from the government grants and other small funding agencies set up to assist them.
It has been discovered there is a need to segment the market according to needs. This could be done using the compiled survey data, although it hasn’t been done yet and there is no indication that it will be done. Many of these business people suffer from a lack of strong business skills essential for a small business. For example, some business people need strategic skills so they realise they may need to move away from what everyone else is selling.
For instance, the government which is the biggest spender by far in the economy is injecting money into the emerging sector through tenders. But this is not necessarily being well spread because smaller businesses often cannot access tenders as they do not have the right documents. There may also be corrupt practices that channel the tenders to a limited number of suppliers.
Even if a tender is landed and payment is made in 90 days the small business may have to borrow at high interest rates, which cancels out the positive effect. The general effect may be that those who have get more and the rich become richer. Likewise, the banks are applying traditional criteria for giving loans, which most emergent business people cannot meet.
In the proposed segmentation, an objective would be to figure out which sectors or groups of small businesses are likely to grow and then ascertain which skills they need to do that followed by small business grants or funding to boost their growth. A matrix of suppliers would be needed in each segment to assist them. That is where support organisations are failing. They develop generic solutions and they try for one size to fit all to get everyone on board. The government is not thinking out of the box and neither are the financial services providers. It is most evident now that there really needs to be stronger assistance measure for small businesses in the region, be it either through government grants, small business funding or training and educating business owners with the skills they need.
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