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SMEs need supportive policies and finance solutions to reduce SA’s unemployment

19 October 2017Karl Westvig, the CEO of Retail Capital

Ahead of the mid-term budget speech later this month many will be hoping for improved SME financing and legislative support. Small business owners and entrepreneurs have a significant role to play in combating unemployment in South Africa, making the sector integral to our development and economic growth mandate. Unemployment currently stands at its highest level ever at 27.6%, and youth unemployment at over 65%. SMEs play a vital role in helping to reduce this, but can only do this if their businesses have the support that they need to flourish.

South Africa ranked 97th out of 190 economies in the 2017 World Bank’s Ease of Doing Business report released earlier in the year. Given that the SME sector is estimated to represent 40% of all business in the country, it’s hard not to imagine how much more could be achieved in an enabling environment.  

Karl Westvig, the CEO of Retail Capital, points out that around 60% of early-stage entrepreneurs expect to create between one and five jobs in the next five years, while more than a quarter anticipate generating six or more jobs. “However, the report states that these job-creation aspirations must be seen in the context of South Africa’s low established business rate – which needs to be addressed if these economic benefits are to be realised. “ 

This optimism is against a backdrop of unemployment rates that are expected to rise until 2018, according to Professor Carel van Aardt, a researcher at the Bureau of Market Research at Unisa. His prediction is based on StatsSA’s Quarterly Labour Force Survey, which showed that the unemployment rate increased from 26.5% to 27.7% in the last quarter. 

Westvig says that these unemployment levels are a challenge that all South Africans face. “An improvement would advance our economy and our productivity and reduce all the socio-economic factors that go hand-in-hand with unemployment, including crime and poverty.” 

According to the Global Entrepreneurship Monitor’s (GEM’s) South Africa Report 2016, in many developing economies, small businesses have been shown to contribute substantially to job creation, economic growth and more equal income distribution. 

Westvig adds, “However, a number of factors have to come into play for SMEs to deliver meaningful employment in South Africa. According to the GEM report, small businesses struggle against red tape. It took 46 days to register a business, compared to 19 days in 2014. This desperately needs to be addressed.” 

Government also does very little research and evaluation of its SME programmes, running them without too much consideration of the potential impact they will actually have. And the voice of small business is often drowned out by big business, or entirely absent because small business owners are too preoccupied with keeping their businesses afloat. 

“In the end, the best way for any government to help small businesses is to strip away as much red tape as possible, hire better and more accountable public servants and incentivise the private sector – big firms and organisations – to ratchet up support to small businesses,” the report states. 

Westvig heartily agrees, “SMEs need to be supported with initiatives like targeted education and training, supportive legislation, and funding opportunities that make sense for their businesses.” 

The fact that funding opportunities can make all the difference to SMEs is highlighted by the activity that Retail Capital sees in the merchant cash advancements space. 

“We have 500 small businesses taking up the finance advances that we offer each month to help them to cover their costs and move their businesses forward,” says Westvig. “These loans are unsecured and available within five days – which makes it possible for small businesses to access the liquidity they need to keep their businesses running.” 

“Solutions like these, targeted at SMEs in non-restrictive and supportive ways, coupled with government interventions and supportive policies will go a long way to enhancing the capacity of these types of businesses, and enabling them to participate in carrying South Africa’s economy forward,” concludes Westvig.

 

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