barriers to entry enterprise development public policy small business

What’s up – Global Entrepreneurship Week, agencies merge, DBSA Development Report

There has been much buzz about entrepreneurship lately. It’s Global Entrepreneurship Week (GEW) from the 14 – 20 November with various events planned around the country. Endeavour South Africa describes GEW as “the world’s largest celebration of innovators and job creators who launch start-ups that bring ideas to life, drive economic growth and expand human welfare”. GEW is celebrated in 115 countries. In South Africa, planned events include a summit on 15 November (sponsored by FNB and SAP) featuring Adrian Gore as a panellist that will examine the state of entrepreneurship in South Africa. The summit will also examine the different contexts in which entrepreneurial activity emerges.
On the public sector front, government plans to merge three enterprise development agencies also seem to be well under way. The South African Microfinance Apex Fund (SAMAF), Khula and the Small Enterprise Development Agency (SEDA) are to be merged into one entity capitalised with an R921m shareholder loan raised by the IDC. SAMAF and Khula are wholesale lenders. The government lends them money, which they on-lend (or use to provide guarantees) to microfinance organisations in the case of SAMAF and small business lenders (such as small business divisions in commercial banks) in the case of Khula. SEDA is a development and advisory agency that builds the capacity of small businesses through non-financial support.
I think most people would agree that these institutions have struggled to lead a small business development revolution, which is what we need to achieve significant levels of growth and development.  So many studies have been produced that try to identify what ails small business development in South Africa – the most oft-cited maladies are lack of access to finance and skills, especially practical skills that allow business-people to develop products, sell these products and keep accurate records.
These agencies have been bedevilled by two categories of challenges as far as we can tell – business failure and a lack of accountability. The high rate of business failure means that the capital and grants invested in small businesses have to be written off, and unfortunately the agencies end up with appalling results in terms of default rates and financial self-sufficiency. Some of the institutions that the agencies fund default on their commitments due to weak governance. The capacity of the agencies themselves to deliver on their mandate has often been questioned. We can only wish the best to the new entity. It won’t be easy.
The Development Bank of Southern Africa (DBSA) has recently highlighted the need to develop entrepreneurs in addition to traditional black economic empowerment schemes. The DBSA quotes Moeletsi Mbeki who argues that BEE handicaps entrepreneurship as it removes talented black people from creative activities and into redistributive schemes in existing companies.
The DBSA’s overview report goes on to identify the barriers to the creation of a black entrepreneurial class as high barriers to entry and lack of access to finance and markets. The inability of state institutions and commercial banks to tackle these obstacles is noted. Further, the report cautions that “slow changes in the monopoly structure of the economy, despite the valiant efforts of the Competition Commission, are also likely to impede SMME development for some time to come.” Sobering point of view.
The report proposes a systematic approach to developing opportunity-seeking enterprises. We have been here before. Sentiment in policy circles sways between seeing small business development, and entrepreneurship in general, as a solution to the job creation challenge; and then back to seeing the state and big business as the real job creators of significance. So one hopes that this moment won’t be undermined by backlash if renewed efforts at enterprise development do no deliver immediate results. The DBSA’s full report will be out at the end of the month.

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