In the third quarter of 2019, the unemployment rate in South Africa reached 29.1%. That’s the highest unemployment rate since 2008, when the country’s national statistical service began measuring unemployment through the Quarterly Labour Force Survey. The inability of the economy to create jobs, coupled with the high-level entry requirements and the skills mismatch, are some of the reasons advanced for this persisting structural unemployment.
Many responses to unemployment focus on the displaced workers — offering job training and workforce development programs or adjusting policy around unemployment insurance or benefits. We at the Aspen Network of Development Entrepreneurs (ANDE), however, also see immense opportunity in focusing on strengthening the business or entrepreneurial community, as there is strong evidence that small and growing businesses (SGBs) play a vital role in job creation, social growth, and economic development.
In South Africa, the second largest economy in sub-Saharan Africa in 2019, SGBs contribute to the economy by increasing employment and job creation opportunities to many people who would not be generally employed by the larger corporations. According to a McKinsey & Company report, small and medium enterprises (SMEs) in South Africa provide between 50 and 60 percent of the country’s workforce across all sectors and are responsible for a quarter of job growth in the private sector.
The South African government recognizes the importance of SGBs in growing the economy and reversing recent downward economic trends. With unemployment rates remaining a point of concern, the South African government identified SMEs as a potential solution. The government made a commitment to support SMEs as a critical contribution to economic development through the National Development Plan, specifically stating that SMEs could account for 60–80% of GDP growth by 2030 and generate 90% of an estimated 11 million newly created jobs.
Yet ANDE’s most recent State of the Sector report, published this August, highlights that in 2019 South African SGBs struggled to survive; in fact, over two thirds of new businesses failed in their first two years.[i] The report further identified that SGBs in South Africa face challenges due to “limited bargaining power, cash flow constraints, significant skills gaps and having to operate in a taxing regulatory environment.”[ii] Government attempts at supporting SGBs are often overlapping and uncoordinated, and newer measures such as a reduction in data costs and relaxed visa regulations for the tourism industry are only beginning to be implemented, with results are yet to be seen.
SGBs are operating in challenging business environments all around. How confidently, then, can we rely on SGBs to stimulate South Africa’s economic growth and address problems like the country’s extreme unemployment? Over 70% of small, micro, and medium enterprises in South Africa fold within the first 5–7 years, according to a 2019 study. Even if they don’t fail, local entrepreneurs often face stagnant revenue and employee growth. From a lack of skills in the available labor force to severe red tape and regulatory restrictions, an entrepreneur’s chances at impactful operations require extraordinary attention and dedication. These problems are only compounded as the effects of the COVID-19 pandemic unfold.
ANDE strongly believes that SGBs have the potential to be global engines of shared prosperity: driving growth, promoting sustainability, and supporting equity around the world. In South Africa, we are committed to advancing knowledge on supporting SGBs in the region through developing entrepreneurial ecosystem snapshots, organizing roundtable convenings, and hosting training events and webinars on topics spanning from impact measurement to impact investing, and anything in between.
[i] 115 Vuba, S. (2019). “The missed opportunity: SMMEs in the South African economy.” Mail & Guardian.
[ii] 117 Ansara, D., Endres, R., Mothibatsela, B. (2019). “Open for business? How SMMEs in South Africa can thrive.” Fin24