Business Day - 31 January 2011
WITH the African National Congress's announcement this month that job creation will be its main focus this year, the government could do well to boost support to small businesses. In this, India and Brazil hold some promising lessons.
Small businesses are key as they create by far the most jobs the world over. In SA between 1985 and 2005, 90% of all new jobs were created by small, micro and medium companies, according to the Finscope Small Business Survey Report of 2006.
In Brazil, the labour minister's General Register of Employed and Unemployed for last year revealed that between 1995 and 2000, 96% of new jobs were created by enterprises with fewer than 100 employees.
According to Finmark Trust's Finscope 2010 survey, small businesses could create 2,5-million jobs in SA by 2020. Added to this, Finmark believes the government could take about 500000 people off social grant schemes if it supported small businesses more actively.
However, numerous factors, such as a lack of business and financial management skills, make it difficult for small enterprises in SA to expand or for entrepreneurs to start up.
So what can India and Brazil teach us? Some might say Brazil and India's larger populations and land areas make it difficult to draw much in the way of lessons from them, but SA does share some similarities.
All three are grappling with similar development issues, such as a lack of quality education, a shortage of quality infrastructure and a low share of international trade, while Brazil, like SA, is one of the most unequal countries in the world. Despite these similarities, Brazil is ranked as the sixth most entrepreneurial country in the world, while SA is ranked a lowly 35th out of 54 countries, according to the 2009 Global Entrepreneurship Monitor (Gem) Report. India was ranked 15th out of 43 countries when it last took part in the Gem Report, in 2008.
In general, small-business policies and schemes appear to be working best in Brazil and less successfully in India and SA, according to my assessment in a report for local economic think-tank Trade and Industrial Policy Strategies (Tips).
In SA and India, policies have done little to create effective support agencies to help business owners start up and grow their businesses. And awareness of many government support schemes remains low.
In SA, much of this is as a result of the government's lack of co-ordinated strategies aimed at small business as well as a government support architecture that is clumsy and confusing to business owners and public servants alike.
The government has too many agencies aimed at assisting business owners, which are spread across two different departments — confusing government officials.
Much of Brazil's lending to small businesses is channelled through its development bank, BNDES, allowing the state to play a strategic role in funding small businesses. In this way, the South African government's various funds for businesses might be more strategically deployed if they were all housed under a single body, such as the Industrial Development Corporation.
- Timm is a small-business journalist. He is the author of the TIPS report, How South Africa Can Boost Support to Small Businesses: Lessons from Brazil and India.