Saturday, October 24, 2009

SMEs - Will SMEs flounder or flourish in South Africa under Zuma

South Africa is going through immense political turmoil at present. Labour and the Communist Party are wanting a greater say in government for bringing Zuma to power. Labour is demanding the end to labour broking, of which government is an enthusiastic user. Umkhonto we Sizwe are attacking moderates like Kader. The ANC Youth League and it's leadership, using the term broadly, are demanding the nationalisation of the mines. Netshitenzhe has resigned. Trevor Manuel is under pressure to go from these same players. Look at our FPI.

Talk about supping with the devil. Zuma must be regretting his choice of partners I should imagine.

Labour broking is a direct consequence of labour market rigidity that has its roots firmly embedded in the unbelievably complex and labour friendly legislation in South Africa, which is further complicated by the CCMA who believe it is their duty to always award money to labour, even when finding in favour of business. Never mind the impact on inward FDI.

The efficiency of SARS in tax collection is sadly not recognisable elsewhere, mores the pity. Policies are uninformed by reality, and becoming more and more socialist as the days progress. Purchasing by government does not focus on sustainable business creation. I could go on and on, but the message would remain the same.

The fragile embryo stage SME component of our economy is very much like the humpty dumpty story, sitting on the wall. The question is how it will land, soft or hard. There is ample evidence that entrepreneurship prefers a free market (or close as possible) in order to grow and create new businesses and jobs.

However, the closer we move towards socialism, the more like we will have omelette instead of boiled eggs.

This means that the SME sector is under serious threat from these people, and as businesses we need to understand the seriousness, and tell Zuma that he has our support to follow the capitalist line, as opposed to the socialist line. He can get the votes he needs without these living antiquities and uninformed posers that claim to be the leaders of various fringe organisations.

Sunday, July 12, 2009

SMEs in South Africa - why is finance difficult to access

SMEs in South Africa do struggle to raise start-up finance from banks. The question is why?

There has been little, if any, in-depth research into why banks are not lining up to lend to this large, risky, yet very profitable market.

I myself am hoping to research the following suggestion in order to see if it has any validity. The suggestion is that a major contributory factor is that SME and entrepreneur are being interchangably used in South Africa.

There is a continuum of entrepreneurial endeavour suggested by Burch, and I believe that the SME owner is not synonymous with being an entrepreneur. Some SME owners may well be entrepreneurial, but it is not a given.

Consequently, banks have no tools with which to assess these SME owners, which makes the loaning of finance to them extremely difficult.

Sunday, June 21, 2009

SMEs - the new Companies Act

There is a new version of the South African Companies Act on its way. This is a highly modified version of the previous Act, and is supposedly coming into action later this year.

A key change which is interesting from a number of respects, is an attempt to introduce the equivalent of Chapter 11 in the USA as I understand it. The intention is to help businesses that get into trouble to get through the difficulties they are experiencing by giving them some temporary protection from their creditors.

The current system is prohibitively expensive and not particularly helpful to SMEs.

I am busy reviewing this new version of the Companies Act and will hopefully be able to shed more light on this particular topic in the next week or two.

However, it will require that the business be an incorporated business, in other words a company, remembering that the Closed Corporation will also disappear and become a simple form of company, on which I will also provide more information.

Sunday, June 14, 2009

SMEs in South Africa - is tendering good for SMEs

How important is government business and large business for SMEs?

I believe it is very important, but there are riders here which must be considered. The purpose of government allocating business to SMEs, is to try and grow the SME sector, as growing SMEs are key players in job creation.

But how can these SMEs keep growing unless they receive continuous business. Sustainable SME creation and growth is completely dependent on continuous business from the buying organisation. But government and large businesses are strong believers that tendering is the best means to purchase the products and services they need. They feel the need to remain impartial in the purchasing process. Yet they espouse supply chain management as their credo. Supply chain management expressly guides the buyer to choosing suppliers that enhance the efficiencies of the buyer at every level. So surely tendering is in contradiction of this credo.

Is tendering an anachronism from the past? Is it not time for government and large businesses to treat the purchasing function in the true spirit of supply chain management, and stop resorting to tendering practices that “are objective” when in fact subjectivity is exactly what is needed.

If government policies are to achieve the goal of creating and growing SMEs, and large businesses are to find the efficiencies they desperately seek in their supply chain, through the use of SMEs, then we need to return to subjective purchasing practices.

Government and big business are equally as guilty in the South African context. I have heard senior people openly admit to simply keep changing supplier in order to supply orders to anyone who applies to be a supplier. This is counter-productive and in my mind counter-intuitive.

Let us create sustainable SMEs not one-order wonders!

SMEs in South Africa - the end of Closed Corporations

The Companies Act is about to undergo a major review. This has a number of good aspects and as with everything else in life a number of bad. The questions is whether or not you have a clue about this Act and how it will impact on you?

Too many businesses simply allow the government to do what they like, without providing feedback, whether positive or negative. It is imperative that you read the legislation and decide for yourself what the impact will be on your business.

So go to the following website link and review the Act.

Understand the impact.

If you have any problems with the Act then let us know on and we can forward your input to the government.

Sunday, June 7, 2009

SMEs in South Africa - the African opportunities

As suggested in my blog 2 weeks ago, the African markets present a big opportunity for South Africa.

I saw some data which says despite the recession, Africa should still achieve 6+% GDP growth this year, albeit that it is off a low base. South African trade data show an increase in South African / Africa trade already, as well as the expected decline with USA and Europe.

The big corporates are already trying to penetrate these markets, but SMEs can do so as well.

There are a number of Africa oriented business magazines around. Have a look and get yourself informed. I purchased "African Business" and found a lot of useful information.

Wednesday, June 3, 2009

SMEs in South Africa - the recession challenge

According to the economists, we should shortly see the recession slowing its downward trend, flattening and by the new year growth should begin to return.

Key issues I believe will be the the following. The increasing price trend in commodities will need to continue. This will depend on the BRIC countries getting their growth above 7% again.

Government will need to keep the economy stimulated with infrastructural spend. Despite the deficit we are currently nursing, this is an ideal tool for stimulating economic activity in South Africa. The Government has a large budget to spend, so it will be crucial that the political appointment of senior officials is stopped with immediate effect, and business principles employed to ensure competency. Unskilled people cannot spend this amount of money effectively. A suggestion would be to get big business to perhaps second senior executives to assist in running these departments until the recession is reversed.

Similarly, banks are going to have to start lending. They cannot continue with their tight-fisted approach for too long as they need the profit. This is a global problem, but until they start lending on cars and houses, it is unlikely we will see the recession begin to reverse. So when you see car sales and house sales start to pick up, you will know we are on the right track for a reversal.

So hang in there, be innovative and use this time to grab market share from incompetent competitors.

Sunday, May 24, 2009

SMEs in South Africa - a big market on our doorstep

While the European and USA markets to the north are of obvious and necessary interest to our technology industries, our manufacturing industries would do well to view the trends within the retail sector.

Our retailers are entering the African markets to the north, and finding it lucrative. As South Africans, we have an edge on the bulk of our African bretheren from the point of view of skills and experience in retail and manufacturing.

In respect of overseas competitors, we also have the advantage of shorter distances and hopefully lower costs as a result.

So let us attempt to build a series of lucrative markets in Africa for our manufacturers. They need to study these markets and see what the opportunities are. Global players are seeng the market opportunities in Africa so why not us?

Hopefully the new minister at the DTI, who apparently supports this view in general, will raise the profile of these opportunities and provide the funding and support to help SMEs enter these markets, and perhaps even to develop new industries to service these markets.

Heres hoping.

Sunday, May 17, 2009

SMEs in South Africa - a big opportunity

Last week we looked at one of the biggest obstacles to SME development in South Africa. This week we look at some of the big opportunities available to SMEs in South Africa.

One of these opportunities are the government funded activities such as marketing assistance. The government funds many interventions which have been shown to be of enormous financial benefit to the SME. To get a handle on these, go to the DTI website at and spend some time reviewing all the opportunities available to you for accessing government funding to help your business. You have to work at this as government itself markets these amazing opportunities very poorly.

Another opportunity is the broad base of useful information and research available from South African universities, South African Department of Statistics, SARS and the DTI. Look at their websites and the university libraries to identify information useful to you and your business. Remember that knowledge is power, and therefore you need to gain as much useful and current information as is possible. Look particularly through dissertations prepared at the local university as it is normally research based upon local businesses.

Sunday, May 10, 2009

SMEs in South Africa - a big challenge

SMEs in South Africa - a big challenge. One of the biggest threats to SME development in South Africa is the BBBEE legislation. Why do I say this, especially as I believe the BBBEE legislation to be generally fair and reasonably well thought out?

As a consultant operating in this arena, I am aware that the bulk of businesses are actively attempting to comply with the BBBEE legislation. However, the efforts of the business community in this regard are being destroyed by the South African Government, the same people who created the legislation in the first place. How?

By not forcing government departments at national, provincial and local government level to comply with their own legislation. Government has not changed the legislation that applies to their own procurement activities (Public Preferential Procurement Framework Act PPPFA)to reflect the BBBEE requirements which they legislated into place, and we are now 3 years down the road.

This has allowed insignificant people with their own personal agendas to create their own policies in each department at every level. The nett result is a system that is unfair and directly in contravention of the spirit and the law related to BBBEE.

The South African Government created a tool to try and re-align the economy so as to remove previous racial biases, but their failure to complete the job properly is an indictment of their lack of true commitment to economic development through the use of SMEs.

I am aware of many businesses who have spent large sums of money in complying with the BBBEE legislation, and have made a significant difference in the community as intended, and yet they remain excluded from business opportunities purely on the basis of their race. This not only applies to White entrepreneurs but also to Indian and Coloured entrepreneurs.

The Government must either accept that their lack of action will soon lead to businesses refusing to comply as the system is not applied correctly and fairly, with a major loss to the communities they operate in as a result, or they must fully implement their legislation. Failure to do so will continue to create opportunities for corruption as is so often the case right now, with incompetent and over-priced suppliers often getting the business. This is resulting in massive overspending on purchases by government which is in turn contributing to ongoing inflation and lack of delivery by government, as budgets run short. Many White and Indian businessmen now only go to compulsory tender meetings to meet the Black business people who will get the business. When the tender is issued they then get the business at the same profit margins as they would normally make, except that the order is channeled through a Black business. These Black individual are merely adding a level of intermediary costs and not adding any value. So no development is occurring. Emails are often received from black individuals offering to sell their orders. They are in effect making themselves to be no more than a front, in direct contravention of government's intent.

If the South African Government is serious about economic development, all things must be created equal. Right now being Black is enough to get the business. Other race groups may have skills, better pricing, and be established businesses with large staff numbers (often Black), and they invest heavily in skills, socio-economic and enterprise development among other things, and yet they do not get the business. This cannot lead to economic development and growth, and can only lead to where we generally are, in a pool of corruption that destroys our economy as another layer of cost is added with no value add and no organisational development.

Our fragile economy needs to ensure Black entrepreneurial activity, and the BBBEE legislation was intended to do just that. However, the failure of Government to implement this thoroughly and as planned, has and will continue to result in tenders being given to friends, family and bribers, because it can safely be written off as BEE.

It will be interesting to see what the new Jacob Zuma government does, considering his statement that he wants to see BBBEE grow in the SME sector and no longer in the corporate sector.

ALL South Africans want to see the country prosper and are fully aware that it requires everyone to prosper. We need BBBEE to work properly so we can all benefit.

Sunday, May 3, 2009

SMEs in South Africa - the purpose

SMEs in South Africa as a blog is intended to alert SMEs to the macro issues in South Africa which are impacting, or going to impact on their businesses.

SMEs too often become mired in the micro detail of running their businesses, and lose sight of the "bigger picture".

This blog will help SMEs to find out what is happening that will impact on their businesses without having to spend a lot of time looking for information and then trying to understand the impact of what they have found.

Interestingly, they will also find anomalies that exist, which will help them to be a little wiser and more careful in their dealings with big business and government. At times these entities find themselves with conflicting imperatives, and often the SME cannot understand why certain decisions are made.

Then there are the global trends in SME creation, numbers and behaviour. These too will be visited on a regular basis, and their impact on SMEs in South Africa identified.

This will be a weekly blog.