SMEs - chambers of commerce in South Africa

In respect of SMEs, the chamber of commerce situation in South Africa is interesting. There were four original Chambers of Commerce ion South Africa. South African Chamber of Commerce and Industries (SACCI formerly SACOB),AHI, NAFCOC, and FABCOS. While none of them ever limited membership to any particular race or cultural group, SACCI was always perceived to represent the English white businesses, AHI the Afrikaans white businesses, and NAFCOC and FABCOS black businesses. Today SACCI and AHI actively seek membership from all race groups, while NAFCOC and FABCOS tend to only attract black members. Government attempted to force a merger of these bodies, under the BUSA/CHAMSA umbrella, and failed dismally. BUSA still exists but it has little to no interest in SMEs. The national South African Chamber of Commerce & Industries does nothing for SMEs and they have no interest therein at all. However, their constituent members, the local Chamber of Commerce, are generally comprised of 70+% SMEs. A number of these such as Pietermaritzburg, Durban, Bloemfontein among others do fantastic work for SMEs. However, they have experienced a large decline in membership, I would imagine due to retirement and emigration. They are the local representatives of the IP rights for the name Chamber of Commerce, which is an internationally protected trademark as I recall. The national Afrikaanse Handels Instituut is very small, and generally their members are also members of the local Chamber of Commerce, and tend to be more of a cultural organisation for Afrikaans business people.Their membership numbers are very small, and they have much fewer members than the Chamber of Commerce's. Another Chamber of Commerce is Minara, which targets Muslim businesses, and was only established in 2000. Then there is a plethora of new chambers of all of whom claim membership in the thousands. It is not clear what real value they add, and whether they really do have the membership numbers they claim to have. Time will tell whether or not they are money making scams for the organisers. However, the membership will make that decision for themselves based upon a sense of value received. The established chambers of commerce are only interested in big businesses, and there are a number of reasons why this is so. However, the new chambers have little if any interest in matters related to representing SMEs and SME issues to government. There one or two who claim to be acting on behalf of SMEs and attempting to engage with government, but based upon the extremely vitriolic comments from some of them, they are more likely destroy SME relationships with government than build them. All these Chambers combined have at most a combined membership of SMEs in the region of 60 000 to 70 000. However, consensus indicates that there are at least 1.5m to 2.5m SMEs in South Africa. This tells it's own story. Does the SME community need a decent representative body to represent their interests in respect of the private and public sector? Absolutely! Is it available now? No! Will it happen in the near future? Unlikely! Why not? Because as with all things in South Africa everything is segmented into narrow interest groups. There is no need for religious, racial, cultural, sectoral segments within the SME group. There is only place for a single SME group.

SMEs - are government hindering or helping?

SMEs in South Africa will find that they are in a bitter sweet situation here in South Africa. Against government: 1. Rabid unions 2. SME insensitive bargaining councils 3. Poor government marketing of what they really do offer SMEs 4. Poor payment 5. Regulatory overload and red tape 6. Rigid labour markets 7. Slow decision making and implementation 8. An inactive Presidential SME Council that fails because of political appointees 9. BEE legislation that helps no one. 10. Too much stick and not enough carrot. Make the Nats look open minded. For government 1. Massive amounts of capital 2. Numerous interventions to assist SMEs 3. A desire to help The problem is that on balance I believe the overall impact is negative, but could easily be swung around if there was a political will to do so. If SMEs are so important, who is more valuable to the government? SMEs or the unions? I believe the SMEs are.

SMEs - finance for South African SMEs

There is an interesting new website for businesses seeking funding in South Africa and it can be found at this website

SMEs - why so many start-ups fail

I never stop being surprised at the overall low level of quality of start-up business ideas/concepts in South Africa. Way too many people are being pushed and pulled into the world of entrepreneurship, and yet they would not even survive in a protected franchise environment as a business owner as opposed to an entrepreneur. Research has shown that a clear harvest plan and business model are the two key starting criteria for a successful business. Anecdotal evidence I have accumulated over the years points to the validity of this research. I find it depressing that so many people know so little about starting a business. I think a large contributor to this poor situation is due to the extensive role of government in SME development. Would-be business owners are seldom evaluated properly, mainly because the evaluators themselves are incapable of assessing them. Development capital is handed out by accountants and bankers without any view to the entrepreneurial metrics, and a major emphasis on credit and financial metrics. I believe that the identification of the correct opportunity is half the battle won. A business essentially requires the following activities to occur in order to exist: 1. Sales management 2. Technical skills management 3. Admin management 4. Financial management 5. Marketing management Marketing, financial and admin management can all be outsourced. Marketing consultants and accountants are a dime a dollar. The technical skills and the ability to sell the product or service are however a whole different story. So if the correct opportunity has been identified, the would-be business owner has the technical skills and the ability to sell, who cares whether his financials are correct. Do them for him!! Manage them for him. However the problem is that here we will try to make every SME owner an accountant and business plan writer. No one is evaluating the OPPORTUNITY. This is where they fail - before they even start!!! This is why so many markets are so heavily over-traded. Sign writing, taxis, hair salons, funeral parlours, loan outlets spaza shops, garden services, pool services, etc. That is why so many fail. I do defer here to a number of private sector organisations who do this well such as Business Partners and GroFin. However, they are the exception rather than the rule. There are others that I have not named, so please do not abuse me. We need to change our focus in order to create more success and fewer failures. We will consider the harvest plan in the next article.

Can SMEs deliver on government expectations?

SMEs in South Africa, like those all over the world, are perceived to be the saviours of government economic policy failure. SMEs will save jobs, create jobs, boost GDP growth, and stimulate innovation among a host of other thing expectations. Are these expectations realistic? The following comments are based upon my interaction with SMEs across all race groups in South Africa, and are not an opinion but rather anecdotal evidence of what I see and hear among SMEs. It all depends on how it is contextualised! The first question has to be whether or not SMEs can deliver on these expectations? In my opinion absolutely. The next question is whether there is room for government interventions in order to assist SMEs to achieve these expectations? Once again the answer is a big yes.However, there are two types of intervention, the functional and the selective. Selective interventions do have their place. They are used to boost particular sectors for strategic reasons. But more important are the functional interventions. These are those interventions which help to level the playing field and make it easy for all citizens to be able to enter the market. Here I am afraid the South African government has not delivered what they could have. I am not going to attempt to understand or critique their logic, but will review where the biggest problems lie for SMEs. The first problem is the inability of SMEs to hire and fire. Many entrepreneurs of all race groups deliberately focus on businesses that require no staff in order to avoid the complex labour system and the CCMA. The CCMA guarantees you that whether you win or lose you have to pay the ex-employee money. It is merely a legalised extortion system for workers. The incompetency of many chairpersons often leads to cases going on Appeal to the labour court to get bad/illegal decisions overturned. All this costs money that SMEs seldom have, so why go there. This is forcing more and more entrepreneurs into the import/export or services-based business so they can avoid staff. The impact of this is vast. This whole situation is exacerbated by the fact that you then have to comply with bargaining councils and the like who set wages at levels that are unrealistic for SMEs. This stops SMEs entering the manufacturing sector, where they have traditionally introduced the greatest innovation. There is unlikely to be innovation in importing and exporting or services! The second problem is access to finance. While the National Credit Regulator denies this, I have been informed directly by funders that their reluctance to lend to SMEs is directly related to the National Credit Act. I am not a legal expert, but these organisations have them aplenty, and believe it is a problem. So how was it addressed? They no longer lend on the basis of equity, but purely on the basis of cash flows. By default this excludes SMEs wanting to grow, from accessing growth finance on the basis of future cash flows. So how will they grow if they cannot access growth finance? Red tape in the form of the many forms and returns required. A previous report calculated the cost to business of red tape in South Africa was R70bn. I await their new report with interest. The latest addition was CIPC who now also wants information that they could be getting from SARS, but because SARS will not share information we all have to pay CIPC to capture our own information again. The whole BEE ting has been a disaster from the beginning. A few have got rich, the rules change faster than underwear and is generally a nightmare. The industry that has developed to issue certificates is so rabid that an accounting audit of Anglo American must be easier than getting a BEE certificate for a small business. Unexpected and unplanned outcomes of legislation abound in this country. Even the DTI are not always consulted on legislation in advance. Take the example of the Department of Health. They want to ban alcohol advertising. The industry spends in excess of R400m per annum on advertising. Where will the people get new jobs when this revenue disappears out of the advertising industry. So a few thousand people must lose their jobs and what goes with that, in order to save a few people who quite likely are not worth saving? We all drink and smoke by choice. SO leave us to our choices and their consequences. My father has sugar diabetes, but insists on eating sweets and chocolates. It is shortening his life but it is his choice. Must we now ban sweets and chocolates advertising to save diabetics? No they must make a choice. When this thinking is taken to the nth degree it becomes ludicrous. Where does it end? Banning smoking from public areas such as restaurants and aircraft is fair comment because people who do not smoke have no choice. But people who do smoke continue despite all the inconvenience. I have yet to meet someone who gave up smoking because they cannot smoke in a restaurant anymore. Legislation does not change human nature. Essentially, the environment is not conducive to SMEs existing, developing or growing. Throw in globalisation and the concomitant pressures for SMEs that this brings, and then add in a state that sees everything in terms of race and a big stick. It is time our government shoved the stick into a cupboard, got rid of all the unnecessary legislation, and created a carrot environment. History has proved that governments that use a carrot approach generally fare better than the big stick government, and normally last longer. Our government ignores the fact that while there are 2m workers who might vote for them, there are also 3m businesses who might have voted for them if they made life easier for business in general. A mixed economy that leans too close to the command side invariably results in collapse, one way or the other. Buy some carrots - please.

How many SMEs?

Everyone would like to know exactly how many SMEs there are. Do you include micro enterprises in this question? In South Africa the numbers bandied about vary from 1,000,000 to 3,000,000. There is no definitive answer however. The Cipro data is badly skewed due to political interference, with numerous dormant cooperatives, closed corporations and companies. No one knows how many sole proprietorships exist in the formal sector, and even less idea of informal sector "businesses". Many cities and towns have discontinued licencing of businesses, and so no one can do a census. From a research and economic development perspective it is a nightmare. The only realistic assessment of the number of economically active businesses possibly lies at SARS, the tax man for the uninitiated. However, they have steadfastly refused to divulge this information or provide access to researchers. So much for transparent democracy, which obviously contributes to the general failure to create jobs. Researchers cannot design interventions without an insight, which we cannot get. However, there a host of other reasons that contribute to the lack of information, such as the large number of state employees with sideline businesses.

Botswana were very organised with a database of just over 13000 businesses classed as SMEs. If you assume, without any real research or statistical validity, that Botswana, Namibia and Lesotho have similar population numbers, and Swaziland approximately half that number, a fair estimate for all these countries would be 45000 SMEs. Mozambique, Zambia and Zimbabwe all have bigger populations but do not necessarily have economies that are as developed, and i would therefore hesitate to make a guess for these countries. If you assume they have double the number of businesses you would estimate 135,000 in total for the countries surrounding South Africa. But this is guesswork and not research.

However, it does help to contextualise South Africa with business numbers in the millions compared to 135,000 to say 250,000, with approximately equivalent populations of say 50 million people.

I hope this answers the reader question in this regard. However, further input would be welcome in refining this response.
I do have exact data on some countries which is available commercially.
Rob

SMEs – SMEs struggling in South Africa. Why?

Many white-owned businesses have struggled since 1994. Many new businesses owned by all races since 1994, have found it difficult to establish themselves and grow.

Obviously the pre-1994 white-owned businesses allocate blame to the change of government. While this is a logical conclusion to draw, how accurate is it? There is no doubt that this had an impact on those businesses who had previously been a supplier to government, as government made an attempt to make their purchases reflect the country’s demographics.

However, what many of these business people have forgotten is that soon after 1994 South Africa rejoined the WTO. Furthermore, many businesses that had previously not been trading in South Africa due to anti-Apartheid trade restrictions, suddenly appeared at the front door to trade in South Africa and to use South Africa as a stepping stone into the rest of Africa.

Yes, globalisation had arrived! The problem is that very few South African SME business people have realised this. They still think they can continue to run businesses suited to lifestyle entrepreneurs without changing their businesses. They are still trying to understand why their profit margins have dropped and remain low. This is purely about globalisation. Thanks Walmart. While consumers may be happy with lower profit margins, SMEs are not. Low margins demand much higher volumes to stay in business.

The questions that this raises are whether these SMEs have increased sales volumes, have they tried to bypass the volume solution by becoming niche players in order to reduce the impact of the high volume/low price competitors? While my comments are based on anecdotal research, it appears to me that not many have changed how they do business. They all seem to be focused on the good old days instead of the future.

SMEs need to accept that they need to carve out a niche for themselves or scale up. The problem is that South Africa offers an incredible lifestyle opportunity, and this can distract attention away from the important issues. The problem is that our new SME owners have arrived bearing similar attitudes and expectations, and are wondering why they cannot make it. We all need to change our thinking going forward, because whether we like it or not we are part of the global village.