Small, micro and medium enterprises in South Africa

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According to the South African Small Business Act, "Small business organisation" means any entity, whether or not incorporated or registered under any law, which consists mainly of persons carrying on small business concerns in any economic sector, or which has been established for the purpose of promoting the interests of or representing small business concerns, and includes any federation consisting wholly or partly of such association, and also any branch of such organization. "Small business" means a separate and distinct business entity, including cooperative enterprises and non-governmental organisations, managed by one owner or more which, including its branches or subsidiaries, if any, which can be classified as a micro-, a very small, a small or a medium enterprise according to the criteria mentioned in the table below:


Contents

Categories of SMMEs as per the National Small Business Act

(From: http://www.dti.gov.za/smme/act.pdf)

The National Small Business Act divides SMMEs into the following categories:

Category of SMME Description
Survivalist enterprises Operates in the informal sector of the economy.

Mainly undertaken by unemployed persons. Income generated below the poverty line, providing minimum means to keep the unemployed and their families alive. Little capital invested, not much assets. Not much training. Opportunities for growing the business very small.

Micro enterprises Between one to five employees, usually the owner and family.

Informal - no license, formal business premises, labour legislation Turnover below the VAT registration level of R300 000 per year. Basic business skills and training Potential to make the transition to a viable formal small business.

Very small enterprise Part of the formal economy, use technology

Less than 10 paid employees Include self-employed artisans (electricians, plumbers) and professionals.

Small enterprise Less than 100 employees

More established than very small enterprises, formal and registered, fixed business premises. Owner managed, but more complex management structure

Medium enterprise Up to 200 employees

Still mainly owner managed, but decentralised management structure with division of labour Operates from fixed premises with all formal requirements.

Note: Women represent approximately 56 percent of the survivalist company category, 38 percent of micro-enterprises with no employees, and 15 percent of micro-enterprises with 1-4 employees.


Small business can also be divided between established formal SMMEs (mainly white and some Indian ownership) in predominantly urban settings and emerging SMME economy (mainly African and Coloured) situated in townships, informal settlements and rural areas. According to the White paper, by far the largest sector is the survivalist enterprise sector. This means that most people are active in the informal sector where they have little institutional support.


The Integrated Strategy on the Promotion of Entrepreneurship and Small Enterprises (2006)

A key strategic shift since the adoption of the White Paper is the integration of a wider group of institutions into the realm of small-enterprise development, and the inculcation of a more co-operative approach among a growing number of partners both within and outside government. In this context, the main institutional reforms set out in the strategy include the recent establishment of the Small Enterprise Development Agency (seda) http://www.thedti.gov.za/smme/strategy.pdf, which will, in collaboration with other role players, localise non-financial support to small businesses. It will do this through:

  • a national network of access points
  • the establishment of the South African Micro-Finance Apex Fund (Samaf) to localise access to micro-finance
  • the repositioning of Khula to give a more focused retail approach to small and medium-sized enterprise (SME) finance, primarily focusing on black-owned businesses, start-ups needing small loans with limited security, as well as SMEs in underserved provinces.

As explained later in the document, the principle of “integration”, which is at the core of this new strategy, relates to at least three different dimensions, namely:

  • integration of different socio-economic policy areas
  • integration of programmes within the public sector (cutting across national, provincial and local government), and between the public and private sectors
  • integration of the activities of different entrepreneurship and small enterprise promotion institutions.

The strategy covers the entire continuum of needed support from pre-startup and startup assistance measures to growing enterprises and enterprises in distress.


This strategy is based on three strategic actions:

Strategic Pillar 1 Strategic Pillar 2 Strategic Pillar 3
Increase supply for financial and non-financial support services Creating demand for small enterprise products and services Reduce small enterprise regulatory constraints
Collaborative Approaches Streamline resources from the public sector and crowding private sector resources New Policy Directives Public sector procurement strategy and BEE codes of good practice as a lever for increased demand Enabling Environmen Establish a regulatory impact assessment framework and Business Environment monitoring mechanism



These strategic actions will be underpinned by efforts to improve the availability of quality business information and knowledge through expanded research and communication outreach.


Overview of organisations set up by government to support small business

Government initiatives facilitated by the South African Department of Trade and Industry (DTI) and associated organisations, include the Centre for Small Business Promotion (CSBP), Ntsika Enterprise Promotion Agency and Khula Enterprise Finance. The CSBP implements and administers the aims of the national strategy, which includes job creation. The DTI has recently signed an agreement with the European Union which will see the EU donating R550m to start a risk capital fund for SMMEs.

The following list (from http://www.southafrica.info/business/trends/newbusiness/smallbusiness.htm and http://www.etu.org.za/toolbox/docs/government/sbd.html ) summarizes government initiatives in support of SMMEs.

Note: In future, the structure of SMME support organisations may change fundamentally due to the failure of some existing organisations to fulfill their purpose.


Institution: Centre for Small Business Promotion

Services: This is a Chief directorate in the DTI, responsible for policy and coordination of support programmes for SMMEs. It also mobilises funds and supervises the establishment of new institutions.


Institution: The Small Enterprise Development Agency (seda) Tel: 0860 103 703 Fax: 012- 441 2064 http://www.seda.org.za

Services: Seda was established in December 2004, through the enactment of the National Small Business Act of 1996, as amended. It incorporates the Ntsika Enterprise Promotion Agency (Ntsika), the National Manufacturing Advice Centre Trust (NAMAC), the Community Public Private Partnership Programme (CPPP) and the Small Enterprise Human Development Programme.

Seda's mandate is to design and implement a standard and common national delivery network that must uniformly apply throughout South Africa in respect of small enterprise development, integrating all government funded small agencies across all tiers of government.

The mandate includes the support and promotion of Co-operative enterprises to reach a greater variety of enterprises, particularly those located in rural areas. This support of alternative forms of enterprises will be an important way to facilitate the integration of second economy into the first economy.

Seda's envisaged delivery network consists of the national seda office, provincial seda offices, seda branches at district level and enterprise information centres at local municipality level. The main service delivery point will be the seda branches, where entrepreneurs will receive assistance with:

  • Information, advice and referrals
  • Tender information and advice
  • Training
  • Import and export training
  • Trade information
  • Company audits and assessments
  • Technical support
  • Business coaching and mentoring
  • Market access and business linkages
  • Co-operative enterprise development

A limited range of products and services will be available at the enterprise information centres, including:

  • Information
  • Advice and counselling
  • Referrals
  • Tender information and advice
  • Basic business planning
  • Training

http://www.dti.gov.za/thedti/seda.htm

Target: Seda's efforts are aimed at its primary stakeholder, small enterprises in South Africa and improving the viability and socio-economic contribution of this sector. The main focus is on developing products and services to assist small, micro and co-operative enterprises, while continuing to provide the existing products and services to medium enterprises.


Institution: Ntsika http://www.ntsika.org.za page doesn’t open Services: Ntsika provides non-financial support services to the SMME sector, tackling issues like management development, marketing and business development services. The agency also helps with research and inter-business linkages, business advice, government tenders and technology support to small enterprises, through:

  • Local business service centres (LBSC)
  • Tender Advice Centres (TACs) Targets survivalist, micro and very small enterprises.

Target: Majority of the LBSCs focus on start-up business, targeting unemployed, women and youth.


Institution: Khula http://www.khula.org.za

Services: Khula offers financial support mechanisms to the sector. The financial products include loans, the national credit guarantee system, grants and institutional capacity building. Khula has also launched its own micro-lending scheme, KhulaStart, an entry-level programme that provides loans to first-time borrowers in the survivalist sub-component of the SMME sector. Provides access to finance through:

  • Khula Credit Guarantee Scheme – provide guarantee products to banks.
  • Other institutions and NGOs, referred to as Retail Finance Intermediaries (RFIs) which borrow from Khula to make loans to SMMEs
  • Khula-Start: access to micro credit in rural areas

Target: Mainly targets very small, small and medium enterprises, with two small programmes for the survivalist and micro sector.


Institution: Namac Trust http://www.namac.co.za/

Services: The National Co-ordinating Office for Manufacturing Advisory Centres (Namac) is an SMME support agency within the DTI. It is widely recognised as one of the most successful SMME development and support agencies in South Africa. Namac has developed an extensive delivery structure across South Africa that serves as a channel for the application of new tools, information, products and projects, thus enabling the effective delivery of solutions aimed at SMMEs. The emphasis is on Historically Disadvantaged Individuals' (HDI) businesses. Two key programmes:

  • Manufacturing advisory centres (MACs), providing support for small scale manufacturing businesses.
  • Business Referral and Information Network (BRAIN) – information and a help line.

Target: The MACs are mainly for small and medium, more formal businesses.


Institution: BRAIN http://www.brain.org.za (page doesn’t open) Tel: (012)349 0100 Fax: (012) 349 2850.

Services: PO Box 397, Pretoria, 0001 The DTI has launched a comprehensive online initiative known as BRAIN (Business Referral and Information Network), offering basic information and essential service links to entrepreneurs. The BRAIN website includes information about the government’s incentives and SMME support agencies, as well as links to business centres throughout the country.

Target: BRAIN is for the entire spectrum of SMMEs.


Institution: FRAIN http://www.frain.org.za/ (page doesn’t open)

Services: The Franchise Advice and Information Network (FRAIN) strives to supply high quality information and support services to individuals and small business (SMMEs) to ensure growth and improvement of new and existing franchise businesses in South Africa. FRAIN is a support project of the DTI. It is implemented by Namac (National Co-ordinating Office for Manufacturing Advisory Centres), with assistance from the Council for Scientific and Industrial Research (CSIR).

Target: (not indicated)


Institution: Business Partners Limited http://www.businesspartners.co.za/

Services: In 1998, the Small Business Development Corporation (SBDC) was transformed into Business Partners Limited. The organisation shifted its focus onto small and medium enterprises, increasing its project involvement to a R150 000 minimum and a R15-million maximum. Business Partners set aside R277.7-million for investment in SMMEs last year. The organisation has invested R4.6-billion in emerging businesses in the past 20 years, directly influencing the creation of 500 000 jobs.

Target: (not indicated)


Institution: Tourism Enterprise Programme http://www.tep.co.za/

Services: The Tourism Enterprise Programme (TEP) falls within the policy-vehicle of the government's Tourism Action Plan (TAP). As such, it represents a component of a larger and longer-term strategy to both attract and effectively cater for the expected growth in domestic and international tourism. The TEP is funded by the Business Trust and implemented by ECIAfrica. The main objectives of the programme are to encourage and facilitate the growth and expansion of small and medium enterprises in the tourism economy, resulting in job creation and revenue generating opportunities. Primary emphasis is placed on historically disadvantaged entrepreneurs and enterprises.

Target: (not indicated)


Institution: Provincial SMME desks

Services: To provide a one-stop information centre to SMMEs and developing enabling government policy to support SMMEs in each province. Activities of the SMME desks include (though not in all provinces):

  • Keeping data bases of SMMEs in the province
  • Developing SMME orientated procurement and sub-contracting policies for provincial government
  • Targeted support programmes for HDIs, women, contractors, tourism entrepreneurs, small/micro manufacturers, etc.

Target: (not indicated)


Institution: Land Bank www.landbank.co.za

Services: Finance agricultural businesses

Target: From small to large scale farmers.


Institution: Industrial Development Corporation www.idc.co.za

Services: Supports and funds various industrial development programmes.

Target: Predominantly large scale projects, but some small to medium enterprises. Has a specific BEE mandate.


Institution: National Empowerment Fund

Services: Funded by government, it provides funding for black economic empowerment ventures

Target: Large, but also small and medium enterprises.


Institution: Black Economic Empowerment Commission (http://www.bmfonline.co.za/docs/BEE%20Commission.pdf )

Services: The BEECom was formally established in May 1998 under the auspices of the Black Business Council (BBC), an umbrella body representing 11 black business organisations. The BEECom set its objectives as follows:

  • To gain insight into the BEE process through empirical research and to make observations on the pace and results

of BEE initiatives during the 1990s.

  • To draw conclusions on the obstacles to meaningful participation of black people in the economy.
  • To develop a powerful case for an accelerated National BEE Strategy and to make recommendations on policies

and instruments required to guide a sustainable strategy.

  • To develop benchmarks and guidelines to monitor the implementation of the National BEE Strategy.

Target: (not indicated)


Institution: SMME’S established by women

Services: The national small business strategy, since its inception sought to target women. However, women continue to make up the bulk of the survivalist sector of SMMEs and of the poor. During the last decade, a number of organizations and institutions were established by and for women entrepreneurs. These include:

  • South African Women Entrepreneurs Network (SAWEN) – launched July 2001
  • Women in Oil and Energy in South Africa (WOESA)- launched March 2002
  • Technology for Women in Business (TWIP)
  • South African Women in Construction – launched August 1999

Target: Nearly all women-owned enterprises belong to the lower end of the SMME category, being either very small or micro sized companies. Men are predominant in the more lucrative sectors. Approximately 70 percent of informal businesses in South Africa are owned/controlled by women.


Institution: Umsobomvu Youth Fund http://www.youthportal.org.za Services: The fund started operating in 2001, with the mandate to facilitate the involvement of young people in economic activities. Umsobomvu implements a youth enterprise programme, providing both financial and non-financial support to youth enterprises. The youth entrepreneurship programme has three major projects:

  • Enterprise funding.
  • Micro-finance.
  • Business development services

Target: An estimated 700 SMMEs and 3 640 micro-enterprises are meant to benefit from these projects, and approximately 17 000 jobs are expected to be created.


Institution: The South African Women Entrepreneurs' Network (SAWEN) http://www.sawen.org.za/

Services: SAWEN is a South African National network that facilitates and monitors the socio-economic advancement of women entrepreneurs and their positive impact on the country’s economy. The establishment of South African Women Entrepreneurs Network (SAWEN) is a reaction to the fact that women entrepreneurs in South Africa continuously face a wide array of obstacles in starting, growing and sustaining their own enterprises. This dti initiative is a networking forum for individuals and organisations that are committed to the promotion and advancement of women entrepreneurs. The primary clients of SAWEN is any female South African citizen owning or managing an enterprise as part of generating profit, thus contributing towards growing the South African economy. Secondary, anyone who aspires to start her own business. Taking into account that women entrepreneurs are not a homogenous group, SAWEN has packaged services to suit each member. This has been motivated by the vastness of membership and the fact that recently South African has recently experienced different trends in women entrepreneurship, also influenced by geographic location. SAWEN membership is categorised into four categories including Big, Medium, Small and Potential Enterprises. The services are packaged to suit the special needs of each category.

Target: SAWEN targets women owning and managing big, medium and small enterprises operating within the broader economy of South Africa. These must be self employed, registered with the registrar of companies throughout the South African economy. Any individuals, who are presently entrepreneurs in a non-registered organization that can prove they are engaged in an income generating organization, may be admitted to membership of SAWEN for a period of one year. Special attention is given to reaching the rural based SMME's who are most affected by the constraining business environment that traditionally prevails for women entrepreneurs.


See More

  • Description of Small, Micro and Medium Enterprises (SMME’s)

http://www.etu.org.za/toolbox/docs/government/sbd.html