SMME’s under threat

Seventy five of SMME’s collapse in the first two to three years after establishment due to red tape and tough economic conditions

The survival of South Africa’s small and medium enterprises (SME’s) sector is under threat, according to the findings of the second round of the SME Growth Index research released recently.

This Index is a multi-year research project investigating the views and experiences of a panel of 500 SME’s operating in the country’s economy. These firms employ between 10 and 50 people and are active in three sectors of the economy regarded by government as having growth potential. These sectors are; manufacturing, business services and tourism.

The first round of this research was conducted in 2011, by business environment specialists Small Business Project (SBP). SBP is an independent private sector development and research company. Some of the enterprises involved in this survey have also experienced a threat to their own survival during the course of the previous year.

Nearly three quarters of the firms surveyed feel that it had become difficult to operate a business in the year preceding the survey. Over 70 percent of business services panelists felt that things had become more difficult.

“Small, Medium and Macro Enterprises (SMME’s) remain the life-blood of all economies of the world. Statistics, however, reveal worrying trends which need special attention of all those who operate in this space. We are informed that almost 75 percent of SMME’s collapse in the first two to three years after establishment,” said Free State premier, Ace Magashule, during the state of the province address last week.

Magashule attributed this failure to late payment of their services by their clients, which in most cases, is government departments. He pledged that the provincial government will heed the call made by President Jacob Zuma that government must pay SMME’s within 30 days. This will assist these enterprises to grow and be sustainable as they are among job creators in the country.

According to the research, factors that threatened short and long term survival of these enterprises included red tape. It takes up between three and six percent of companies’ turnover depending on the sector they operate in.

This threat affects mostly smaller firms. South Africa’s SMMEs are said to be “far more focused on survival than on growth”.

“The results of the study are jarring when viewed against the official commitment to SMEs as South Africa’s growth driver. They are simply not in a position to do so at present. Indeed, manufacturing firms are arguably the most negative of the whole sample,” reported bizzcommunity.co.za.

This threatens the job creation target in the country. In the Free State province, co-operatives have been identified as an economic model that could help increase the momentum of job creation and employment.

These co-operatives, in the form of school feeding schemes, textiles for manufacturing of uniform and protective clothing, security, cleaning, farming, catering and maintenance, will be assisted.

To advance and strengthen this plan, there will be an establishment of an interdepartmental co-operative forum focusing on cooperatives. The purpose of this forum is to promote greater awareness and utilise cooperatives across the province to prove services and products to the provincial government.