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Only Small Businesses can solve our 32.9% Unemployment Woes

Kizito Okechukwu

Kizito Okechukwu | May 16, 2024

Two days ago, Statistics South Africa released its Quarterly Labour Force Survey for the first Quarter of 2024, which put our unemployment rate at 32.9%. This equates to an increase of 0,8 of a percentage point between the fourth quarter of 2023 translating to 8.2 million unemployed people. If one were to look at the expanded definition of unemployment, then concerningly this figure sits at 12.1 million unemployed.

A few months ago, 22 On Sloane published a report on SMME Job creation in South Africa. The report reflects on the National Development Plan (NDP) goal of SMMEs contributing between 60-80% of the GDP by 2030. The NDP had envisaged that SMMEs would create 90% of all jobs in South Africa by 2030. However, this goal will not be realised.  In its review, The National Planning Commission (NPC) highlighted that the target set by the NDP would not be possible due to various reasons. These include the impact of the COVID-19 crisis, skills deficits in emerging and critical sectors, and other socio-economic issues that continue to plague the country.

The 22 On Sloane white paper highlighted that for South Africa to achieve the 2030 goal, we need to create at least 3.2 million new SMMEs, which will help create 11.9 million new jobs. This is a tall order. Speaking at the Global Entrepreneurship Congress (GEC+) Africa in March 2024, the Minister of Small Business Development called on various private and public sector stakeholders to work together to at least create 1 million new SMMEs by 2030, which will in turn create around 3.7 million new jobs. Though this does not get us to the NDP target, it moves us closer to the goal.

Though much work is being done by the Department of Small Business Development and various other stakeholders in the private and public sector, SMMEs still face a myriad of challenges. Though one cannot exhaust these in the current article, these are some of the challenges and accompanying suggestions I have come up with to support the development and sustainability of SMMEs in South Africa:

Lack of Bargaining Power: We need to review various regulations and protect the bargaining power of SMMEs. In a 2018 piece published by the Trade Union Advisory Committee of the Organisation of Economic Cooperation and Development (OECD), it was advocated that SMMEs need a level playing field with larger companies. The publication further recommended that governments need to ensure the right policy mix in which SMMEs can thrive. This includes macro-economic policies that promote aggregate demand and fiscal policies that support investment in public infrastructure (including broadband coverage) and digitalised business models.

Cash Flow Constraints: Irregular revenue streams, delayed payments from clients, and cash and credit constraints are all but some of the challenges faced by small businesses. In addition, a lack of access to substantial developmental capital hinders their growth. Most small businesses also do not have audited financial records that makes it easier for them to get credit from traditional financial institutions. These key points must be addressed for them to grow their businesses.

Skills Gap: Many small businesses do not have the right skills needed to grow their business. Lack of effective capacity-building programmes and access thereto hinders small business growth. The inability of small businesses to attract and retain the necessary skills needed to grow their businesses is a challenge that continues to hinder SMME growth and sustainability.

 

According to the World Bank, developing economy such as ours should be growing at a rate of at least 4% for true job creation, yet it currently stands at around 0.6% -1%. Research has indicated that our unemployment woes can only be solved by small businesses, and it is high time we invested heavily in this sector. Continuing to relegate it to an afterthought would only continue to hurt the economy. Small businesses must be at the forefront of the economy of South Africa and taken very seriously if we want a thriving and job-prosperous economic environment.

 

Kizito Okechukwu is the Executive Head of 22 On Sloane and co-Chair of the Global Entrepreneurship Network (GEN) Africa

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