President Cyril Ramaphosa makes noises about backing small business. It’s about time, writes BORIS URBAN
President Ramaphosa’s hope-filled SONA speech with reference to entrepreneurship and small businesses is inspiring; particularly as he said, “While change can produce uncertainty, even anxiety, it also offers great opportunities for renewal and revitalisation, and for progress.”
It is precisely at the nexus of uncertainty and opportunity that entrepreneurship takes place. According to the traditional neoclassical view, entrepreneurship is the ‘mystical’ element that delivers external shocks to a state of equilibrium in the marketplace by introducing new products and services. However, without the presence of these two phenomena – lucrative opportunities and enterprising individuals – very little renewal or revitalisation will take place in South Africa.
As a global phenomenon, it has been estimated that about 73 million people in 34 nations are active entrepreneurs. Empirical evidence is mounting which demonstrating that there are more entrepreneurial opportunities in developing countries and that the higher number of entrepreneurial opportunities and demand for entrepreneurship in developing countries is indeed matched by higher rates of opportunity-driven entrepreneurs entering the market.
However, South Africa has an unusually low share of employers and self-employed people in the labour force, and a relatively low share of working age adults in employment at all. This is a major factor behind high joblessness and the associated inequality and economic exclusion.
In fact, South Africa’s total entrepreneurial activity rate remains among the lowest in the peer group of developing nations. Even more disconcerting is in South Africa, many initiatives and programmes sponsored by national government are not yielding much benefit. Decades of coordination on a centralised national basis seem not well suited to timely reactions for dynamic global changes and the inherent dynamism found within entrepreneurship.
President Ramaphosa acknowledged the issue around bureaucracy and red tape and how these are limiting factors for start-ups and enterprise growth. Problems of red tape, inflexible legalisation and state bureaucracy currently stifle entrepreneurial activity and SMME capacity development in South Africa. In many cases red tape is a code word for rent-seeking activities (litigious behaviour, nepotism and corruption) resulting in unproductive entrepreneurship.
Government agencies and institutional factors provide incentives for rent-seeking entrepreneurial activities that may not lead to socially productive entrepreneurial activities. Sadly, in South Africa, as a result of rent-seeking activities by government officials, SMMEs tend to engage in corruption to make possible their entrepreneurial endeavours. The importance of bribery to successful entrepreneurial action has led to a widely held view of unproductive entrepreneurship where illegal behaviour is seen as justifiable in terms of normal business practice.
Additionally, what is often overlooked and what many SME reports are silent on when discussing red tape, is the structure of the market which has traditionally been hostile towards SMMEs. South Africa has a distinctive economic history, which over the years has contributed to the creation of a highly concentrated economy. Several industries in South Africa can be categorised as tight oligopolies, where several large firms dominate the competitive landscape, hold considerable market power, and are protected by high entry barriers, which exclude SMMEs.
Market openness has been cited as a key factor constraining entrepreneurial activity in South Africa. Such hindrance of market access is evident insofar as most small enterprises are found in trade, construction and business services. Approximately half of SMMEs are in business services and retail, while in the informal sector the self-employed are overwhelmingly in retail. Such limited entrepreneurial activities prohibit SMMEs from climbing up the value chain and they remain uncompetitive.
Small business lobbyists and academics have highlighted the prevalence of monopoly capitalism and wealth centralisation in South Africa as an inhibitor of robust market rivalry which constrains SMME growth and innovation. To remedy such monopolistic conditions many SMMEs have appealed to the competition authorities to address these issues where the Competition Act tries to ensure that small businesses have an equitable opportunity to participate in the economy.
Accordingly if entrepreneurship is really to be reinvented in South Africa it needs to be part of a larger paradigm shift at the level of the market economy. This includes:
- A robust and interactive entrepreneurship ecosystem that offers equal access to opportunities, development tools and comprehensive access to resources.
- A functioning ecosystem that connects everything, from suppliers, distribution channels, universities, to venture capital.
- Improving access to entrepreneurial finance and market access for small businesses to ensure there is a level playing field for opportunities.
- Long-term investments need to be made in developing entrepreneurial capital, which is a function of individuals with a high quotient of human and social capital.
Small businesses are not simply just smaller versions of big business; instead they are vulnerable as they are small and new and consequently need a supportive environment and a mix of responsive policy interventions. In this regard Minister Gigaba mentioned a number of government-led interventions in the 2018 budget speech which focused on creating a more vibrant small business sector, including: competition policy and market access, investing in innovative start-ups and using public procurement to support small businesses.
Lastly, the milieu also demands that entrepreneurs do not simply sit back and blame the environment. Entrepreneurship involves human agency, where to be an agent is to intentionally make things happen by one’s own actions. Entrepreneurs need to develop a hard-headed awareness of market realities and hard-won business truths. Entrepreneurship requires individuals to take action and surmount environmental obstacles, which is often a synthesis of imagination and realism.
To paraphrase the dictum “Big businesses are not against you; they are merely for themselves.” Similarly, entrepreneurs need to do it for themselves, despite facing blatant market obstructions.
Boris Urban is a Professor at the Wits Business School. This article first appeared in the Wits Business School
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