The acknowledgment and support for small businesses to become the real solution when it comes empowering South Africa's jobless masses has finally come to the fore.

With figures in the economically strong UK indicating that up to 90% of people there are employed by the SME sector, it seems like a no-brainier that the government here should be launching and supporting an effective campaign to not only further support SMEs but also to provide sufficient incentives for SMEs to employ and train the many who are looking to use and extend their skills and potential.

What stands in the way of your company employing more people?

Ben

-----------------------------------------------------------------------------
The above follows this article from Brian Goodall in Business Day:

IN RECENT years, SA has experienced its fastest and longest economic growth since the 1960s. Equally important, that growth has created jobs, about 500000 a year.

This is to be welcomed. The question I want to explore, however, is the relationship between economic growth and poverty reduction.

World Bank research shows that a 2% increase in economic growth can result in a reduction in absolute levels of poverty ranging from 1%-7%, depending upon the country studied.

The objective, therefore, is not only to reach a growth rate of 6%, but also to get the sort of growth that will reduce poverty.

Different industries create different numbers of jobs. We know, for example, that tourism tends to be labour-intensive. We know that some retail and financial services tend to be more labour-intensive than sophisticated manufacturing processes, which are capital- intensive. This does not mean we should scorn this type of investment -- it is those capital-intensive industries that are often at the forefront of our export drive.

Our concern here is the low productivity of our investments. In their paper for the Kennedy School of Government, Jeffrey Frankel, Ben Smit and Fedenco Sturzenegger point out that the productivity of investment in SA is one-ninth of that observed in typical growth accelerations in other countries. Clearly there is a need for substantial improvement in the use of capital, to reduce the pressure on investment as the main driver of economic growth.

It is a worldwide phenomenon that small businesses are job creators and efficient users of capital. But the term "small business" covers a wide variety of business formations. The Finmark study done for the Gauteng Economic Propeller highlights this.

The study distinguished seven categories of businesses by their levels of business sophistication. At the lowest level of sophistication, it took 10 businesses to create one job. At the most sophisticated levels that were categorised -- companies with an annual turnover of about R1m-R2m-plus -- each business created 8,9 jobs. The message is very clear. Yes, small businesses do create jobs, but it is the more sophisticated, formalised small businesses that are the real job creators.

What does that tell us? To date, we have focused much of our attention on developing entrepreneurship and on the informal sector. The informal sector, as the Finmark study shows, is not the breeding ground for formal businesses. The breeding ground for formal business is in fact not those that are unemployed, but whose who are in employment. These are the people who have both the technical skills and hopefully the training in business systems to successfully run a small business.

Our objective, if we want to create jobs, is to make it easy for those people to start their own businesses, get them growing and let them start employing others.

I do not, for one minute, underestimate the importance of the informal sector. Although the income earned from micro businesses is not large, it is vital for those who run them. Informal businesses are often the only viable employment option for the poor. If we want to help this sector, we need to tailor a solution that meets their needs. Personally, I am not convinced that our current financial structure is equipped to do this and we need to design vehicles that are.

If one looks at the experience of other countries that have successfully developed the informal sector, the following points emerge.


We must accept that small loans can substantially improve, through hard work, a person's standard of living and self-esteem;
Credit should be given only to those to whom credit is due. The best way to achieve this is through peer pressure. Small groups of informal businesses should get together and cross-guarantee one another's loans. In this way, a failure or a success by one affects all;
Loans should start off small and increase in size as people learn how to use credit. As borrowers prove themselves credit-worthy, the amount they borrow can be increased; and
Repayments need to be made frequently so that borrowers don't fall behind credit.

Fifth, people brought up in a formal banking or financial environment will not be able to run this type of business.

Just as Mao Zedong transformed public health in China through barefoot doctors, we need barefoot bankers who understand how this type of financing works.

If you want to solve a problem, you must define exactly what the problem is and work out a specific solution . We have not done that with small, medium and micro enterprises , and have wasted billions of rands because of it. The time has come to look for new solutions.

Goodall is a Democratic Alliance member of the Gauteng legislature.