Wall St. and Business Wednesday: South Africa Government's Support For Entrepreneurship Misdirected

Johannesburg - The government was lagging behind in supporting small, medium and micro enterprises (SMMEs), said the Centre for Development Enterprise (CDE), a non-profit organisation funded by major corporations and parastatals.

In a report on supporting emerging entrepreneurs released yesterday, the CDE said: "The government's support for entrepreneurship in South Africa has been largely misdirected and it is time to accept the failure of the current approach."

Ann Bernstein, the chief executive of CDE, said: "The research highlighted the isolation of government efforts with respect to the development of its SMME promotion strategy."

The report said the government's strategy tried to serve too many purposes. Support for entrepreneurs had often been used as a vehicle for poverty relief rather than wealth creation.

The most important reason for supporting entrepreneurs was to increase the number of successful businesses that add value to the formal sector of the economy.

"As a result, there have been institutional failures and very high default rates among those who have been lent money, while training and advice has largely been provided and managed by people with no business experience," it said.

More than 90 percent of black entrepreneurs who secured loans from commercial banks did so without guarantees from government agencies, the report said.


The Banking Council of SA has found that banks are criticised as unwilling partners, possibly to conceal some of the shortcomings of the government and other initiatives.

The report cited a World Bank report that stated that of the 500 million micro and small entrepreneurs in the world, fewer than 2 percent enjoyed access to financial services from the formal financial sector.

The department of trade and industry acknowledged that SMMEs faced a number of constraints, including a lack of infrastructure, low levels of education and skills, and onerous labour regulations. According to the department, 45 percent of working South Africans are employed in the small business sector.

The government's main strategy for promoting small businesses was to distribute support services and goods, rather than to create a freer and more supportive environment, the report said.

Bernstein said the government should "create facilitative, hospitable environment for small business. Improve the regulatory climate, ensure cheap and effective infrastructure, and encourage public-private partnership".

The report recommended that the government reduce the costs of doing business in the country and establish a regulatory impact unit in the presidency to follow international practice in fostering private sector development.

This article first appeared at: The Business Report

Wednesday, July 14, 2004

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