You are here:
Toolbox >> Government programmes and policies >>Small Business Development

Small Business Development

What is in this guide?

This guide provides government policy on Small Business Development. It has the following sections:

  1. Why develop small business?
  2. Description of Small, Micro and Medium Enterprises (SMME’s)
  3. Intended outcomes of the small business strategy
  4. Support for the development and growth of SMME’s
  5. Promotion of SMME’s by government
  6. Business management support services
  7. Access to loans for starting or expanding SMME’s
  8. SMME’s established by women
  9. The Youth entrepreneurship programme 

  1. Why develop small business?

Unemployment is one of the most important challenges facing the poor people in our country.  This has been made worse by the fact that over the last two decades, the formal economy (especially mining) has been shedding jobs and many workers were retrenched.  Furthermore, every year hundreds of thousands of new job seekers (the vast majority of them youth) join the army of unemployed. 

It is accepted worldwide that the development and growth of small, micro and medium enterprises (SMMEs) can play an important role in turning this situation around.  Policies and programmes to support the development of SMMEs are therefore an important part of the democratic government’s programmes to create a better life.

A strategy was outlined in a White paper by the Department of Trade and Industry (the lead department for SMME development) entitled: “A National Strategy for the Development of Small Business in South Africa (May 1995)”.  A year later, the National Small Business Act was passed by Parliament, which provided for the institutions to implement this strategy. 

  1. Description of Small, Micro and Medium Enterprises (SMME’s)

The National Small Business Act divides SMMEs into the following categories:

Category of SMME

Description

Survivalist enterprises

Operates in the informal sector of the economy.
Mainly undertaken by unemployed persons.
Income generated below the poverty line, providing minimum means to keep the unemployed and their families alive.
Little capital invested, not much assets.
Not much training.
Opportunities for growing the business very small.

Micro enterprises

Between one to five employees, usually the owner and family.
Informal  - no license, formal business premises, labour legislation
Turnover below the VAT registration level of R300 000 per year.
Basic business skills and training
Potential to make the transition to a viable formal small business.

Very small enterprise

Part of the formal economy, use technology
Less than 10 paid employees
Include self-employed artisans (electricians, plumbers) and professionals.

Small enterprise

Less than 100 employees
More established than very small enterprises, formal and registered, fixed business premises.
Owner managed, but more complex management structure

Medium enterprise

Up to 200 employees
Still mainly owner managed, but decentralised management structure with division of labour
Operates from fixed premises with all formal requirements.

Note: Women represent approximately 56 percent of the survivalist company category, 38 percent of micro-enterprises with no employees, and 15 percent of micro-enterprises with 1-4 employees.

Small business can also be divided between established formal SMMEs (mainly white and some Indian ownership) in predominantly urban settings and emerging SMME economy (mainly African and Coloured) situated in townships, informal settlements and rural areas. According to the White paper, by far the largest sector is the survivalist enterprise sector. This means that most people are active in the informal sector where they have little institutional support.

The government’s national small business strategy seeks to address the following common problems faced by SMMEs:

  1. Intended outcomes of the small business strategy

The White paper and Act sets out the objectives of our SMME development policy as:

The national small business development strategy also seeks to strengthen cohesion amongst small enterprises and to level the playing field between big and small business.

  1. Support for the development and growth of SMME’S

The Act provided the foundation for the establishment of the institutions listed in the table below, and the transformation of others, to support small businesses.

In addition to the listed institutions, there are also NGOs, donors and private sector organisations (e.g. the programme by the Banking Council of SA) who support SMMEs.  The Black Economic Empowerment Commission, an initiative of black business, also highlighted the importance of SMME development for broad based black empowerment.

Institution

Services

Target

Centre for Small Business Promotion

This is a Chief directorate in the DTI, responsible for policy and coordination of support programmes for SMMEs. It also mobilises funds and supervises the establishment of new institutions.

 

Ntsika Enterprise Promotion Agency

Provides non-financial support such as mentoring programmes, business advice, help with government tenders and technology support to small enterprises, through:

  • Local business service centres (LBSC)
  • Tender Advice Centres (TACs)

Targets survivalist, micro and very small enterprises.
Majority of the LBSCs focus on start-up business, targeting unemployed, women and youth.

Khula

Provides access to finance through:

  • Khula Credit Guarantee Scheme – provide guarantee products to banks.
  • Other institutions and NGOs, referred to as Retail Finance Intermediaries (RFIs) which borrow from Khula to make loans to SMMEs
  • Khula-Start: access to micro credit in rural areas

Mainly targets very small, small and medium enterprises, with two small programmes for the survivalist and micro sector.

NAMAC

Two key programmes

  • Manufacturing advisory centres (MACs), providing support for small scale manufacturing businesses.
  • Business Referral and Information Network (BRAIN) – information and a help line.

 

The MACs are mainly for small and medium, more formal businesses.

BRAIN for the entire spectrum of SMMEs.

Provincial SMME desks

To provide a one-stop information centre to SMMEs and developing enabling government policy to support SMMEs in each province.  Activities of the SMME desks include (though not in all provinces):

  • Keeping data bases of SMMEs in the province
  • Developing SMME orientated procurement and sub-contracting policies for provincial government
  • Targeted support programmes for HDIs, women, contractors, tourism entrepreneurs, small/micro manufacturers, etc

 

Land Bank

Finance agricultural businesses

From small to large scale farmers.

Industrial Development Corporation

Supports and funds various industrial development programmes.

Predominantly large scale projects, but some small to medium enterprises.  Has a specific BEE mandate.

National Empowerment Corporation

Funded by government, it provides funding for black economic empowerment ventures

Large, but also small and medium enterprises.

  1. Promotion of SMME’s by government

The second National Small Business Conference organised by the DTI in 1998 focused on the role of local government in SMME support.  Local councils do procurement and sometimes form partnerships with business to deliver services.  The Local Economic Development approach encourages local government to also play their role in promoting small businesses.  The Department of Provincial and Local Government administers a fund of about R42 million, to which municipalities can apply for their LED projects.  Many of the approved projects relate to small business activities.

The promotion of SMMEs has become an objective across government.  Many departments have specific strategies in place, for example developing SMMEs in the tourism sector, or developing small and emerging contractors by Housing and Public Works, Land and Agriculture, Arts and Culture and so forth.  The promotion of SMMEs is also an important part of the different spatial development initiatives and the Urban Renewal and Rural Development strategies.

As part of the National Skills Development Strategy, the Sector Education and Training Authorities (SETAs) are also supposed to develop programmes that help develop small businesses in their respective sectors.

There are a number of other parastatals which also support small businesses, though mainly at the upper end of the spectrum.  These include:

The Manufacturing Strategy (2001) of the DTI identified a range of sectors with potential for growth of SMMEs.  These included tourism, agro-processing, business services, cultural industries, etc, with sectoral strategies to achieve this objective for each of these sectors. 

  1. Business management support services

The institutions and organisations mentioned above also provide a wide range of business management support services to entrepreneurs and small enterprises, such as:

BRAIN, the business referral and information network, established by the DTI provides a national helpline and has a data base of services and organisations in each province which provide these services. (CONTACT DETAILS: www.brain.org.za. Tel:  (012)349 0100 Fax: (012) 349 2850. PO Box 397, Pretoria, 0001). Provincial SMME desks also keep data bases of SMME service providers.

  1. Access to loans for starting or expanding SMME’S

Lack of access to finances continues to be the major problem faced by people who want to start their own businesses, or to expand their businesses to become more profitable.  Commercial banks generally do not regard the majority of people as bankable or creditworthy.  An important part of the national small business strategy is therefore to create an enabling environment for entrepreneurs and small businesses to access finances.  Although a number of institutions have been set up, we still have a very long way to go. 

In the Medium Term Expenditure Framework, government has committed to establish an Apex Fund which will lend directly to micro enterprises, and has voted R10 billion to recapitalise the existing institutions like Khula and Ntsika.

Institutions providing finances to SMMEs

National

  • Contractors Finance Corporation
  • Business Partners (formerly the SBDC)
  • Commercial Banks
  • Community Projects Funds - CPF-SP
  • Development Bank of South Africa
  • Industrial Development Corporation - (IDC)
  • International Tourism Marketing Assistance Scheme - (ITMAS)
  • Khula Credit Guarantee Scheme
  • Khula Micro Credit Outlets
  • Khula Retail Financial Intermediaries (RFIs)
  • Khula Thuso Mentorship Scheme
  • Land Bank
  • Sizanani Scheme
  • Zimele

E Cape

  • Business Finance Promotion Agency (Khula RFI)
  • Community Entrepreneurial and Business Initiative
  • Eastern Cape Development Corporation
  • FNB Momentum Umsobomvu Progress Fund
    Marang Financial Services

Free State

  • Free State Development Corporation
  • Remmogo Business Finance

Gauteng

 

KZN

  • FINCA
  • FNB Momentum UYF Progress Fund
  • Ithala Development Finance Corporation
  • Khethani Business Finance (Khula RFI)
  • KwaZulu-Natal Development Foundation
  • Marang Financial Services

Limpopo

Sankofa Financial Services
The Nations Trust
Tusk Construction Support

Mpumalanga

Beehive Entrepreneurial Development Centre
Ekukhanyeni Finance Facility (Khula Micro Credit Outlet)
Emerging Entrepreneurs Finance Service Centre
Marang Financial Services
Middleburg Micro Credit Outlet
Mpumalanga Economic Empowerment Corporation - (M.E.E.C)
Siyakhula Micro Business Finance (Khula Micro Credit Outlet)

Northern Cape

Remmogo Business Finance (Khula RFI)

W Cape

FNB Momentum UYF Progress Fund
Khethani Business Finance (Khula RFI)
Landelike Ontwikkelings Maatskapy
Nations Trust (Khula RFI)

  • New Business Finance

SOURCE: www.brain.org.za

  1. SMME’S established by women

The national small business strategy, since its inception sought to target women.  However, women continue to make up the bulk of the survivalist sector of SMMEs and of the poor. During the last decade, a number of organizations and institutions were established by and for women entrepreneurs.  These include:

South African Women Entrepreneurs Network (SAWEN) – launched July 2001

SAWEN identifies the origin of women entrepreneurs' problems as:

  • Gender - despite the fact that women-owned enterprises are contributing an increasing share to national revenue, they are generally perceived to lack the capacity of their male equivalents.
  • Size - Nearly all women-owned enterprises belong to the lower end of the SMME category, being either very small or micro sized companies. Men are predominant in the more lucrative sectors. Approximately 70 percent of informal businesses in South Africa are owned/controlled by women.

SAWEN seeks to affiliate all women enterprise groups, co-operatives, organisations and initiatives in to a national umbrella body that will represent and articulate the aspirations of all women entrepreneurs (potential and existing) that operate within the South African SMME sector, as well as lobby for their support needs. It also seeks to target rural women.  Since its launch in 2001, it has established a number of provincial chapters.

Women in Oil and Energy in South Africa (WOESA)- launched March 2002

Facilitates the participation of women in business ventures in the oil, gas and other energy sectors.

Technology for Women in Business (TWIP)

Aimed at enhancing the accessibility of science and technology to women in business, in particular SMME's. It is a national programme under the auspices of the Department of Trade and Industry (DTI). The CSIR, as contracted by DTI, acts as an agent for DTI to implement the TWIB programme.

South African Women in Construction – launched August 1999

Promotion and advancement of women in construction; of education and contribution to the betterment of the construction industry and the enhancement of the entrepreneurial development of women-owned enterprises in construction.

  1. The Youth entrepreneurship programme

In 2000 government announced the establishment of the Umsobomvu Youth Fund, out of the proceeds of the demutualisation of Old Mutual and Sanlam.  The fund started operating in 2001, with the mandate to facilitate the involvement of young people in economic activities.  Umsobomvu implements a youth enterprise programme, providing both financial and non-financial support to youth enterprises. 

The youth entrepreneurship programme has three major projects:

An estimated 700 SMMEs and 3 640 micro-enterprises will benefit from these projects over the next three years, and approximately 17 000 jobs are expected to be created.

Enterprise funding

Recently launched FNB-Momentum-UYF Progress Fund, which complements the Franchise Fund, launched in partnership with business partners.

Micro-finance

Focus on entry-level investments, and its pilot projects with the Nations Trust and Micro Enterprise Finance are funding micro-enterprises and co-operatives.

Business development services voucher

Helps young entrepreneurs to access quality business support from approved service providers through vouchers, ranging in value from R1 500 to R23 000.

Take it to the People project

Launched recently to create locally based economic opportunities for young people. The project focuses on income-generation and self-employment for young people living in 21 urban and rural areas identified as significant "poverty pockets". The project aims to develop local solutions to unemployment by investigating options for youth development in the form of micro and small businesses and co-operatives. It will work in conjunction with local municipalities and donors.

Contact, information & counselling

Aim to reach more than 730 000 young people over the next three years, offering information and counselling support regarding career development, employment and entrepreneurship through a youth line, advisory centres and an Internet portal. The first 12 of 33 planned advisory centres have already opened in the provinces of Gauteng, KwaZulu-Natal, Limpopo, Northern Cape, North West, and Western Cape.

School to Work

Is designed to transfer high-level technical skills and to facilitate work experience for unemployed matric and tertiary graduates. It also aims to introduce black youth into previously inaccessible careers, such as IT and accounting.

Youth Service

Focuses on unemployed youth who have no tertiary education, enabling them to acquire the skills, competencies and experience they require to achieve economic independence. This is done through a structured learning programme and accredited through a SETA.

Links
Department of Trade and Industry.  www.dti.gov.za
Department of Trade and Industry.  Medium term strategic plan 2002-2004
Business Referral and Information Network – www.brain.org.za

Index

Local Economic Development (LED)  |   Life Long Learning and the World of Work   |  Land Reform   |  Health  |  Gender Equality and Women's Empowerment   | Small Business Development   |  Disaster management   |  Infrastructure Development   |  Safety and Security   |  Combating Poverty: Social Development and Grants   |  Education Policy: Admissions and school fees  |  School Governing Bodies  |  The Expanded Public Works Programme  |  Housing subsidies and support services  |   Basic Services   |  Workers’ rights   |  Environmental Health and Safety   |   Disability Policy and Services    |   Children's Rights

This material may not be used for profit without permission from ETU