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Looking to Germany for entrepreneurial inspiration

Nov 30 2015 13:07
Andile Ntingi

Andile Ntingi is a journalist and the founder of Getbiz.co.za, an e-procurement service. (picture supplied)

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Are SA’s small-, medium-, and micro-sized enterprises (SMMEs) capable of rising to the challenge of doubling their roughly 45% contribution to the economy to emulate their highly entrepreneurial German counterparts?

At the moment, SMMEs contribute roughly 45% to the local economy, but the government wants the figure to double to 90% by 2030 in terms of its National Development Plan goals.

Unlike many other economies around the world, the South African economy is dominated by large corporations and government institutions, making life difficult for small businesses.

In addition there are extremely low levels of entrepreneurial activity in SA, compared with other developing markets.

An example to learn from

If it is to boost the participation of SMMEs in its economy, SA will have to closely study Germany, where small businesses lead the economy instead of big businesses.

While Germany is famous for brands like BMW, Mercedes-Benz and SAP, the driving force behind the European country’s economic success is small businesses, better known in Deutschland as the Mittelstand.

Professor Michael Woywode, director of the Centre for SMME research at the University of Mannheim, told delegates at a recent colloquium in Johannesburg that Mittelstand firms are the backbone of the German economy, contributing over 95% to formal employment.

The Mittelstand firms, which employ between 10 and 499 people, contribute 55.2% to German taxes and train 82.4% of apprentices, ensuring that German companies have an abundant supply of young skilled professionals.

“Around 1 300 German SMMEs are world leaders in their markets and have positioned themselves successfully in market niches. The biggest export market for German companies is China and these companies understand that they are in international competition,” Woywode said.

Being export-orientated has enabled the Mittelstand firms to increase their export revenue to €186.1bn in 2010 from €143.7bn in 2000, a jump of 22.7%.

“During the recession when the credit crunch hit, German SMMEs focused on saving money and looking for international markets to generate revenue.

Right now in Germany, we are seeing an increase in self-finance by the SMMEs.

They are financing themselves from cash flows rather than credit. Alternative forms of financing like venture capital and private equity are used hesitantly in Germany,” Woywade explained.

Increasing the output of small local businesses

SA’s SMME sector is far from achieving, or even catching up with, the strength and resilience of its German counterpart.

However, small business development minister Lindiwe Zulu is determined to increase the influence of SMMEs in the economy and has identified five key areas that can help unleash the potential of the sector.

The five key areas are:
•    Unleashing state procurement to buy from SMMEs;
•    Boosting market access for SMMEs in the private sector;
•    Simplifying policy and regulatory environment;
•    Improving access to finance; and
•    Increasing support for township and rural businesses.

Zulu will need the cooperation of big businesses to open up their supply chains to small businesses if she is to achieve her five-point plan.

“I have consistently maintained that we should proceed from the premise that supporting small businesses and cooperatives is not a philanthropic gesture on the part of big business,” she said.  “The diversification of supply chains assists big business to have a wider choice of suppliers from SMMEs and promotes innovation within the value chain.”

To increase the exposure of small black companies to public sector procurement, Treasury has released proposed amendments to the Preferential Procurement Policy Framework Act (PPPFA) to ring-fence tenders valued up to R10m for black suppliers after calls by black business lobby groups for the state to set aside 30% of government tenders for black companies and small businesses.

However, the powerful Black Business Council rejects the R10m threshold for set-asides, arguing that it will confine black businesses to minuscule portion of the economy.

Despite the battle ahead over the procurement set-asides, Zulu’s department is pressing ahead with reviewing the incentive programmes for small businesses that it inherited from the department of trade and industry.

Although she has not made any pronouncements at this stage, some of these incentives may be discontinued, scaled down, or enlarged to meet the needs of SMMEs.

Andile Ntingi is a journalist and the founder of Getbiz.co.za, an e-procurement service.

This article originally appeared in the 3 December 2015 edition of finweek. Buy and download the magazine here.

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