Not radical but practical and achievable transformation | Fin24

Not radical but practical and achievable transformation

Jul 12 2017 05:00
Mlenga Jere*

The participation of women in the economy is essential to eradicate poverty and promote growth that is inclusive, equitable and sustainable. A new study suggests that finding ways to formalise cooperative business relationships could be one way to boost their success, says Mlenga Jere.

TWO decades into democracy and the face of poverty in South Africa is still overwhelmingly black and, more specifically, female.

Data from Stats SA reveals that black women have the highest rates of illiteracy and the lowest rates of schooling when compared with men and other race groups. More than 30% of black African women were unemployed in 2015.

To feed themselves and their families women frequently turn to self-employment, drawn to the informal sector by low barriers to entry - including low skills and start-up capital requirements, as well as the flexibility self-employment offers to combine productive and childcare responsibilities.

Here too, they fare poorly. According to the Global Entrepreneurship Monitor (GEM), the ratio of women to men in the early stages of setting up a business in South Africa was six women for every 10 men in 2015. A further problem is that the vast majority of these businesses are necessity or survivalist businesses and very few make it beyond their first few months.

The participation of women in the economy is essential to eradicate poverty and promote growth that is inclusive, equitable and sustainable and this has, understandably, been a key topic at the recent ANC Policy Conference.

Improving the sustainability of female-owned businesses is important because women account for about 70% of the world’s poor - and yet they’re more likely to use a higher proportion of their income on the well-being of their families.

Putting more wealth in the hands of women could have a significant positive multiplier effect on the economy.

The government sees small and medium enterprises as future key drivers of employment, yet the sector continues to underperform. According to the latest GEM data, South African entrepreneurship is in decline. Last year, Small Business Development Minister Lindiwe Zulu decried the conditions under which women entrepreneurs in particular have to work and said government must do more to support them.

Proposed policy interventions include better access to finance, more entrepreneurial training and international trade development support. It is also possible that small and practical interventions at local level could have a significant impact, and a new study from the Cape Peninsula University of Technology’s Wholesale and Retail Leadership Chair (WRLC) is pointing the way.

The study, carried out in Khayelitsha, Cape Town among 173 female-owned informal businesses, suggests that an effective lever for support may be to formalise and scale up cooperative relationships that already exist around these entrepreneurs.

Stokvels play a significant role

Cooperative relationships are common in South Africa – the ubiquitous stokvel of which there are an estimated 800 000 across the country, and also church groups, play a significant role in poorer communities in distributing information and other resources such as financial, material and emotional support to their members.

These networks run on social capital, which can be defined as an instantiated informal norm that promotes cooperation between two or more individuals. Members of a social network benefit from knowing other people in the network and the many benefits which accrue to members of a network lead to economic efficiency in general.

Evidence shows that there is a link between social capital and positive collective outcomes in society.

This is particularly true when it comes to traders in the informal sector who are generally not well-resourced. Here the explicit use of cooperative relationships can increase their chances of success and sustainability.

Entrepreneurs who work in groups, for example, tend to be more successful than their peers who work individually, because they are able to share ideas and skills and buy stock in bulk for less, thereby reducing their overall costs of doing business, and making it possible to charge competitive prices.

Anecdotal evidence that women entrepreneurs rely on family, friends and other networks to fund and support their businesses abound, and the WRLC study has put some numbers to this.

Among other questions, the respondents were asked about the type of resources they received and sought from both family and friends’ networks and from their informal business networks. 75.2% reported receiving assistance from a close family member or friend in the preceding 12 months. The type of resources received most frequently from family members and friends were finance (48.6%) and free labour (48%).

A total of 154 respondents (89%) reported receiving assistance from other traders in the 12 months prior to the study. The types of resources most likely to be received from other traders were finance (60.7%), supplies (stock) (46.8%), and free labour (16.2%).

The most popular social networks (civic organisation memberships) in which the respondents participated, were stokvels (79.8%) and church affiliated groups (55.5%). But only 3.5% of the respondents reported belonging to a business association, while 52.6% reported being members of various localised associations such as funeral societies.

There is clearly a gap for formalised business-focused cooperative relationships to build social capital that would offer access to a more diverse resource pool. Given the respondents’ experiences with existing cooperative relationships, these would not be a completely novel idea to introduce.

While cooperative relationships with family and friends cannot be formalised, the researchers suggest that providing institutionalised formal business cooperative relationships to support traders would help build capacity among the traders and improve not only business sustainability, but profitability as well.

It might not be ‘radical’ economic transformation but it has the advantage of being practical and achievable.

*Associate Professor Mlenga Jere is academic director at the UCT Graduate School of Business and was the lead researcher for the WRLC study.

gsb  |  opinion  |  entrepreneurs


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