With a sky-high unemployment rate, South Africa needs to create jobs fast. Small businesses can provide vast job opportunities, but, sadly, overly restrictive Government policies make it very difficult for this sector to realise its full potential. We asked a couple of business leaders why they believe their cities are the friendliest places for a small business to get off the ground.
Economists estimate that small-, medium- and micro-enterprises (SMMEs) are able to create between 70%-80% of jobs in SA as they are not as dependent on skills and infrastructure as big businesses. Yet, Government policy is generally hostile towards small businesses because of regulatory obstruction.
“Small businesses are last on the food chain,” Chris Hart, chief strategist at Investment Solutions, says. “The economies of scale, such as the National Credit Act, and our labour laws suit big business, but these requirements are too restrictive for small businesses.”
Small-business owners also face uncertainty about Government policy and the regulatory environment, which has a negative impact on the cost and ease of doing business, Neren Rau, CEO of the South African Chamber of Commerce and Industry (SACCI), says: “The cost of compliance, such as submitting annual returns to the Companies and Intellectual Property Registration Office (CIPRO) and the referrals of labour disputes to the Commission for Conciliation, Mediation and Arbitration (CCMA) place a huge burden on small business owners.”
When businesses want to dismiss a worker the CCMA has to be involved. “That’s okay for big businesses with human resources (HR) divisions, but a small business owner doesn’t have such a thing as an HR department and they are kept busy days on end with labour disputes,” Hart says.
South Africans’ poor savings culture also hampers entrepreneurship and small business ownership. “Our policies also make it unviable to save,” Hart says. “If you have money you’ll have more use in spending it. In SA savings get eaten up by inflation and things like capital gains tax and the transfer duty on houses are extremely damaging to savings.”
This brings us to the question: do our cities create a favourable environment for small business owners? Let’s find out.
“It’s not the City of Johannesburg that blocks the growth of small businesses,” Keith Brebnor, CEO of the Johannesburg Chamber of Commerce & Industry (JCCI) says. Over-regulation, a plethora of time-consuming red tape and very costly bureaucratic processes in a typical year hamper growth in the small business environment.
But things are looking up, Brebnor says. “The new leaders of the Johannesburg city council are looking like proving to becoming major small business supporters.
Johannesburg is a multisectoral and multi-opportunistic city and there is not a single industry that takes precedence over the other, Brebnor says.
Unfortunately there’s not enough will from big business to procure from, and grow small suppliers. Brebnor is, however, hopeful that amendments to the Black Economic Empowerment code could change this.
On a national level, small businesses in Johannesburg often have to make do without sufficient Government support. “When Government does assist, they seem to only want to help the “survivalist-type” businesses that are unlikely to create sufficient jobs,” Brebnor points out. Government is out of touch with entrepreneurs and appears to think only “Big Business” can liaise with Government.
“Thanks to the Cape Chamber of Commerce and Industry (CCCI), the City of Cape Town and the Western Cape government there’s a concerted effort to dissipate red tape, which makes Cape Town a small business-friendly city,” CCCI president Bagraim says. National Government initiatives, such as the Small Enterprises Development Agency (Seda) and local and provincial governments are co-opted to protect small businesses and help them survive past the second year of existence. Statistics show Cape Town and the Western Cape has a much bigger survival rate for small-business owners, according to Bagraim.
Tourism and enterprises flowing from the sector, such as guest houses, are popular business ventures in Cape Town. The so-called Silicon Cape Initiative, founded to aid entrepreneurs, venture capitalists and marketers in the IT industry, has also taken off and enjoys support from local and provincial government. Small businesses enterprises in the alternative energy sector is getting increasingly popular, while Cape Town is a popular base for overseas call centre agencies due to the city’s many French, German and Italian-speaking residents.
The CCCI launched the Red Carpet to Red Tape-initiative, which invites business owners in the city to call in and identify anything that stands in their way of doing business, Bagraim says. “We’ve received numerous complaints, but local and provincial Government have really stepped up since then.”
One of the difficulties small business owners face is Capetonians’ reluctance to support new businesses, Bagraim says. “Cape Town is a very sleepy place and it’s a harsh environment for start-ups. It’s not as difficult in Jo’burg.” Another stumbling block is local and provincial governments’ procurement policies, which are not accommodating to small businesses. “It’s practically impossible for small businesses to take part in a tender due to the heaps of paperwork that need to be completed,” Bagraim adds.
At a national level, labour laws are regarded as exceptionally harsh and restrictive by small-business owners. “It’s really a handbrake,” Bagraim says. “There’s the perception that you can hire people, but you can’t fire them if they’re not productive. And the laws feed this perception.”
“It can definitely be regarded as small-business friendly city,” says Andrew Layman, CEO of the Durban Chamber of Commerce and Industry.
Tourism and business consultancy are very popular sectors. Government has created a number of work opportunities for consultants in recent years, but consultancy businesses are owned by people who have previously been employed and who have expertise and a network of contacts, Layman explains. Despite the presence of a port in Durban, the maritime sector has not taken off and this area of business lies fallow.
Small-business owners in Durban have access to sound institutional support, such as a business support unit run by the eThekwini Municipality which helps registered vendors with business development. The annual Durban Business Fair offers subsidised or even free exhibition space to micro and small businesses. The event has now incorporated businesses in townships and rural areas.
Access to markets and finance remain stumbling blocks for SMMEs in Durban. Black Economic Empowerment verification certificates, employment equity and skills reporting are some policies at local government level that hinders the expansion of small businesses.
At a national level, policies, such as complex procedures complying with the suite of labour laws, delays in business registration, difficulties with rezoning in municipalities and hitches with opening bank accounts are hostile to the SMME environment.
Nelson Mandela Bay (Port Elizabeth)
Kevin Hustler, CEO of the Nelson Mandela Bay Business Chamber, believes Nelson Mandela Bay is conducive to small business. “We can ascribe this to the strong automotive sector, which requires a broad range of products and services, with a diverse range of other manufacturing, agro-processing and tourism sectors.”
Many small businesses in Nelson Mandela Bay are engaged in the construction, tourism, advertising, web development, security and cleaning services sectors.
Locally, the proposed local business tax, presented as an alternative funding source for the municipality, is a source of concern, Hustler says. “Another layer of cost for businesses operating in Nelson Mandela Bay will dramatically decrease our international competitiveness. As operating costs such as water, electricity, tax and labour increase, and profitability decreases, the threat of closure becomes very real.”
Other stumbling blocks to growth in the small business sector include bureaucracy in the process of business registration and access to finance, but the over-arching challenge faced by small business is cash flow. “An issue which has been raised time and again by SME members of the Nelson Mandela Bay Business Chamber is slow payment on invoices greater than thirty days. When late payment and non-payment become the norm, small businesses cannot sustain themselves,” Hustler explains.
Other challenges include access to markets and finance, a lack of business management skills among small-business owners, the need for a skilled labour force and a lack of statistical research in the province.