SMMEs key to SA job creation

Kathy Gibson reports from Sandton – Who is creating the new jobs that are so desperately needed in South Africa?

It turns out that small and medium enterprises (SMEs) are great job creators, says Paul Smith, CEO of small business research consultancy Igniter.

A new FinFind report shows that the average medium size business employs 27 people, creating between 1-million and 1,5-million jobs. On the micro level, there are more self-employed people, but they are less likely to be creating new jobs for others.

Policy-makers and researchers agree that a thriving SMME sector is the key to job creation and the National Development Plan predicts that by 2030, SMMEs will generate 90% of the 11-million new jobs. Research has shown that when SMMEs access finance, they are more likely to create jobs and generate additional revenue.

The report estimates that formal SMMEs employ between 2-million and 3-million full-time employees with many of those jobs being generated by medium sized businesses that are estimated to employ between 1-million and 1,2-million people.

Analysis done on job figures showed that new businesses created 28% of all jobs in the last four years, with 86% of these jobs being created by fast-growing businesses. Similar to previous global research, this shows the importance of young and high growth firms in creating new jobs.

While the Finfind data answers some of the key questions about the small business sector in South Africa, several questions still remain. How many additional jobs are created by SMMEs accessing financing, compared to similar SMMEs not accessing financing? How many additional jobs could be created in South Africa if there was a significant improvement in SMME access to finance?

Based on data of 11 033 small businesses that completed a form on the Finfind website and data on 148 funders, the report estimates that there are between 2,9-million and 3,4-million SMMEs in South Africa, with the median business requesting R400 000 funding. The most common reason SMMEs are seeking funding is to start a business, buy equipment or expand their business.

One of the major challenges that SMMEs face in accessing finance is a lack of the right skills to be able to find the right funders, prepare the relevant business documentation and present their business in a way that will enable them to access finance.

The report estimates that micro, small and medium size (SMMEs) businesses are seeking between R86-billion and R346-billion in finance.

Accessing finance is particularly difficult for micro and early stage businesses, and the report suggests there is a need to raise the skills level in these enterprises, to equip them to build companies that are better managed; that have viable business models; that maintain up-to-date financial records; that understand how to manage their cash flow; that can articulate their funding need; that can prepare a business plan that is properly positioned for funding; and that develop the trading history and track record necessary to secure funding.

In addition, practical training on financial recordkeeping and encouraging the use of bookkeepers and accountants to help SMMEs produce up-to-date financial statements and management accounts will increase the chance of the SMMEs being able to access finance.

The South African SMME Access to Finance Report (2017) was released today.