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Author: Tracy Sibiya

Last updated: 22 October 2019

SME's: A solution to a struggling economy

Globally, over 95% of businesses are small to medium in size and employ 60 – 70% of the working population. In South Africa there are over 250 000 SME's. They account for 98.5% of formal firms in the economy yet they only provide 29% of formal jobs. That means 56% of jobs come from only 1000 employers.

These statistics indicate A need to grow SME's into large corporations. Doing this will have the following benefits:

  • Lower unemployment
  • Increased number of experienced workers
  • Incresed number of active tax payers
  • Improved economy

This can only be done through supplying adequate support to these enteprises.

The number of graduates that South Africa produces has increased, while the amount of available jobs has decreased. The unemployment rate among youth aged 15-24 years is above 55%. The unemployment rate for graduates in this age group is sitting at 31%.

Small to medium companies are one of the solutions that can decrease this number by supplying real work experience to graduates. 

Challenges

In order to change the current state of affairs, a greater understanding of the challenges facing SME’s is needed. The top challenge that small business owners reported facing is the ability to raise funds. Which is why most SME’s are self-funded. Unfortunately this is an option that is available to only a few.

70% of SME owners are operating their first business. They are refused funding because of insufficient operating history, inadequate cash flow and limited collateral.

coins sitting on top of bank notes
Funding is the top challenged faced by small businesses. Image by Steve Buissinne

There are various funding initiatives that are offered by the local government which are assisting in growing small businesses. 21% of SME’s reported receiving funding from government grants. 17% received funding from the Department of Trade and Industry. 16% of small companies were funded by the National Youth Development Agency.

Out of the SME’s that were funded by the private sector, 24% were funded by business incubators and 20% were funded by a bank. More can be done by the private sector to ensure that small businesses have equal access to the market.

Another challenge facing small business owners is the ability to find clients. With the world turning to digital platforms as a medium of communication, every business must have an online presence. If your business is not online, learn how to market your business online.

Internet infrastructure is another challenge that small business owners face. 50%of SME’s find that stable and reliable internet poses a challenge to their business. High data costs and a lack of suitable internet infrastructure is a hindrance to the growth of these businesses.

SME's are competing with huge corporations that have the ability to monopolize the market. The majority of small businesses generate R200 000 or less annually, while nearly half employ 2-5 employees. Only 20% of SME’s generate between R200 000 and R1 million, with 1% of these companies employing 21-50 employees. This shows speaks to the need to teach small business owners how to scale and the business.

Addressing the challenges faced by SME’s positions small businesses to be the drivers of the economy. It also benefits the South African population by decreasing unemployment and making the local economy attractive to foreign investment.

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