The Department of Small Business Development is considering creating a SME master plan, South Africa's Small Business Minister Lindiwe Zulu has revealed.
It follows Malaysia which in 2012 put in place a detailed SME Masterplan, containing a number of targets, including to increase the contribution of small businesses to jobs, gross domestic product (GDP) and exports by 2020 (see this post).
Delivering her department’s budget vote on Thursday, Zulu said a task team in her department made the proposal at the National SMME Policy Colloquium in October.
The colloquium is a partnership between the department and the Small Business Development Institute (SBDI) set up by former Black Business Council chief executive Xolani Qubeka.
In her budget vote Zulu said her department would by 2019 ensure the contribution of small businesses increased from 42% to 45% of gross domestic product (GDP).
In addition the department wants the number of small firms to increase from 2.15 million to 2.56 million and the number of jobs created by small business to grow from 7.33 million to 9.09 million.
Zulu said the contribution of small, micro and medium enterprises was still small - the sector contributed 40% of the R2.3 trillion ($174bn) generated by the private sector in the fourth quarter of 2016, according to Statistics SA's Quarterly Financial Statistics report.
She said if government departments and state entities heeded President Jacob Zuma’s directive to set aside at least 30% of government procurement budget of around R600bn towards small businesses and co-operatives, the contribution of the sector would rise.
However she said the contribution by small businesses continued to increase in terms of five tax categories between the last financial year and the year before:
In her budget vote Zulu highlighted a number of plans that the department aimed to roll out in the next financial year. These include:
In her budget vote speech Zulu also outlined a number of support initiatives that her department carried out in the last financial year (2016/17). These include:
For the 2017/18 year the department received an allocation of R1.2bn from the Treasury, of which 52% or R743m will go to Seda.
A third of its allocation or R484m, will go to four programmes: the BBSDP (R256m), CIS (R78m), Enterprise Incubation Programme (R49m) and the National Informal Business Upliftment Scheme (R99m).
Compensation of employees is allocated 9.5% or R139m, while Sefa’s total budget for the current financial year is R223.8m.
Zulu said despite teething problems experienced by her department since it was set up in May 2014, support for the small business sector remains “firmly on track”.
But DA MP Toby Chance said by the department’s account it had helped about 80,000 businesses in the last financial year – or about three percent of the about three million small businesses in the country.
He said while the department regularly complains that its fiscal allocation is too small, it under spent its budget from the last financial year by seven percent.
Declining entrepreneurial pipeline
The department will again have its work cut out. The latest Gem South Africa report – for 2015/17 - again paints a worrying picture of South Africa’s declining levels of entrepreneurship.
The percentage of adults involved in starting and running firms less than 3.5 years old fell from 9.2 in 2015, to 6.9% (about the same level it was in 2014).
The established business rate (adults running firms older than 3.5 years) remains one of the lowest in the world, at 2.5% (falling from 3.4% in 2015).
Most concerning is that the number of South Africans who intend to start their own business within the next three years has fallen by more than a third compared to 2013, and almost halved since 2010.
Just 10.1% of the adult population between the ages of 18 and 64 now intends to open a new business –down from 15.4% four years ago, and 19.6% in 2010.
The figure is less than half of the 26.0% of people in similarly structured (efficiency-driven) economies around the world who plan to open their own firms
Gem data (which Zulu refers to as "an opposing view) suggests much more needs to be done by the department.
The department must not only improve the quality and co-ordination of the state's existing support for small businesses - but it must do a lot more to get more adults interested in starting businesses and then staying in business.
A masterplan might help improve co-ordination, but more must be done to improve the quality of support as well. This will prove likely the hardest for Zulu to address.
Timm is a South African who writes on small business. Click here to sign up for the monthly Small Business Insight newsletter.
More business support, loans and set-asides will be directed at ethnic Malays, with the launch this week by Malaysian Prime Minister Najib Razak (pictured above) of the second Bumiputera Economic Transformation Roadmap.
The five-year roadmap aims to more than double the average income of ethnic Malays (or bumiputeras as they are commonly known) who make up over two thirds of the population. The plan has among its five pillars the aim of strengthening entrepreneurship.
Released by Teraju, Malaysia’s state agency set up in 2011 to assist bumiputeras, the new roadmap plans to prioritise SME-friendly policies through among other things procurement policies which favour the unbundling of large turnkey contracts.
'Biased procurement criteria'
“At best, the smaller but capable bumiputera firms – especially in professional services (engineering, quantity surveyor), have to bid to become subcontractors, which put them at the mercy of the procurement practices of the turnkey contractor,” says the roadmap.
In addition it says procurement criteria are often biased towards more established companies, adding that greater consideration therefore needs to be paid to companies that demonstrate a strong line up of experienced bumiputera professionals.
Under the first roadmap, which ran from 2011 to 2016, 10.6 billion ringgits ($2.4bn) - or 50% of the total value of selected turnkey projects - were set aside for 372 bumiputera firms.
The set-aside requires turnkey contractors to carve out part of a project to be put out to tender to bumiputera firms.
In addition a number of other bumiputera companies were assisted, these include:
Too many micro firms
Bumiputera companies make up 38% or 247,000 of registered Malaysian SMEs.
However the roadmap notes that the bumiputera entrepreneurs still tend to run mainly micro-enterprises (making up 88% of SMEs), concentrated in highly competitive sectors like retail, restaurant and consumer services which cater to the domestic markets.
To help develop bumiputera firms Teraju has started a sector-by-sector baselining exercise to adopt a value chain driven approach in bumiputera entrepreneurship development.
“There shall also be greater emphasis on encouraging mid-career professionals who have extensive sector experience to venture into businesses aligned to their area of expertise,” the roadmap says.
It says to encourage innovation intensive business activities, the government will also promote small-firm friendly policies.
“The role of tertiary institutions in influencing entrepreneurship should be emphasised by encouraging these institutions to inculcate an entrepreneurial mindset and skills among bumiputera at an early stage,” it added.
The plan also hopes to get entrepreneur development organisations to play a bigger role in encouraging bumiputera companies to scale up.
In addition Teraju will further develop Terajuxchange, a central database of bumiputera entrepreneurs to assist the government in making a comprehensive impact assessment of the support provided, while avoiding overlap in financial assistance.
Razak said this week that the support for Malays would not be at the expense of Chinese and Indian Malaysians. Yet it comes at a time when the prime minister is struggling with a corruption allegations and growing opposition to his rule.
A bigger problem is that few adults start up new firms in Malaysia (see this earlier post). Getting this right will be harder than simply dolling out more ethnically-aligned support.
Timm is a South African who writes on small business. Follow Small Business Insight on Twitter at @Smallbinsight.
If cities are to grow start-ups they must become more globally connected, says a new report.
Data from the 2017 Global Startup Ecosystem report released by Startup Genome earlier this month reveals that cities in emerging economies must do more to attract immigrants and seek out foreign customers.
Where 46% of start-ups are founded by immigrants in Silicon Valley, just 4% of immigrants found new firms in São Paulo and Lagos.
Shanghai also does well when it comes to foreign customers, outperforming Silicon Valley - with 32% of customers originating outside the country, against 30% in the latter. The remainder of the emerging cities bar Bangalore (at 24%) fall below the average of 23%.
Reaching foreign customers, say the report’s authors, allows start-ups to identify problems and solutions that are relevant to broad parts of the world.
“Additionally, productivity and innovation increases as start-ups go global – any given economy, companies with more exposure to foreign markets are the 'frontier' firms that drive growth.”
The authors say establishing more relationships between founders and executives in other parts of the world brings in more ideas and more innovation, resulting in faster startup growth and more vibrant ecosystems.
Those cities with the highest shares of customers elsewhere, are a mix of top-performing ecosystems and smaller places (where a small local market forces them to look outside) .
The Israeli city of Tel Aviv ranks first, where one-third of startups sell to customers outside of the immediate region. The authors points out that because of its small economy and thanks to their global community, Israeli start-ups have successfully executed go-global strategies for years.
They note too that city size guarantees nothing. “Large metropolises that are otherwise well-connected within the global economy aren’t necessarily plugged into global start-up networks.”
But how do foreign founders looking to set-up start-ups in South Africa fare?
A recent parliamentary reply by the Minister of Home Affairs Malusi Gigaba (pictured above) that his department did not approve a single application new business application between January and December last year suggests things are worse than they seem.
Most concerning is the numbers – just 148 applications for business visa renewals and 48 new business visa applications were made over this period. They seem very low.
If South Africa and other emerging economies want to pump up start-up activity they should do more to relax visa requirements and promote more connections between foreign entrepreneurs and investors and local start-ups (see also this earlier post).
Timm is a South African who writes on small business. Follow Small Business Insight on Twitter at @Smallbinsight.
*Update: Malusi Gigaba was moved to minister of finance from March 31.
Malaysia may be one of the best places in the world to start a business according to the World Bank but it’s not known for spawning new start-ups. An accelerator aims to change that by luring innovative start-ups to Malaysia.
A call for 80 start-ups to join the fourth cohort of a four-month acceleration programme run the Malaysian Global Innovation and Creativity Centre’s (MAGIC) opens tomorrow. The programme is set to start in July.
Over the next month officials from the accelerator will make a number of stops in surrounding Asian countries as well as in Europe to recruit applicants.
Launched in 2014, the government-run MAGIC aims to accelerate new start-ups. The initiative borrowed heavily from the success of Start-Up Chile (see this post on its impact), following a collaboration agreement signed between Chile and Malaysia in 2014.
The programme has two streams – one focusing on the regional market and another on social enterprises.
Unlike Start-Up Chile, MAGIC’s main acceleration programme doesn’t provide seed funding (social enterprises however receive 30,000 ringgits), but has instead negotiated benefits worth over $400,000 per start-up from companies such as Google and Microsoft.
After four months of acceleration with help from experienced entrepreneurs, start-ups pitch their ideas to investors.
MAGIC has an annual budget of between 40 and 50 million ringgits ($9m to $11m) which covers the accelerator and the initiative's other programmes, MAGIC chief executive Ashran Ghazi (pictured above) says.
MAGIC's first cohort kicked off in July 2015 at the programme’s Cyberjaya campus near Kuala Lumpur with 77 start-ups (the organisation stipulates that 60% of start-ups have to come from Malaysia) drawn from over 1,000 applications.
The first cohort contained companies serving agriculture, big data, clean tech, design, ecommerce, gaming, healthcare, media, security, and travel.
MAGIC has yet to release any figures on the impact that the accelerator has had so far. However a spokesperson from MAGIC told Small Business Insight that 38% of participants from the regional market stream in the first cohort were able to raise almost $6m in total.
Some of start-ups that received funding include Katsana, which raised $893,000 for a solution which helps motor insurance companies analyse driver behaviour. Another firm, BurgieLaw, raised $200,000 for a solution which helps users solve their legal issues.
Another participant Eggbun Education, a South Korean startup, was able to apply key learnings from the programme to expand into Southeast Asia effectively.
MAGIC says it expects at least 20% of startups to raise funding within six months. The accelerator claims that 2,600 Malaysians were engaged through information sharing sessions the programme held across six states and 15 university campuses.
In some respects Malaysia has of recent made cutting-edge changes that will benefit entrepreneurs - by crafting rules for peer-to-peer (P2P) crowdfunding. By November last year the Securities Commission had registered six platforms.
Malaysia was also one of the first emerging market economies to put in place a regulated framework for equity crowdfunding in 2015 (see this post). As of October last year, 11 Malaysian SMEs had raised a total of 8 million ringgits ($1.8m) via the six platforms.
Last month Malaysia’s stock exchange announced that a new SME market is expected to be introduced in the second quarter of the year.
Too few start-ups
Yet just 4.7% of adults in last year involved in starting or running a business or less than three and a half years, reveals the Global Entrepreneurship Monitor’s latest global report released last month. This places Malaysia 63rd out of 65 countries that GEM ranks.
Fewer than half of all Malaysians view entrepreneurship as a good career choice, while a mere 4.9% of Malaysians say they intend starting a business in the next three years.
This is surprising as of the 65 countries ranked by GEM last year, Malaysia was placed relatively high when it comes to having an enabling environment for entrepreneurship – particularly in the availability of finance, R&D transfer and internal market dynamics.
Dampened by good jobs
Deputy Dean of the Bank Rakyat School of Business and Entrepreneurship Associate Professor Dr Roland Xavier believes start-up creation has been dampened by opportunities to get well-paying jobs and greater opportunities for further education.
In a 2014 study analysing Malaysia's entrepreneurship performance, Xavier and colleagues stressed too that the Malaysian government's push for entrepreneurship has resulted in "entrepreneurship on steroids".
"Steroidal entrepreneurship will not last. It only serves to conjure a view that meets data statistics and government agencies. When the waves of competition both regional and global arrive those businesses will not survive," say the authors.
Without a change in culture and more initiative from Malaysians themselves a sustained entrepreneurship drive cannot last. Malaysia it’s clear is in need of some magic if it is to get more adults interesting in starting their own business.
*The original post was updated on March 3 to include the response from MAGIC.
Timm is a South African who writes on small business. He was last in Malaysia in 2012. Follow Small Business Insight on Twitter at @Smallbinsight.
Stephen Timm is a