WITH the African National Congress's announcement this month that job creation will be its main focus this year, the government could do well to boost support to small businesses. In this, India and Brazil hold some promising lessons.
Small businesses are key as they create by far the most jobs the world over. In SA between 1985 and 2005, 90% of all new jobs were created by small, micro and medium companies, according to the Finscope Small Business Survey Report of 2006.
In Brazil, the labour minister's General Register of Employed and Unemployed for last year revealed that between 1995 and 2000, 96% of new jobs were created by enterprises with fewer than 100 employees.
According to Finmark Trust's Finscope 2010 survey, small businesses could create 2,5-million jobs in SA by 2020. Added to this, Finmark believes the government could take about 500000 people off social grant schemes if it supported small businesses more actively.
However, numerous factors, such as a lack of business and financial management skills, make it difficult for small enterprises in SA to expand or for entrepreneurs to start up.
So what can India and Brazil teach us? Some might say Brazil and India's larger populations and land areas make it difficult to draw much in the way of lessons from them, but SA does share some similarities.
All three are grappling with similar development issues, such as a lack of quality education, a shortage of quality infrastructure and a low share of international trade, while Brazil, like SA, is one of the most unequal countries in the world.
Despite these similarities, Brazil is ranked as the sixth most entrepreneurial country in the world, while SA is ranked a lowly 35th out of 54 countries, according to the 2009 Global Entrepreneurship Monitor (Gem) Report. India was ranked 15th out of 43 countries when it last took part in the Gem Report, in 2008.
In general, small-business policies and schemes appear to be working best in Brazil and less successfully in India and SA, according to my assessment in a report for local economic think-tank Trade and Industrial Policy Strategies (Tips).
In SA and India, policies have done little to create effective support agencies to help business owners start up and grow their businesses. And awareness of many government support schemes remains low.
In SA, much of this is as a result of the government's lack of co-ordinated strategies aimed at small business as well as a government support architecture that is clumsy and confusing to business owners and public servants alike.
The government has too many agencies aimed at assisting business owners, which are spread across two different departments - confusing government officials.
Much of Brazil's lending to small businesses is channelled through its development bank, BNDES, allowing the state to play a strategic role in funding small businesses. In this way, the South African government's various funds for businesses might be more strategically deployed if they were all housed under a single body, such as the Industrial Development Corporation.
Further, SA's black economic empowerment legislation has acted as a deterrent to skilled black people starting their own businesses. The government should take active steps to get entrepreneurs to steer away from rent-seeking behaviour by recrafting empowerment legislation so that it incentivises and supports black entrepreneurs who want to start up or expand their own businesses, rather than incentivising many to buy a slice of an existing business.
But back to Brazil. Despite the huge amount of red tape small enterprises there face, the Brazilian government has been successful in promoting small businesses.
How is Brazil getting it right?
The country's small-business policies are contained principally in Lei Geral, a law passed in 2006, which has among other things simplified and lowered taxes for small and micro companies, and boosted government procurement from small enterprises.
Yet the clear and measurable goals contained in the government's overarching development plan (Plano Plurianual), set by its presidency, have been key.
The targets allow for a co-ordinated support system among the various government departments and small business support agencies. There are at least 65 targets concerned directly with small businesses, in the Plano Plurianual 2008- 11.
One is to ensure that, by this year, 3,8- million loans are disbursed to small and micro businesses a year, while another goal is to ensure that, this year, 65,42% of all jobs in the formal sector are created by small, medium and micro enterprises. In 2008, the Brazilian government exceeded this target, with a figure of 65,21%. The projection for this year is to reach 68,24%.
Another goal is to increase the percentage of micro and small enterprises involved in exporting, with a goal to have 8,58% of all small and micro companies exporting by this year. In 2008, this figure stood at 6,58%.
SA should adopt a similar approach to setting goals to boost support for small businesses, particularly with the setting up of the National Planning Commission in the Presidency in 2009 and the crafting by commission members of Vision 2025.
Entrepreneurship and small business promotion must form the cornerstone of this vision. This must be backed up by President Jacob Zuma if the country is to promote an entrepreneurial culture and boost support to small businesses.
Policy makers should base measurable targets (such as the number of loans to small businesses and the number of small businesses registered as taxpayers) on reliable research rather than on ad hoc research as it does now.
Like Brazil and India, the government could set aside funding to develop and maintain such research. SA must also better enable its support organisations, simplify its support architecture and increase the budgets of these organisations by developing new and innovative funding streams.
The R485m that the Small Enterprise Development Agency (Seda) was assigned in the past financial year is a measly sum compared with the more than R10bn Sebrae, its counterpart in Brazil, has at its disposal. The Sebrae example shows how SA must not overlook the constant need to train up the staff who interact with those who visit the Seda and Khula offices.
The government has responded to concern about the quality of external consultants by cutting the number of consultants it relies on at Seda. But the private sector, through its wealth of experience, is most equipped to deal with business owners. Rather than reduce the number of consultants, the government should look at viable ways of increasing their skills. In addition, the government must recruit more experts and retired businessmen to offer advice.
Entrepreneurs are SA's future leaders and must no longer be taken for granted. Now is the time for the state to support owners of small businesses.
Timm is a small-business journalist. He is the author of the Tips report, How South Africa Can Boost Support to Small Businesses: Lessons from Brazil and India. This opinion piece appeared in Business Day on 31 January 2011: http://www.bdlive.co.za/articles/2011/01/31/stephen-timm-take-a-leaf-out-of-brazil-s-book-back-small-businesses;jsessionid=2D04135728592CB6263454E1C6E39858.present2.bdfm
Stephen Timm is a