Firms supported by Small Enterprise Development Agency's (Seda) incubators generated R825 million in revenue in 2016/17 - a 766% return on investment (ROE) on the R96.3m invested by the agency in its incubator network that year. But job creation remains low.
So reveals the agency's annual report for 2016/17, which was released earlier this month.
While the return on investment (see footer note) is up from 532% for the previous financial year, the number of jobs created by each supported enterprises remains at barely one per enterprise - a figure which has barely changed in the last eight years (see below graph).
Seda currently has 62 incubators. The 57 it had at the end of February supported 2,663 clients (including 497 new firms that it helped start).
In addition while the number of enterprises incubated has fallen from a high of 3,016 in 2014/15, the number of jobs created by such enterprises climbed from 1,963 in 2014/15 to 2,582 in 2016/17 over the same period.
Earlier this month Seda CEO Mandisa Tshikwatamba (pictured above) told the National Assembly’s portfolio committee on small business that the number of clients participating in incubation support programmes increased due to an improved framework on incubation centres that encouraged clients to maintain incubatees.
In other words the agency is inflating numbers by holding onto incubating clients for longer.
Meanwhile the agency added three new incubators in 2016/17, two of which are incubators aimed at the high-tech sector – a new focus of the agency’s.
The two are the French SA tech labs in Cape Town, which is a partnership between Seda and software development company Methys and Tuksnovation, which focuses on commercialising innovative technologies in the ICT and engineering sectors.
However Seda's technology programme (under which its incubators fall) carries out little in the way of sophisticated interventions.
For example among its interventions, just 161 entrepreneurs were assisted with certification readiness, standards guidelines and quality health checks. This, while just 25 were assisted with product testing and certification.
Too little sophisticated help
Seda in 2016/17 supported 12,215 enterprises – the highest number since 2010/11 when 15,391 were assisted.
Encouragingly despite the slow down in the economy, Seda reported that the percentage of clients supported who reported having seen their turnover and number of employees increase had risen in the last year.
For example 77% of those enterprises supported reported taking on more employees, versus 74% in 2015/16 and 63% in 2014/15.
Despite this the agency notes that it has not made a material impact on the small business sector and adds that it needs more resources and better reach to rural areas and townships if it is to make a difference.
On figure is perhaps telling: just 75 clients in the last financial year grew their firms from fewer than 20 employees to more than 20 employees (just 0.6 of its clients).
Perhaps it shows that the agency needs to focus more on interventions on technology and quality standards and do more to seek out and back job-creating firms rather than aim the bulk of its service on the thousands of micro entrepreneurs that create few jobs.
Timm is a South African who writes on small business. Click here to sign up for the monthly Small Business Insight newsletter.
*Seda CEO Mandisa Tshikwatamba subsequently responded to Small Business Insight as follows on job creation: On average 40 to 45% of the clients in the portfolio in any given period are not at job creation stage, they are in the first year of operation, they are building the business ie (in the) final stages of product development or launching product to market. It's mostly companies in the second and third year that create most jobs.
We also don’t report on jobs sustained as Seda, this would take care of the fact that companies at this stage of their business do not create new jobs every year during their three-year incubation cycle.
If one company created five jobs in year two, they might create just one job in year three or none. This indicates that a snap shot in one year doesn’t provide full picture for researchers to draw conclusions. You need to follow a company over a three-year period of time to make correct deductions.
In the coming 2018/19 period we will include jobs sustained.
**Return on investment is defined by Seda in this instance as revenue generated by firms incubated by the agency. Small Business Insight however notes that a more accurate measure would be for Seda to include the tax paid by firms and collected by the fiscus.
Stephen Timm is a