NOTICE 213 OF 1995 PARLIAMENT OF THE REPUBLIC OF SOUTH AFRICA WHITE PAPER ON NATIONAL STRATEGY FOR THE DEVELOPMENT AND PROMOTION OF

Transcription

1 NOTICE 213 OF 1995 PARLIAMENT OF THE REPUBLIC OF SOUTH AFRICA WHITE PAPER ON NATIONAL STRATEGY FOR THE DEVELOPMENT AND PROMOTION OF SMALL BUSINESS IN SOUTH AFRICA CAPE TOWN, 20 MARCH 1995 WPA/1995 The White Paper on National Strategy for Development Promotion of Small Business in South Africa is hereby published by Department Trade Industry for general information. This White Paper was tabled in Parliament on 20 March 1995, reference WPA/ MARCH NATIONAL STRATEGY FOR THE DEVELOPMENT AND PROMOTION OF SMALL BUSINESS IN SOUTH AFRICA White Paper of DEPARTMENT OF TRADE AND INDUSTRY 20 March 1995 Table of Contents Abbreviations Foreword PART ONE Process vision 1.1 The process of strategy formation 1.2 After White Paper 1.3 A broader vision 1.4 Structure of document PART TWO The small-business sector in South Africa's economic development 2.1 Size diversity of sector 2.2 Role contribution of sector 2.3 Constraints facing small-business sector 2.4 Past support policies 2.5 International input 2.6 Research on SMMEs PART THREE Objectives principles 3.1 Objectives of national small-business strategy 3.2 Stages of strategy formulation implementation 3.3 Setting goals for national strategy 3.4 Fundamental principles 3.5 Targeting support PART FOUR Elements of support framework 4.1 Creating an enabling legal framework 4.2 Streamlining regulatory conditions 4.3 Access to information advice 4.4 Access to marketing procurement 4.5 Access to finance 4.6 The physical infrastructure 4.7 Training in entrepreneurship, skills management 4.8 Industrial relations labour environment 4.9 Access to appropriate technology 4.10 Encouraging joint ventures 4.11 Capacity-building institutional strengning 4.12 Differential taxation or financial incentives

2 PART FIVE Institutional reform 5.1 The Department of Trade Industry 5.2 The National Small Business Council 5.3 The Small Business Development Agency 5.4 Wholesale funding agencies 5.5 Restructuring SBDC 5.6 Small-business support at provincial level 5.7 Local authorities 5.8 Local Service Centres 5.9 NGOs small-business support 5.10 Organised business PART SIX Action programme 6.1 An integrated view 6.2 Short-term: Action since mid Short-term: Fiscal year 1995/ Medium-term developments 1996/ / Medium-term developments 1998/ / Longer-term action 2000 to 2005 PART SEVEN Funding national strategy 7.1 The challenge 7.2 Funding sources 7.3 Leveraging programme funding 7.4 Meeting challenge INDEX of policy issues institutions TABLES, DIAGRAM LIST Table 1 Key objectives of National Small Business Strategy Table 2 Ten key principles underlying government's national small-business strategy Diagram The national SMME-support strategy in perspective List of written submissions Abbreviations BNDC Bophuthatswana National Development Corporation (North- West) CBO Community-based organisation CSBC Ciskei Small Business Corporation CSIR Council for Scientific Industrial Research DBSA Development Bank of Sourn Africa DTI Department of Trade Industry EMA Export Marketing Assistance FRD Foundation for Research Development GEIS General Export Incentive Scheme IBEC Informal Business Enrichment Centre IBTT Informal Business Training Trust IDC Industrial Development Corporation IDT Independent Development Trust IESC International Executive Service Corps KFC KwaZulu Finance Corporation LSCs Local Service Centres Nafcoc National African Federation of Chambers of Commerce Nedlac National Economic Development Labour Council NGO Non-governmental organisation NPI National Productivity Institute NSBC National Small Business Council ODA Overseas Development Administration RDP Reconstruction Development Programme RIDP Regional Industrial Development Programme RSC Regional Services Council Sacob South African Chamber of Commerce

3 SADC Sourn African Development Community Safto South African Foreign Trade Organisation SBDA Small Business Development Agency SBDC Small Business Development Corporation SMMEs Small, medium micro-enterprises SRIDP Small Enterprise Regional Industrial Development Programme US-AID United States Agency for International Development VAT Value-added tax FOREWORD Since elections of April 1994 issues of economic empowerment growth have been placed high on agenda of Government of National Unity of South Africa. With millions of South Africans unemployed underemployed, government has no option but to give its full attention to fundamental task of job creation, generating sustainable equitable growth. Small, medium micro-enterprises (SMMEs) represent an important vehicle to address challenges of job creation, economic growth equity in our country. Throughout world one finds that SMMEs are playing a critical role in absorbing labour, penetrating new markets generally exping economies in creative innovative ways. We are of view that - with appropriate enabling environment - SMMEs in this country can follow se examples make an indelible mark on this economy. The stimulation of SMMEs must be seen as part of an integrated strategy to take this economy onto a higher road - one in which our economy is diversified, productivity is enhanced, investment is stimulated entrepreneurship flourishes, This White Paper represents government's thinking about what it can contribute to process of stimulating small, medium micro-enterprises. We believe that real engine of sustainable equitable growth in this country is private sector. We are committed to doing all that we can to help create an environment in which businesses can get on with ir job. We believe in principle of working toger with our partners in private sector - big small businesses - in realising our hopes aspirations for this economy. We are under no illusion that we have all answers to problems of growth redistribution in this country. Indeed, we are bound to make errors of judgement in next few years. But we hope that our commitment to ongoing serious consultation

4 with all major stakeholders will ensure that we are guided in right direction. This document is result of an intensive process of consultation with key stakeholders in SMME sector. Pressures to deliver dictated very tight schedules for this communication process. The feedback which we received on issues raised in Discussion Paper of October 1994 made an important contribution to government's thinking on small, medium microenterprises. We believe that programmes policies outlined here reflect aspirations of many small-business people in our country. But we do not intend to stop here. The White Paper will become a platform for even furr consultations with stakeholders involved in small-business development. At President's Conference on Small Business in March 1995, we intend to present our programmes for public discussion debate. May I express my personal thanks to many individuals organisations who have contributed to development of this White Paper. Such tireless activity on part of small-business entrepreneurs, corporate sector, support institutions all or players will prove to be invaluable for policies strategies in this White Paper to be translated into real progress in our economy our nation. Finally, I am honoured to have opportunity to present White Paper on National Strategy for Development Promotion of Small Business in South Africa to first democratically elected parliament in history of this country. Trevor A. Manuel, MP Minister of Trade industry PART ONE Process vision The Reconstruction Development Programme of Government of National Unity addresses a wide range of social economic development issues, each of which deserves detailed attention concerted action. The promotion of small-enterprise sector of our economy is one of se critical areas. Not only is it of great importance for rate of job creation income generation in our country, but it deserves particular attention since sector has been greatly neglected in past - in particular blackowned -controlled small enterprises. 1.1 The process of strategy formation

5 During past few years several discussion papers reports have been circulated among small-business support agencies in South Africa. Numerous conferences workshops have been held to air concerns of entrepreneurs business associations, reflecting full spectrum of small, medium, micro- survivalist enterprises (SMMEs). All along re has been a search for consensus about support needs, feasible programmes a consistent national strategy. In October 1994 Ministry of Trade Industry released a Discussion Paper on Strategies for Development of an Integrated Policy Support Programme for Small, Medium Micro-Enterprises in South Africa. This draft document outlined a strategy framework for discussion among all stakeholders in small-enterprise sphere. It already reflected inputs by many institutions active in this field, including government departments, business organisations, foreign donor agencies policy experts. Between October end of 1994 about sixty workshops were held in both rural urban areas to explain contents of Discussion Paper encourage critical comments as well as practical proposals for adjustments to strategy. These sessions, which were well attended which were supplemented by numerous press comments on document, gave rise to a large number of written comments, including submissions from virtually all major business associations, provincial small, medium microenterprise (SMME) coordinators several central-government departments. All of se comments have been taken into account in revision of document, to become this White Paper. The focus is now more specifically on role programmatic approach of government, with greater focus on expected unfolding of national strategy mobilisation of necessary resources. The publication of Discussion Paper occurred at a time when many of SMME-support policies that evolved in past were already in a process of transition. The document itself its widespread discussion furr accelerated reform process gave rise to new impulses initiatives. Feedback from se reform processes also influenced final shape of this White Paper. As such, it should be viewed as a furr significant milestone in a long-run transformation process, rar than a

6 rigid framework document. 1.2 After White Paper Once it is endorsed by cabinet parliament, White Paper has to be carried across to full spectrum of small-enterprise community, which includes close to a million enterprises. A first step in this process is National Small Business Conference, to be held at end of March 1995 in Durban to be opened by President Mela. The 2,000 invited delegates are to spearhead furr dissemination of this national strategy into all comers of country. During conference, which will include a large number of guests from our major trading partners invited experts, working groups will look in more detail at main strategy elements how se can be implemented. The proceedings of conference will be summarised in first Hbook or Annual Review of South Africa's SMME sector, which is to be released in mid Parallel to this propagation process small-enterprise desk in Department of Trade Industry (DTI) is to be exped into a Chief Directorate for Small Business, Small Business Development Agency (SBDA) will be established as main implementation instrument of national strategy. The restructuring of or institutions, like Small Business Development Corporation regional development corporations, is also making good progress, negotiations should start soon about sharing of responsibilities for SMME support between DTI SBDA on national level Departments of Economic Affairs or regional agencies on provincial level. 1.3 A broader vision All of se efforts should be viewed within a broader vision of South African economy, which includes all business sectors - big business, multinationals, parastatals also small-enterprise sector - as part of an integrated, interdependent process. The small enterprise sector is neir a "junior partner" in that process, nor is it a separate sector that has to be treated according to different rules or principles, even though it has been neglected disadvantaged in past refore needs to be helped to take its rightful place among all sectors. The Government of National Unity is committed towards a strategy of high sustainable economic development. To achieve this, economy needs to move on a growth path of increased investment, enhanced productivity

7 exping employment opportunities - all of this within a mould of increasing general competitiveness. While better organised large enterprise sector should be able to move towards envisaged growth path with relatively limited support prodding from government, transformation of small-enterprise sector requires justifies concerted policies of wider scope as well as deliberate creation of an enabling environment. Such initiatives need effective inputs from all segments of economy close cooperation between government private sector. The ultimate goal is to make SMMEs equal partners in all economic sectors, to maximise sector's contribution to Reconstruction Development Programme. In this transformation process government is a facilitator not an implementor. In fact, small-business support programmes are best implemented by institutions that most closely reflect entrepreneurship risk characteristics of small businesses mselves. Such institutions are typically small localised non-governmental organisations (NGOs), private consultancies, partnerships companies. Finally, while government's role at outset of this process is interventionist, it will be scaled down systematically after first five to ten years. 1.4 Structure of document This White Paper outlines a national strategy for SMME support, bearing in mind that a short document can only present framework, with details having to be filled in by implementing agencies. To set scene, Part Two of this document gives an overview of small-business sector, its diversity, role contribution to economy main constraints facing sector. It also reflects briefly on past support policies support agencies as well as role of foreign agencies international experience in shaping a new strategy. Against that background, Part Three presents key objectives fundamental principles that underpin national strategy its different strategy elements. It also introduces important aspect of targeted support which will guide much of government's future involvement in this sphere, viz. that support should be focused on sectors or target groups that particularly need it or justify it in terms of job creation, Reconstruction Development Programme (RDP) involvement or income generation. Part Four of White Paper covers all elements considered necessary for a balanced integrated 'national strategy". As shown in sections

8 of Part 4 government's involvement differs in various areas, with great emphasis placed on responsibility falling upon or support agencies. The different strategy elements have to be implemented through agencies at central, provincial or local level, with private sector, business associations, NGOs parastatals important implementation agencies, parallel to three tiers of government. Part Five outlines institutional reform process as it should evolve, with particular emphasis placed on key institutions, viz. Chief Directorate in DTI, National Small Business Council (NSBC), SBDA, provincial Departments of Economic Affairs Local Service Centres (LSCs). Based on that institutional framework range of strategy elements, Part Six outlines possible evolution of this national strategy, as pursued by government. A distinction is made between short-term steps, dominating efforts over next two years, medium to long-term goals initiatives, which will gain ir full momentum over next three to five years. Finally, Part Seven highlights different financial sources which can be mobilised to fund national strategy, with 1995/96 DTI budget merely point of departure. The challenge with respect to this strategy now lies in finding a co-operative approach to massive implementation task, guided by framework outlined in this White Paper PART TWO The small-business sector in South Africa's economic development 2.1 Size diversity of sector Although statistical base of SMMEs in South Africa is still poor, re can be little doubt about ir relative significance. There are more than 800,000 small, medium micro-enterprises in country, absorbing about a quarter of labour force of 15 million people. This is in addition to about 3,5 million people involved in some or or type of survivalist enterprise activities The small business sector is highly diverse, with structures, problems, growth potential access to support differing widely between segments. These differences relate as much to economic sectors - retailing, manufacturing, mining, etc. - as y relate to

9 stages of growth of enterprises, viz. start-up, exping or stagnating. From a broad strategy perspective most important distinction is between survivalist activities, micro-enterprises, small enterprises medium-sized enterprises, with general term "small business" abbreviation "SMMEs" widely used to contrast this sector with big(ger) business. Due to similarity of some of obstacles facing m, survivalist micro-enterprises are often lumped toger, whereas many support agencies feel that medium- sized enterprises need not be viewed as a category warranting particular attention The following characteristics of four categories should help to justify particular policy stances outlined in this White Paper. Survivalist enterprises are activities by people unable to find a paid job or get into an economic sector of ir choice. Income generated from se activities usually falls far short of even a minimum income stard, with little capital invested, virtually no skills training in particular field only limited opportunities for growth into a viable business. Poverty attempt to survive are main characteristics of this category of enterprises. Support strategies should primarily help se people - a large percentage of whom are women to get out of this sector. Given large number of people involved in survivalist activities, this constitutes a vast challenge, which has to be tackled within broader context of RDP (see section 3.5.7). Micro-enterprises are very small businesses, often involving only owner, some family member(s) at most one or two paid employees. They usually lack 'formality' in terms of business licenses, value-added tax (VAT) registration, formal business premises, operating permits accounting procedures. Most of m have a limited capital base only rudimentary technical or business skills among ir operators. However, many micro-enterprises advance into viable small businesses. Earning levels of micro-enterprises differ widely, depending on particular sector, growth phase of business access to relevant support. Small enterprises constitute bulk of established businesses,

10 with employment ranging between five about 50. The enterprises will usually be owner-managed or directly controlled by ownercommunity. They are likely to operate from business or industrial premises, be tax-registered meet or formal registration requirements. Classification in terms of assets turnover is difficult, given wide differences in various business sectors like retailing, manufacturing, professional services construction. Medium enterprises constitute a category difficult to demarcate vis-g-vis "small" "big" business categories. It is still viewed as basically owner/manager-controlled, though shareholding or community control base could be more complex. The employment of 200 capital assets (excluding property) of about R5 million are often seen as upper limit. In terms of this White Paper we are concerned with medium-sized enterprises which face obstacles constraints which cannot be solved through normal market forces private-sector action It follows from se distinctions it is a fundamental principle of government's SMME support strategy that problems of each of se four categories need a somewhat different policy stance. Some of se differences will be outlined in White Paper, but bulk has to be reflected in more specific implementation processes Equally important for present phase of small business support in South Africa is recognition of particular problems needs of enterprises initiated, owned or controlled by those who were disenfranchised /or orwise discriminated against in past. Aside from racial dimension, i.e. enterprises owned or controlled by black South Africans, we also refer to women all or disadvantaged marginalised groups, including those in remote rural areas as well as disabled, elderly people youth. Such enterprises are found in all four of above categories. The government is committed, within given financial organisational constraints, to structure its SMME support in such a way that special attention is given to problems faced by se disadvantaged enterprises Since publicly funded support for small enterprises should only be

11 granted to those really needing it, objective definition classification of different types of small enterprises is essential. The DTI, after consultation with NSBC, will create mechanism to identify different types of enterprises based on sectoral, size developmental criteria. 2.2 Role contribution of sector All over world it has been recognised that small business sector plays an important if not critical role in economic social development of a country. This also applies to South Africa, where small business sector has been neglected during much of century following discovery of diamonds gold, establishment of a modem, capitalist economy with almost exclusive white control While importance of large industrial, mining or enterprises for growth of economy cannot be denied, re is ample evidence that labour absorptive capacity of small business sector is high, average capital cost per job created is usually lower than in big business its role in technical or innovation is vital for many of challenges facing South Africa's economy Given South Africa's legacy of big business domination, constrained competition unequal distribution of income wealth, small business sector is seen as an important force to generate employment more equitable income distribution, to activate competition, exploit niche markets (both internally internationally), enhance productivity technical change, through all of this stimulate economic development Taking into account very large micro-enterprise segment of small business sector, as well as those struggling in survivalist activities it should be clear that small business sector plays a crucial role in peoples' efforts to meet basic needs help marginalised groups - like female heads of households, disabled people rural families - to survive during current phase of fundamental structural changes where formal economy is unable to absorb increasing labour supply, social support systems are grossly inadequate.

12 2.2.5 Experience has shown that in past black people have been able to make far greater progress in micro- small-enterprise segments of economy than in medium-sized larger enterprises. Thus, SMME sector has - all its impediments notwithsting - proven to be a highly significant vehicle for black economic empowerment. 2.3 Constraints facing small-business sector There can be no doubt that, compared to big business in South Africa in or countries, small businesses face a wider range of constraints problems are less able to address problems on ir own, even in effectively functioning market economies. The constraints relate, among ors, to legal regulatory environment confronting SMMEs, access to markets, finance business premises (at affordable rentals), acquisition of skills managerial expertise, access to appropriate technology, quality of business infrastructure in poverty areas, in some cases, tax burden. In South African context constraints have been particularly hard on entrepreneurs in rural areas on women Much has been written about se issues over past few years debated at public forums internationally as well as in South Africa. This White Paper is based on an understing of se problems ir legitimacy, without restating facts here. At same time it has to be recognised that problems constraints differ widely between various segments of SMMEs also sectors as well as owner categories. Generally speaking, micro- survivalist enterprises are far less able to face constraints linked to finance, market access acquisition of skills. On or h, some sectors like agriculture, construction manufacturing confront small enterprises with a particularly wide range of problems, thus preventing easy access to se sectors by new enterprises or increasing risk of those already in sectors. Even among medium-sized enterprises, problems like international competition, technology transfer skills training can constitute major growth obstacles. These differences are of critical importance for national support

13 strategy. They not only stress need for some degree of public sector involvement, but also emphasise need for explicit differentiation in support framework In addition to sector-specific differences of constraints, legacy of aparid constitutes an important factor in inability of black owned or controlled small enterprises to face business development constraints. For decades, if not centuries, majority of South Africans were deprived of viable business opportunities in following ways: a) Bantu Education restricted opportunities for acquisition of technical professional skills by black people; b) re was total absence of entrepreneurial education or sensitising for young people in a way that could encourage m to enter business acquire a culture of entrepreneurship; c) aparid confined majority of African people to homel areas which were not only poorest in terms of living stards business opportunities, but also lacked a dynamic business environment; d) even outside homels system of aparid made it impossible for black would-be-entrepreneurs to participate in business apprenticeships partnerships with more established (non-black-owned/controlled) enterprises; e) racially segregated residential areas, enforced through Group Areas Act, not only uprooted millions from places of residence business, but also led to large capital losses virtually destroyed fabric of black small enterprises; f) segregation increased distance between black residential working areas, reby increasing cost risk of conducting business; g) drastic curtailment of property ownership rights of blacks made it impossible for m to acquire assets that could serve as collateral for loan financing; it also excluded blacks from long-run process of capital accrual growth through rising property values share prices; h) aparid left no real space for business involvement of black women; marriage laws reduced women to unions with no contractual capacity at all; even though marriage laws have changed, customary law remains intact re are cultural, behavioural attitudinal constraints which affect women's participation in business,

14 particularly in rural areas. There are also restrictions in terms of access to l. Due to se processes, small business-support policies will for a considerable time also have to focus on particular needs of black enterprises ways to overcome remaining consequences of that legacy. This does not imply that policies should only focus on black-owned or -controlled enterprises or businessinfrastructure facilities in formerly black-reserved towns, but that policy differentiation will have to include affirmative elements All over world small business-support policies have become targets of active vested interest lobbying. All too often government is pressurised to help overcome constraints, even though enterprises - eir individually or through joint action - could also resolve problems. This applies in particular to segments of small business community which are well-organised, well-articulated skilful in channelling of ir request, reby laying claim to a disproportionate part of limited resources available for small business support. This government will not allow channelling of disproportionate shares of limited state resources - at both national provincial levels - in directions that cannot be reconciled with national priorities as outlined in RDP. This will be done through negotiation by appropriate legal safeguards guidelines. 2.4 Past support policies A number of institutions have over decades developed a limited, often fragmented range of small business-support policies programmes, some operating in competition with each or, virtually all of m racially gender-biased. The parastatal institutions included homel-based development corporations some specialised SMME-support agencies (like Transido); furrmore Development Bank of Sourn Africa (DBSA), Small Business Development Corporation (SBDC) Industrial Development Corporation (IDC) as financiers, some of commercial banks. At level of central government re was little cooperation extended directly to black business sector. For example, government procurement was largely channelled to white businesses. Most of university-based small business units, while receiving

15 financial support from state, have until recently not succeeded in effectively addressing needs of black small business sector. In private NGO sectors a wide range of small business support bodies have evolved over last decade, often operating in competition with each or. While largely ineffective in ir overall impact, this trend reflects rise of attention to support for small businesses among local stakeholders donors, it is also indicative of a growing stream of foreign aid earmarked for small business support It is mainly due to diversity uncoordinated nature of all se support agencies efforts - which in mselves need not be undesirable - that call for co-ordination, co-operation a clear national strategy framework has increased over past few years. Lack of legitimacy made it impossible for previous government to fulfil such a role, whereas new government is now in a position committed to do so through this White Paper In evolution of se different support agencies, both inside outside former homels, many different policies programmes have been designed implemented. Some have proved successful, ors have failed most went through lengthy phases of experimentation adaptation. In context of this White Paper we have to note existence of such programmes - including those related to micro-enterprise lending, interest-subsidised loans, industrial hives, small business training, mentoring subsidisation of consultants, for many or problem areas - without assessing ir merits or suggesting ir (dis)continuation. It is only natural that in our forward planning we take into account experience gained lessons learned in past. At same time future strategies cannot be based on assumption that organisations active in certain fields in past should necessarily continue with all ir past programmes. A realignment of institutions ir responsibilities is inevitable within context of evolving national support strategy (see Part Five). 2.5 International input Throughout world small-business sector has been gaining in significance, also with respect to government support. As far as

16 specific policies are concerned most of those tried in or developed or semi-developed countries are also known in South Africa. On whole, however, we have not yet effectively absorbed rich experience best practices built up elsewhere with respect to operational details refinements of specific policies programmes. In particular, we have largely ignored areas like state procurement subcontracting, specialised credit-guarantee schemes sector-specific training programmes. The same applies to facilitation of co-operative efforts by small enterprises in particular sectors or niches to strengn ir bargaining positions or to overcome constraints. We also have to focus far more on countries with an economic structure more in line with ours, like our African neighbours as well as Asian, Latin American Eastern European countries, rar than those reflecting North American or Western European structures During past few years some foreign agencies - in particular World Bank, United States Agency for International Development (US-AID), European Union, Overseas Development Administration (ODA) Friedrich Ebert Foundation - have given close attention to needs of South Africa's black businesses design of an appropriate support strategy. These contributions have also made us more aware of diversity of support policies implemented elsewhere lessons to be learned. In response to Discussion Paper we have once again received valuable constructive advice technical as well as financial assistance from several agencies international bodies, i.a. to facilitate strategy discussions to help us set up some of programmes. These include, in addition to above, agencies from Nerls, Den-mark, Australia, Singapore, Great Britain, Irel, Germany several or countries The government is committed to continue learning from best practices developed in or countries suitable to be adapted to our South African strategy. This will be endeavoured through desk research, fact-finding missions, joint pilot projects bilateral as well as multilateral support from foreign SMME support institutions. The

17 effective integration of se inputs into national strategy will be one of vital concerns of Chief Directorate for SMMEs. In this context, valuable contacts have already been established with Sourn African Development Community (SADC) commission responsible for small-business support in sourn Africa. On a more specific level it is noted that semi-developed (Asian) countries that have over past decade attained high, sustainable egalitarian growth share following characteristics: - high priority for development of reliable statistics on SMME sector - high levels of human capital development - a strong broad-based small-scale manufacturing sector - ready access to information technology - consistent investment in research development - particular emphasis on women's enterprises, which have a strong orientation towards food security, health children's education. All of se aspects also have a high priority in our national SMME support strategy. 2.6 Research on SMMEs During recent years research on trends, problems needs of small enterprises among South African universities, technikons or research centres has increased significantly. Yet, volume of research with a practical orientation /or policy relevance is still limited, compared to needs of this country our overall research capacity. This relates in particular to systematic development of base data trend indicators on SMME sector with all its complexities. Such reliable data is critical for assessment of policy efforts planning of policy reforms The government hopes that existing research agencies local as well as foreign funders will adjust ir priorities in order to generate more of such relevant research. In addition Chief Directorate or institutions to be established for implementation of national strategy (in particular SBDA) will actively support such research efforts. Particular emphasis will be placed on joint projects between local foreign research bodies or teams on co-operative research projects between different local institutions.

18 There will also be need for comparative research on needs for SMME support in different provinces in different regions of sourn Africa PART THREE Objectives principles The need for a coherent national small-business strategy follows logically from background problems challenges outlined in Part Two. Most of all, re is urgent need for a systematic national framework, within which different policies programmes at national, regional local level can be coordinated. Such a macro-framework is also a precondition for setting of priorities appropriate allocation of scarce public funds. Furrmore, it should facilitate delegation of tasks responsibilities with respect to SMME support, channelling of public as well as international donor funds to different institutions determination of accountability Finally, a transparent framework should encourage greater rationalisation of resources institutions. This section summarises broad objectives, goals principles underlying government's involvement in support promotion of small, medium, micro- survivalist enterprises. Toger y indicate how central government intends to approach SMMErelated policy issues requests for financial or support from small business community. It also reveals how government would hope to interact with provincial governments, local authorities, parastatals, most important of all, private sector, in order to achieve coordinated effective support all over country 3.1 Objectives of national small-business strategy The primary objective of national policy framework is to create an enabling environment for small enterprises. Given such an enabling environment it is expected that hundreds of thouss of SMMEs will mselves accept responsibility for operation, growth progress of ir enterprise. Such a national framework will need to be complemented with programmes developed implemented at regional local level. Besides, small

19 enterprises do not in mselves constitute an economic sector all on its own. Therefore, policies need to be in tune with national regional as well as sectoral developments, taking into account differences between sectors like manufacturing, tourism or construction as well as differences between categories of SMMEs In addition to this basic objective of national small businesspolicy framework five more specific objectives underlying support framework can be mentioned here: - Facilitating greater equalisation of income, wealth economic opportunities This relates to a strengning of labour-absorptive process in micro-enterprise survivalist segments, redressing of discrimination with respect to blacks' as well as women's access to economic opportunities power, facilitation of growth in black small enterprises in rural areas. - Creating long-term jobs While micro-enterprises survivalist activities have absorbed large numbers of unemployed people, y are in mselves not always able to generate reasonably remunerated long-term jobs. Support for small businesses has to include steps to upgrade skill level of SMME operators, strengn use of appropriate, modern technologies boost capacity to create long-term jobs. - Stimulating economic growth While small enterprises have potential to generate economic growth, this does not always happen spontaneously. It is task of a differentiated, sector-focused growth-orientated small business-support strategy to address obstacles that prevent small enterprises from contributing to overall growth. - Strengning cohesion between small enterprises Public- as well as private-sector support for small enterprises has clear limitations, given resource constraints. Yet, individually SMMEs often lack skills resources to improve ir own capabilities. It is thus essential that fragmented small enterprises within sectors, industries, sub-regions or or localities be helped to network more effectively in order to jointly address development obstacles, take up opportunities to build collective efficiency. Successful examples of strategies based on collective efficiency exist

20 world-wide, for example in Emilia Romagna in Italy, Baden-Wurttemberg in Germany in some regions in Denmark. Through se interventions local governments have created conditions whereby small firms can - through co-operation networks, provision of supportive services infrastructure improvements - compete with best of large international firms. - Level playing fields between bigger small business Market opportunities, regulations competitive structures have in past distinctly favoured larger enterprises enterprises in urban areas; support strategy will help to rectify imbalance. At same time it aims at greatest possible co-operation interaction of se segments of economy Over above se objectives, national strategy also aims to enhance capacity of small business to comply with dems facing South Africa's modernising economy challenges of increasing international competition. Table Key objectives of national small-business strategy - Create an enabling environment for small enterprises - Facilitate greater education of income, wealth earning opportunities - Address legacy of aparid-based disempowerment of black business - Support advancement of women in all business sectors - Create long-term jobs - Stimulate sector-focused economic growth

21 - Strengn cohesion between small enterprises - Level playing fields between bigger small playing fields between bigger small business as well as between rural urban businesses - Prepare small businesses to comply with challenges of an inter- nationally competitive economy 3.2 Stages of strategy formulation implementation Experience from or countries reveals a logical sequence in establishment of a support framework. This applies in particular to early part of process, where following distinct stages can be distinguished Awareness building The process of awareness building commitment to goals should include politicians, labour leaders public-sector officials at central, provincial local government level, private NGO sector decision makers, organised business, heads of research training bodies all small business support agencies. The purpose is to reinforce understing for SMME support its importance for overall development of country to get acceptance of commitment to policy framework underlying goals. In this context President's Conference on Small Business, planned for March 1995 in Durban, is an event of critical importance for awareness-building in South Africa Needs identification implementation planning Once goals broad strategy have been accepted, it is necessary to evaluate prioritise specific needs within overall framework resource constraints. This should also include linking of needs, action plans efficient delivery systems, establishment of monitoring feedback systems, commitment of key actors to specific support areas strengning of co-ordination networking systems Resource identification This phase can start concurrently with former is likely to extend over a lengthy period. It includes surveys of resources available for SMME support in each of nine provinces, establishment of a national data bank for SMME-related statistics, an evaluation of physical

22 infrastructure presently available for SMMEs an assessment of capacity of existing SMME support agencies Strengning business entrepreneurial culture While progress has already been made in this sphere over past years, concerted efforts will greatly facilitate implementation of national strategy. This should include country-wide educational sensitising efforts, increased co-operation between business tertiary education institutions, furr expansion of ownership participation of formerly disempowered people Training of support agency staff This capacity-building process is critical for success of entire implementation process. To be effective it has to be pursued concurrently with stages mentioned above, it has to include all support agencies. 3.3 Setting goals for national strategy To become operationally significant, objectives outlined in section 3.1 would have to be put into quantifiable, specific goals or targets. This is not possible within framework of this White Paper, where provincial local strategies still have to be worked out all stakeholders are to be included in a goal-setting process. Such a task may, in fact, be tackled by NSBC facilitated by DTI Directorate SBDA. In Part Six of this White Paper some indication is given of difference between short-, medium longer-run goals what government regards as relevant under each. 3.4 Fundamental principles This section brings us closer to wide range of issues that need to be addressed by a partnership of government, NGOs, parastatals private sector in order to promote support SMMEs. Before we review different elements of such a framework in Part Four, we have to state a number of general principles which underlie all se strategy elements which will, in general, guide government involvement in this sphere. These principles should also help orientate private sector, parastatals, NGOs or stakeholders as to role of government vis-g-vis those or players As indicated in Part One of this White Paper, framework is based on a coherent, integrated vision of South Africa's economic development process. This vision sees different segments of SMME sector - medium small enterprises, micro-enterprises survivalist

23 activities - as closely interconnected parts of larger economy, which also includes big(ger) businesses, multinationals, parastatals, NGOs or non-business activities. Relative to or segments small business sector has been neglected in past, this should now be redressed, where possible, in line with current political goals guidelines of RDP This vision of a dynamic, exping small business sector has different dimensions; y encompass sector industry perspectives, regional growth perspectives local development perspectives. Most important, vision is based on acceptance of market economic system, private entrepreneurship a constructive partnership between public private sector Government believes that it is necessary to break away from traditional static approach to small business development based narrowly on provision of financial support. We instead are committed towards a dynamic, dem-driven creative approach which in first instance recognises multiplicity of needs of SMMEs. The notion of "real services" is critical to this approach, i.e. that a wide range of services can be instrumental in enhancing performance of small firms The need to instill a "fee for service culture" also applies to small-business sector; wherever possible services received by enterprises should be paid for The government also feels strongly that small business support has to be linked to compliance with generally accepted stards of business behaviour. This relates as much to labour managerial stards as it should apply to taxation, sector registration reasonable social stards as well as financial costing disciplines of firms, both small medium-sized. The strategy should enable SMMEs to comply with negotiated broadly accepted, flexible stards, but it is also objective of strategy to encourage such compliance. This is felt to be only way in which SMME support can, in final instance, be linked to South Africa's quest for international competitiveness The government believes that small firms can become dynamic highly competitive, while striving for socially acceptable labour stards,

24 adopting new more efficient technologies effective work organisation techniques, government is committed to promote development on this basis. This can be achieved through a range of organisational practices which include increased co-operation, co-ordination networking amongst smaller firms in specific sectors so that services such as marketing, research development, skills acquisition even production can be shared. Through such co-operation small firms can achieve, if not surpass economies-of-scale benefits enjoyed by large firms without having to become large in size It is accepted that dem side of small business sector can be an important factor in SMME growth development. Thus, national framework will include steps to improve access of small enterprises to state procurement, big business purchases export markets Anor important principle of new national strategy is emphasis placed on black advancement in enterprise sphere, including in this context all groups disempowered through aparid era. This is, however, not an exclusive goal, leaving considerable scope for or objectives as outlined earlier. Besides, it is realised from experience in or countries lessons from our own past that re are more effective less effective ways to stimulate black business advancement. Thus, pursuing fundamental goal of black advancement does not free us from obligation of weighing up merits risks of alternative support policies The scarcity of public resources available for SMME support constitutes a fundamental constraint upon all support policies. It also forces us to constantly weigh up public-sector cost of specific policies against expected results of support programmes. It is in this sphere where need is greatest to learn from practices in or countries, to compare experience gained by different institutions in se countries to look for more efficient programmes Acceptance of market orientation of our economic system of government's fundamental budget constraints also forces us to look at alternative funding, leveraging of public funds, effective use of foreign donor funds technical assistance, introduction of

25 tax or incentives to change private-sector attitudes, self-help or local community efforts to support small enterprises While inevitability of budget constraints is stressed here, it is also accepted as a fundamental principle that overall share of budget support available for small enterprises - at central, provincial local government level - is currently too low compared to important role of this sector in economy Given wide range of constraints or problems experienced by small enterprises given ir diversity, it follows logically that a national small business-support strategy will consist of a whole range of policy areas even more programmes. Internationally one also finds a steady increase of specialised support policies, in particular in wealthy industrial countries. Such proliferation of policies also has dangers, like high cost to fiscus overlapping of programmes. In light of our limited public-sector resources it will thus be necessary - at least in initial years - to curtail range of support programmes. In fact, to counter proliferation of programmes which might result from inter-provincial competition, central government may have to set national guidelines for key policy areas. Preference will be given to policies which strengn access to resources steps to level playing fields between established emergent enterprises. In addition, sunset clauses will have to be built into programmes in order to prevent an escalation of cost over years While re can be little doubt about need to restructure have to be gradual. This is necessary since implementation capacity cannot be created easily, but can be destroyed instantly if institutions are dissolved. With implementation of small business support spread over many different bodies, with restructuring of support agencies coinciding with a restructuring of all provincial development agencies, this process is likely to extend over at least next two years. In this context (re-)training of staff of different small business-support bodies is quite critical, as