Why SA's SMEs struggle despite support initiatives
Small and medium enterprises (SMEs) form the backbone of South Africa's economy, with approximately three million businesses employing millions of people. Yet, despite their critical role, the survival rate of SMEs remains a significant concern.
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In fact, more than 50% of small businesses don't make it past their fifth year of operation.
With the country facing critical challenges – not least youth unemployment – and given the urgent need for inclusive growth, successful and sustainable SMEs are essential for fostering economic resilience and creating jobs.
So, why is it that, despite significant investment from enterprise support organisations (ESOs) and corporate social investment (CSI) initiatives, so many SMEs still fail?
The answer appears to lie in the way these businesses have been supported over the years.
The traditional grant-based funding model typical of CSI programmes in the past, while helpful in early-stage development, is not enough to ensure long-term success.
What is needed in today's challenging environment is a more holistic approach – one that understands the entire ecosystem in which SMEs exist and delivers comprehensive, sustained and tailored support throughout their journey.
This concept of an 'ecosystem approach' is not new. There has been a steady, albeit gradual, shift towards it in recent years; and some significant strides have been made, particularly in key areas like technological integration and diversified funding options.
Public-private partnerships are also emerging as vital components of the ecosystem support structure, bringing together government agencies, corporations and NGOs to provide not only financial backing but also the mentorship and capacity-building services that SMEs need.
ESOs play a critical role in this, offering training and early-stage funding to help SMEs develop the skills necessary for their survival.
Obstacles and inefficiencies
Unfortunately, while SME support is undoubtedly moving in the right direction, the SME ecosystem is still plagued by obstacles and inefficiencies.
The fragmentation of support services is a major issue; SMEs often find themselves navigating a maze of disconnected ESOs, government programmes, and corporate initiatives, each offering different forms of support.
This lack of coordination can lead to duplication of efforts and confusion among entrepreneurs about where to turn for help.
Another issue is the overly generic nature of much of the training offered to SME owners and entrepreneurs.
ESOs have a vital role to play in shifting this paradigm by providing tailored training and support that address the specific needs of businesses based on their industry and market.
Without this focused approach, even well-intentioned interventions can fail to yield meaningful results.
Access to funding
A lack of access to appropriate, fit-for-purpose funding also remains a key success barrier.
While grant funding is available, it is often limited and can create a dependency that stifles long-term financial discipline.
Concessional loans offer a more sustainable, growth-oriented form of funding on favourable terms that allow SMEs to focus on proving their business model without being stifled by traditional lending requirements.
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While concessionary loans are a step in the right direction as well, they are still generally accessible only to SMEs that have already achieved a certain level of maturity.
Many early-stage businesses – especially those in high-risk sectors like agriculture – struggle to meet the eligibility criteria, leaving them without the necessary financial backing to grow.
To truly unlock the potential of South Africa's SMEs, both financial and non-financial support strategies need an overhaul. We have to build an integrated ecosystem that combines financial support with capacity building, mentorship and market access.
As we look ahead, the key to unlocking the full potential of SMEs lies in our ability to build an ecosystem that is as comprehensive as it is cohesive.
We don't just have a responsibility to help SMEs survive; we have a key role to play in building a future in which every SME has a real opportunity to uplift communities, transform society and preserve the environment for generations to come. And an effective ecosystem approach is the only way to achieve that.
About Poovi Pillay
Executive head of Nedbank Group CSI
