SMEs, through effective encouragement and opportunity from larger organisations and support and guidance from business mentoring companies, hold the key to South Africa’s growth, development, and economic recovery.
It is widely agreed that SMEs hold the key to South Africa’s economic recovery, and for good reason. SMEs create employment in diverse sectors, across all functional disciplines, and at all skills levels. SMEs contribute significantly to the country’s gross domestic product (GDP) and their ongoing success and sustainability create meaningful employment.
They are notably helping to reduce some of the extreme economic inequality we experience in South Africa. Larger organisations providing support through skills transfer and engagement are catalysts in creating opportunity for SMEs to succeed.
Procurement and Socio-Economic Development
The procurement and socioeconomic development elements within the South African Broad-Based Black Economic Empowerment Act (B-BBEE) are focused specifically on supporting skills transfer and creating opportunity for SMEs and individuals within two broad categories.
The procurement element encourages larger organisations to procure at least 30% of their goods and services from SMEs whose enterprise revenue is less than R 50 million per year. This is broken down as follows:
–– 15% from SMEs with a total annual revenue of up to R10 million; and
–– 15% from SMEs with an annual revenue of between R10 million and
–– R 50 million.
The socio-economic development element encourages larger organisations to support initiatives where the outcome of their contributions results in the beneficiaries developing skills and receiving opportunity that ultimately give them access to the economy through direct employment or from within their own businesses.
Although B-BBEE is purely voluntary, there is significant engagement from larger organisations to align as closely as possible in meeting the Act’s economic transformation commitments. The procurement element encourages larger organisations to contribute 3% of their net profit after tax (NPAT) towards enterprise and supplier development initiatives. The socioeconomic element encourages larger organisations to contribute 1% of their NPAT to social upliftment initiatives, where an outcome of creating opportunity for individuals and small entities to access to the economy is achieved.
These two elements on the B-BBEE scorecard help to create significant transformation momentum for both formal and informal sector individuals and SMEs. They help to lay the platform for the transfer of skills, and to create opportunity for individuals and SMEs to enter the economy and contribute towards South Africa’s growth, advancement, and economic recovery.
The B-BBEE Act, and in particular the procurement and socio-economic development elements, create significant means for SMEs to receive support and funding. Anyone who has started a business themselves, or has grown an enterprise to the next level, knows well that funding is not the only requirement in their enterprise’s advancement forward. They know that they need to understand the internal requirements of their business, as well as be able to interpret and adapt to the changing economy and its many challenging economic influences.
Unlike larger organisations, SMEs seldom have access to internal resources to help them interpret influencing market conditions, or to create a local and international digital presence for their unique service offering. Hence the need for ecosystem support to help SMEs draw in essential knowledge, gain business process understanding, and ensure adequate integrated reporting systems and policies that maintain their ongoing high-quality reporting and service delivery, to support the enterprise’s growth and long-term sustainability.
There are many wonderful value adding business mentoring companies in South Africa. These organisations provide essential encouragement and support to SMEs entering the market, and guidance to small and medium enterprises going through the many challenges of internal growth. In South Africa, there is little difference in reporting responsibility of a large organisation and that of a small enterprise. Without the internal competencies large organisations have at their fingertips, smaller enterprises need to draw guidance and support either from their larger clients, or directly from capable service suppliers. Failing which, they set themselves up to face the wrath from authorities for their transgressions.
Good Corporate Citizens
Larger organisations too demand compliance adherence in their engagement with SMEs. Their own B-BBEE scorecard requires that they engage with properly constituted enterprises, that meet legislative requirements as stated in the Company’s Act and are regarded as good corporate citizens. If an engaged enterprise for example does not have a B-BBEE scorecard or affidavit, then the engaging organisation will not be able to allocate B-BBEE points on their own scorecard. There are also other areas of strict compliance, where joint and several liability is apportioned to both the company and service supplier where compliance is not evident.
SMEs, therefore, as starting points on their journey toward success and sustainability, need to ensure that they:
Meet governance and sustainability objectives
Are productive meeting both financial and operational objectives
Meet compliance and legitimacy requirements
Manage internal and external risk adequately
Have ethical and effective leadership and an engaged enterprise culture
Enterprise and supplier
development, a subsection of the procurement element on the B-BBEE scorecard, when used effectively, provides support and opportunity for larger organisations to generate the confidence they need when engaging with SMEs. Business mentoring companies often work side by side with larger organisations to upskill and help develop competent and sustainable service providers.
A Professional Approach
BusinessFit SA’s approach through its 5 Stage Quality Assurance Process, and Corrective Action/Sustainability Report is gaining popularity as a professional approach to ensuring enterprise and supplier development initiatives result in the desired outcome of more competent and capable entrepreneurs and business leaders. The approach assists in ensuring enterprises have robust functional frameworks. These include:
Clearly structured and implemented business strategies
Defined measurements and outcome intentions
Engaged staff members who understand the needs of the business, and how they personally contribute towards the enterprise’s success and sustainability
High quality assurance and quality controls in their enterprise’s production and service delivery
Large organisations like Standard Bank understand that their contribution to transformation in South Africa rests in their ability to uplift the SME community, and as such have teamed up with enterprises like BusinessFit SA and DRG in providing business sustainability conferences within KwaZulu-Natal.
The Open Business Council, which also recognises their unique ability to contribute to SME development in South Africa, recently partnered with BusinessFit SA. The aim was to support SMEs in creating effective digital footprints; to assist in ensuring that they have the means to be represented professionally in local and international markets.
The Success Formula
The South African Department of Trade and Industry has considered deeply the challenges of growing the South African SME sector and has implemented significant policy through the B-BBEE Act to help drive skills transfer and SME development and engagement opportunities. Further, business mentoring companies like BusinessFit, ActionCOACH, and others, are working closely with large organisations and their suppliers to help create ongoing successful and sustainable supplier relationships – to result in the growth and development of the South African SME sector and overall economy. These actions are resulting in:
Transfer of essential business and financial skills
Creation of employment
Giving more people access to the economy
Narrowing income differential
Growing the country’s GDP
Building a vibrant and inclusive economy
The success formula being the combination of public sector transformation policy, private sector commitment and engagement through large organisations, business mentoring companies, and SME leaders, wishing to be given an opportunity to bring their innovations, passions, and excellence into the formal and informal sectors of the South African economy.
For more information contact DRG Outsourcing, DRG Siyaya, and BusinessFit SA
Contact David White,
T: +27 (0)31 767 0625