This is a digital artifact that has been prepared as part of the World Bank course "Financing for Development." It seeks to outline the case for small and medium enterprise development in South Africa as a key lever to create jobs and assist with real GDP growth and in so doing help address poverty and inequality in the country.

1. GROWING SOUTH AFRICA
Leveraging Small, Medium Enterprises to create jobs and grow the economy

2. South Africa’s Current Context
South Africa’s peaceful political transition was one of the most
remarkable political feats of the past century. The government has had a
pro-poor view on public spending that has largely contributed to
improved social indicators on many fronts, with notable improvements in
primary education, gender, several health indicators and environmental
sustainability.
That being said, South Africa finds itself today facing many development
challenges.
• South Africa remains a dual economy with one of the highest
inequality rates in the world, perpetuating inequality and exclusion.
• South Africa has high HIV/AIDS infection rates and TB, which has
severely strained the health system, contributing to the poor health
indicators. The life expectancy in 2014 was 62 years.
• Real GDP growth for South Africa is estimated at 2.0% and the same
for 2016 due to a combination of domestic constraints and weakening
demand for the country’s resources. Poor economic growth
performance is exacerbated by high unemployment and lack of jobs
for the majority of its people.
Critical for South Africa’s development is the need for real GDP growth and the creation and sustaining of better quality jobs
Source: www.africaneconomicoutlook.org

3. The Case for Small and Medium Enterprise (SME)
One of South Africa’s most wicked problems is its high levels of
unemployment. A sad statistic is that youth unemployment in
South Africa sits at 65% - a situation often described as a “time
bomb.”
Entrepreneurship is widely considered to be a driver for
sustainable economic growth through job creation, innovation
and welfare impacts. It can be appreciated then that enterprise
development in South Africa is considered a key lever to unlock
growth potential and address the concerns of poverty and
inequality. Whilst the public sector has made concerted efforts
to increase its levels of staffing over the past decade, the
emphasis for South Africa needs to shift to small and medium
enterprises (SME’s) for sustainable job creation. Whilst SME’s
are not the panacea for all of South Africa’s development
needs, they are a significant contributor with immense
potential.
Only 7% of adult population of South African are engaged in entrepreneurship. South Africans must move away from
seeking employment to creating employment

4. The SME State of Affairs
According to the Global Entrepreneurship Monitor (GEM), South Africa’s
performance in enterprise development has been poor. The GEM’s most recent
report shows that by most measures South Africa is outperformed by all of its
African peers taking part in the study and indeed by most other countries too.
For example, only around 7% of South Africa’s adult population (18-64 years
old) is involved in early-stage entrepreneurship – in other words, with start-ups
and young firms – while another 2% were operating firms that had been in
operation for more than 3 and a half years. But despite this, a survey done by
Business Partners shows a relatively positive Q3 2015 outlook for SME’s, with
key challenges for the short term being uncertain market conditions, cash flow
and funding.
SME activities in South Africa
can be clustered in 3 key
areas, viz. business services,
manufacturing and tourism.
The sector is also skewed to
white males, who tap into
their own savings. Source: sbp report, “Who are the small firm entrepreneurs in South Africa, May 2013

5. Stark Realities and Considerations
• Unemployment in South Africa is in excess of 40%, yet only 7% of the adult population are engaged in
entrepreneurship. Despite the need, what’s stopping us?
• It would seem that whilst South Africans see good opportunities to start a business, there is a very
prevailing fear of failure and many businesses don’t see the light of day within 2 years of starting up. Can
this lack of sustainability be mitigated?
• The GEM’s report quotes that 71% of entrepreneurs start businesses to pursue an opportunity and to
increase their income or independence, and 28% do so because they have no other option for work. With
the high levels of unemployment in South Africa one would expect an even stronger entrepreneurial drive.
• There are various government driven initiatives to support SME’s in South Africa but their effectiveness and
impact is questionable.
The SME sector in South Africa requires focused attention to unlock the
potential goldmine that it could be. It needs a radical relook at how
government initiatives are structured, managed and governed so as to
stimulate growth of the sector. It needs innovative funding models and
business support (training and business acumen) to mitigate against the
risk of failure.

6. References
• http://www.worldbank.org/en/country/southafrica/overview
• http://www.africaneconomicoutlook.org/en/country-notes/southern-
africa/south-africa/
• Prof. Neil Rankin et al. Business environment specialists sbp, Who are
the small firm entrepreneurs in South Africa?, SME Growth Index
Thematic Paper, May 2013
• Mike Harrington, Jacqui Kew, Penny Kew, 2014 GEM South Africa
Report, South Africa: The crossroads – a goldmine or a time bomb?,