Changing Business Landscape to Digital Milieu: SMME in South Africa

In today’s increasingly virtualized and globalized workplace, organizations need new interventions to innovate, allocate resources and reinvent processes. That’s where smart strategies pay off, particularly in times of economic uncertainty. The way forward is not fixed nor will it be easy, but with the right leaders, and a mind-set of urgency, curiosity and a preparedness to challenge existing paradigms, there is a good chance of achieving an abundant future.

It is estimated that there are around 5.78 million micro-, small and medium-sized enterprises in South Africa. A 2018 report of the World Bank points. Total funding provided to the SMME sector is currently $16 billion (230 billion rand). Labour unions and policy-makers are embroiled in a narrow-minded purview that technology, digitalization and automation are diabolical to job security and job creation. This dystopian perspective creates fear, paralysis and inhibits the roll-out of strategies and policies that encourage and incentivise the “digitalization” of economies.

The largest & smallest industries in South Africa can be segmented as follows: Government (22%), Finance & Business Services (21%), Trade (13%), Manufacturing (11%), Transport (8%), Mining (7%), Personal Services (6%), Electricity, Gas & Water (5%), Agriculture (4%) & Construction (3%).[refer Appendix Link 10]

A well set platform of Digital Economy and New Value Creation helps companies leverage the needed technology required to be agile in the face of disruption. It also helps them create the new digitally enabled business models for the new normal – post-COVID, purpose driven, sustainable and inclusive. The unprecedented disruption of COVID-19 is accelerating the urgency for agility, adaptability and transformation. Industry structures and business models are being disrupted – and the digitalization of the economy gaining rapid attention for acceleration.

As South Africa’s mobile-led digital consumer market continues to develop interoperable QR codes can boost the development of proximity digital commerce. The well-documented efficiency and advances offered by 5G are expected to result in major improvements in internet connectivity, creating more space for digitalisation in sectors such as smart homes, smart cars and VR products. Digital growth indicators can be viewed in Appendix link 13.

In South Africa, small, medium, and micro enterprises (SMMEs) have been recognized as the critical driving force to alleviate some economic challenges that the country faces. The challenges, such as the alleviation of poverty and the unemployment rate, can be addressed by policies that encourage SMME developments and sustainability. National Development Plan (NDP) sees SMMEs as significant future sources for employment growth.

In order to facilitate growth in SMMEs, the NDP makes recommendations in three areas:

Reduced cost of regulatory compliance, especially for small and medium-sized firms;
Support for small businesses through better coordination of relevant agencies, development finance institutions, and public and private incubators; and
Strengthened financial services to bring down their cost and improve access for small and medium-sized businesses.

In addition, the NDP highlights the need to make government procurement processes more accessible to small businesses, as well as the potential positive impact of interventions designed to address the entrepreneurial skills gap.

In the midst of the COVID-19 pandemic impact, some small businesses in South Africa are pusing forward with the needed resilience and agility. Virtual workspaces (56%) is seen as a future business opportunity, followed by diversification of offerings (46%) and thinking of disruptive approaches (37%) [Refer Appendix link 5].

Small, Medium & Micro Entrepreneurs (SMMEs) role in Digital Milieu

South Africa is a dynamic emerging economy that presents a lot of opportunities for Small and Medium Enterprise (“SME”) entrepreneurs to create new companies. SMEs make up 91% of formalized businesses, provide employment to about 60% of the labour force, and account for roughly 34% of GDP in South Africa. 40% of South Africa’s population are active social media users. That’s 22.89 million people out of an estimated population of over 57 million. [refer Appendix link 8]

**Image2 – (2017) SMMEs count by province & Urban/rural split** [refer Appendix Link 3]

Small-scale businesses in South Africa are incorporated in the collective category of Small, Micro, & Medium Enterprises (SMMEs). They are governed by the National Small Enterprise Act, 1996. This 1996 Act was amended by the National Small Business Amendment Act, Act 29 of 2004, which in-turn incorporated the Small Enterprise Development Agency (SEDA) thereby replacing the erthwile the Ntsika Enterprise Promotion Agency.

**Definition of SMME as per NSB Act of South Africa [refer Appendix Link 4]**

As mentioned earlier, there are green shoots of positive developments, led by a new kind of digitally literate micro-entrepreneurs. These entrepreneurs leverage technology platforms to create self-employment and economic sustainability. These digitally literate micro-entrepreneurs are creating employment and economic activity in lower income level segments in the following key areas:

Digital Information Communication Technology (DICT) Adoption

The adoption of digital ICT can be a driving force for addressing socio-economic challenges faced by South Africa, such as poverty alleviation. The social resources could be secured through the support from government and relevant stakeholders. The adoption of digital ICT will create opportunities to utilise ICTs & enhance business operations. Acquiring digital ICT skills through training will benefit SMMEs and improve decision-making that has financial implications for the businesses. The use of digital ICTs can increase their income, which can, in turn, encourage growth and create employment. Examples are Social Media, Shared digital software, personal Smart phones, etc. For instance, South African e-commerce start-up Luntu has launched its platform, enabling conscious consumers to purchase goods that align to their values in an easy way whilst empowering ethical businesses.

Stronger Collaborative Consumption

Digital is the joint leveraging of exponential technologies, disruptive business models and thinking, in the pursuit of efficiencies, higher productivity, and new product & service-enabling innovation. Asset ownership for smaller organizations might face affordability challenges but it makes a viable intervention for creating a platform for accessing & sharing of such equipment/assets to operate. For instance, a start-up organization ‘Hello Tractor’ based in Nigeria, provides access to key equipment on a pay-per-use basis allow companies to reap economic benefits from utilizing technology without owning the equipment. This in turn enhances efficiencies and competitiveness of small organizations and levels the playing field for them in relation to large ones. Emerging stronger collaborative consumption has many forms and different levels of sophistication and is increasingly becoming popular model of choice. There are also Hub type businesses Eg: 3D Hubs that allows 3D printer to become a shareable asset within community.

Digital Value Chains

Distributed digital value chains comprise a group of people who are generally unemployed or under-employed, & are able to fulfil a service gap by offering in their expertise skills or available time. This is done in a way that is safe, peer-reviewed for quality of service, and enables higher compensation compared to traditional models. These platforms have been effective at creating jobs in developed, low-unemployment economies & contribution to employment is proven, significant and immediately tangible. Businesses that adopt a Digital-at-Scale approach will have increased efficiencies, decreased costs, increased customer satisfaction, and automation of core processes. WeBuyCars has become South Africa’s largest second-hand car retailer by going digital.

Digital Economic & Technology Catalysts

Digitalization eliminates the diminishing returns of labour, physical infrastructure, proximity to markets, industry expertise and tenure; traits defined as strategic barriers to entry. This has created a productive medium for the development and growth of the digitally enabled entrepreneur – a much-needed catalyst for economic activity, growth and job creation. Many sectors were revived by Digital platforms intervention as they increase level of transparency, trust, relevance to specific demographic groups & automating manual processes. These sectors economically empower micro entrepreneurs or allow them further empower other micro-entrepreneurs. Innovative companies like StokFella based in Johannesburg, Selpal fintech (Selpal connects local stores with suppliers via software and tablets) are platforms that has changed the embedded concepts. Digital players have been able to make inroads in the retail market with cheaper products because, unlike traditional banks, they are not lumbered with expensive branch networks that push up costs. South African fintech start-up Ozow has launched what it is calling the “Ozow Revolution”, rolling out two new payments platforms and zero-rating data costs to ensure all South Africans can access digital payments. [Refer Appendix Link 9]

Embrace the Digital Transformation

Digital technologies present both risks and potential. Need for Omni channel platforms have become ubiquitous with all quick service. Eg: Food or Mobile ordering with pick up or delivery services. Better data and monitoring of public interventions facilitates a sharpened policy focus and improved SMME operating environment. There is a greater need for citizens and entrepreneurs that see opportunity in this new era open to doing things that have never been done before – in ways not previously considered, leveraging digital technology never before available. Key business drivers that are shifting the economy to adopt the digital transformation journeys are maintaining agility due to poor business intelligence or even failure to meet high consumer expectations. Public-Private Partnerships must envision and build human-centric digital solutions, combining strategy, intelligence, expertise, and software to drive industry-aligned transformative growth.

Appendix Links

https://www.weforum.org/agenda/2019/08/in-south-african-townships-unseen-businesses-catch-a-big-banks-eye/

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