By: Thandisizwe Mgudlwa – AfricanBrains – 28 May 2012

A new finding has revealed that the Small and Medium Enterprises sector of South Africa is rising to the top rather than declining as previously believed.

According to a leading organisation the Cape Town-based Business Partners Ltd, the results of recent research into the SME space in the country may be painting an overly gloomy picture of the sector, which is in far better health than  statistics suggest.

And that view is confirmed by Christo Botes, Executive Director at Business Partners Ltd, a specialist risk finance company for SME’s, who says that the actual situation on the ground is far more encouraging than recent studies would suggest.

Botes remarks that there are a number of factors that may be skewing the negative findings of studies such as February’s Adcorp Employment Index, which reflects that some 440 000 small businesses closed in SA over the last five years.

“Firstly, when tendering for government contracts at national, provincial and local levels, as well as parastatal companies, it is usually necessary to have a registered company and in the past, businesses also needed to obtain a VAT number. As a result, thousands of companies are registered each year for tender processes, the vast majority of which will be deregistered should they fail to secure the intended contracts.”

He says that another explanation is that the Companies and Intellectual Property Commission cleaned their register of those companies that did not file their normal statutory returns on time.

“Many of these deregistered companies have not been activated again as they were in any case, not trading.” He says that companies that were registered as shelf companies, but never started trading, have also since been deregistered, mainly because of the cost of compliance in submitting returns. It could also be a result of the New Companies Act and requirements to comply to international accounting standards (IFRS), which has resulted in increased cost of compliance. “As such, many businesses operating multi company structures have consolidated their operations and de-registered any unnecessary entities.”

Botes adds that acquisitions could also be playing a part in skewing the numbers: “As part of many acquisitions, the acquiring company will often choose to wind-up the acquired business and form a new entity that will be protected from any claims that might arise from business dealings before the acquisition.  It is important that the correct processes had been followed should such steps be taken.”

He reveals that all these issues are exaggerating the SME closure figures.

Botes adds that although the situation isn’t as bad as made out to be, there is definitely room for improvement as SMEs play such an important role in the economy. “The initiatives that both Government and the private sector have implemented so far, such as the Small Enterprise Finance Agency and The Job Fund, could improve the situation, but much more should be done to assist entrepreneurs and SMEs.”

He further explains that SMEs need more than just finance to succeed.

“They need technical assistance and support in order to grow and flourish into profitable and successful entities. Mentoring and advice to provide skills transfer is also a critical part of the process.”

“Furthermore, the private sector can play a big role in procurement programmes when it comes to SME growth and assistance.

“Big businesses can break down requirements in bite size components and engage with smaller businesses instead of giving the big corporations more business. If SMEs can provide the same product and compete on both price and service levels, they should be considered to fill the necessary contracts. In fact, smaller, owner-managed businesses can often provide services and products at better quality levels and prices than their larger counterparts.”

He says he supports proposals that the Black Economic Empowerment or BEE (a policy by the South African government aimed at economically empowering the historically disenfranchised black African group which suffered under the apartheid regime), codes should be amended in order to include incubator models, whereby businesses are able to score points by running incubators for SMEs that house and nurture new businesses. “In these incubators similar SMEs can share knowledge as well as resources, equipment and premises.

“Government’s 2030 objectives state that 90% of all jobs created should be in the SME space. By pushing initiatives in the SME sector, this objective can be fulfilled. By lowering bureaucracy and barriers to entry as well as facilitating training for entrepreneurs from school and tertiary level entrepreneurs and SMEs will develop and grow from strength to strength,” concludes Botes.