Research Article: 2021 Vol: 25 Issue: 6
Melvin S. Mothoa, Tshwane University of Technology
Edward M. Rankhumise, Tshwane University of Technology
Citation Information: Mothoa MS., & Rankhumise EM. (2021).Government contribution towards the growth of small and medium-sized enterprises: owners’ perspective. International Journal of Entrepreneurship, 25(4), 1-11.
The South African government has adopted and applied the concept of Small and Mediumsized Enterprises (SMEs) development to enhance the economy of the country. Lack of support and general resources are among other challenges facing SMEs. Over the years, various initiatives have been set up in South Africa for boosting the development of SMEs in the country. The government understood that their interventions in supporting SMEs to grow will result in strengthening the economy and subsequently a reduction of unemployment. The primary aim of this study was to measure whether the use of these established government support initiatives contributes to the growth of SMEs in the area of Soshanguve. A quantitative method was adopted and a sample of 207 SME owners participated in this study. Data was obtained through structured questionnaires. Data were analysed using Stata v16. The findings revealed that the government’s SME support initiatives are not readily accessible and consequently not effectively utilised. These findings can be extended to government support institutions so that they can improve the quality design and cost-effectiveness of support services, which will result in the growth of SMEs in townships such as Soshanguve and other townships, ultimately the whole of South Africa.
Growth, Government Support, Impact, Success, Small Business
Recently, South Africa's human development study for 2018 demonstrated the critical importance of the SME economy to the challenge of sustainable development in South Africa (UNDP, 2018). This study has examined the impacts and challenges faced by the first ten years of the SME programs of the national government. The creation and sustainability of new SMEs are vital to the economic prosperity of a country or else it risks an economic stagnation. In South Africa, the government prides itself on being committed to the development of SMEs. In 1996, the South African Parliament promulgated the National Small Business Act (102 of 1996) to promote and protect the interests of SME’s (Parliament Liaison Office, 2014). Furthermore, to intensify their seriousness and commitment the South African government introduced a new Ministry of Small Business Development, which was established in 2014 specifically targeting to assist the small business sector (SEDA, 2016).
As far as growth and contributions of SMEs in South Africa are concerned Fatoki and Garwe (2010) state that SMEs account for roughly 91 percent, with formal business entities contributing between51- 57 percent to theGDPand60 percent of employment inSouthAfrica. Furthermore, FinMark Trust (2015) indicates that SMEs are expected to play a pivotal role in creating employment, addressing poverty and economic growth. South African SMEs are diversified and operate in different industries, including retailing, wholesaling, tourism, mining, farming, manufacturing, construction and service. Similar to SMEs in other developing countries.
With the government having established different SME support initiatives in South Africa it can be understood that effective support of SMEs in townships such as Soshanguve can only be rendered to these SME owners only if the government support agencies have a clear understanding of the challenges faced by theseSMEs. It has however been worrisome that despite the incentive policies, intervention programmes and support aimed at supporting the SME sector, they have performed rather below expectation. As government support seems to be unknown by the beneficiaries in the townships, the major gap in this study is the lack of awareness of the government support initiatives. This study sought to measure whether the use of established government support initiatives contributes to the growth of SMEs in the area of Soshanguve and provide clarity on the challenges that the SME owners might be experiencing in the quest to run their businesses.
Despite SME contribution to economic growth, it is notable that SMEs across the whole world and in SA in particular, are still faced with numerous challenges that inhibit entrepreneurial growth. Apart from SME financial and non-financial support by the South African government, the Global Entrepreneurship Monitor (GEM) Reports (2001-2010) noted that South African SMEs also suffer from poor management skills, which is a result of a lack of adequate training and education.
The government had acknowledged the contribution that small business entrepreneurs can make to alleviate unemployment through policy that can benefit them. Successful SMEs are perceived as a panacea for South Africa’s unemployment challenges and economic growth (Van Scheers, 2016). It is always the intention of the government to avail support mechanisms to SMEs to ensure that they prosper in their business endeavours. Despite the government taking the SME seriously, hence the support structures in the country, there are apparent challenges still experienced as discussed below.
Major Challenges of SME Growth In South African Townships
The growth of the small business has been an interesting topic of research for many scholars in the entrepreneurship and business management area. The National Small business Act 102 of 1996 defines a small business as;
“A separate and distinct business entity, including cooperative enterprises and Non-governmental organisations, managed by one owner or more which, including its branches or subsidiaries, if any, is predominantly carried on in any sector or sub-sector of the economy and which can be classified as a very small, a small, a micro- or a medium enterprise (SMME)”
In addition, growth is defined as:
“An investment style that looks for stocks with strong earnings and/or revenue growth or growth potential” or “An economic expansion as measured by any of a number of indicators, such as Gross Domestic Product (GDP)” byAdvanced Currency Markets (ACM) Trading Services (2010)
Based on these two definitions, we can agree with Dobbs and Hamilton (2007) who states that growth is a diverse concept that is generally linked to the sustainability of businesses, the accomplishment of business objectives, achievements and business expansion. However, SMEs in South Africa are also faced with challenges that affect their growth and survival. The following factors are identified as discouraging to start up small businesses in a township such as Soshanguve.
Factors Discouraging Small Business Start-Ups
Access to finance:
Lack of sufficient start-up capital is hindering the growth of Small businesses. Bowen (2009) confirm that small business growth is delayed if proper financing is not available. Drotsky (2002) states that many small business owners in townships struggle to obtain capital and a guaranteed income. Similarly, Fjose et al. (2010); Rankhumise and Rugimbana (2010) also found their respective studies that access to finance is still an impediment to business growth.
Lack of information/advice on how to start an enterprise:
It is extremely difficult to set up a business without correct and accurate information. Jones and Tilley (2003) state that small businesses do not operate properly because their owners lack information about the registration of their businesses and the government should communicate this information.
Access to business networks:
Thierry (2007) argues that networking is a major ingredient for successful gendered, export-led and poverty reduction strategies. This is because networks are one of the key mechanisms for providing access to information, new customers and suppliers.
Lack of entrepreneurial training:
According to (Rankhumise & Rugimbana, 2010) and Cheung (2008), small business owners often lack experience in and training for the management of their businesses. As a result, they cannot meet the future needs of society. Lack of business management training facilities is also singled out as a major barrier for both start-up and growth of women entrepreneurs (Roomi et al., 2009)
Lack of profitable markets:
Access to profitable and sustainable markets is very crucial for the success of any small business. Small businesses should develop products and services that add value to the consumers. According to Mordi et al. (2010) explain that many small businesses encounter difficulties in finding acceptance in the marketplace as well as respect from customers. Bates (2002) concurs with this notion by pointing out that most SME business owners often complain that they are not taken seriously, especially when they bid for big business deals.
Gender discrimination plays a major role in inhibiting many SME owners from starting a business and acquiring business deals. This is supported also by Tillmar (2007) who states that in a society you will find women encountering a lot of disadvantages emanating from the gender system in the societies that they live in.
Access to technology:
Many small businesses fail to sustain their operations because they lack appropriate technology. Lack of access to technology is identified as one of the significant challenges that are faced by both emerging and start-up businesses. Rankhumise and Masilo (2017) attest that lack of technology is indeed a major obstacle that affects a lot of entrepreneurs.
Government support initiatives:
The discussion on the initiatives that stimulate SME support in South Africa by the government begins in 1995 with the White Paper on the national strategy for the development and promotion of small businesses. From the white paper of 1995 to the small business act of 1996 in which the South African government committed to continue to support small businesses and learn from the best practices from the developed countries, especially those policies that are successful and making a positive impact in the small business sector. This commitment has brought about different support programs and the establishment of agencies that seek to address problems faced by SMEs in South Africa. Table 1 below shows some of the government support institutions for the small business sector in South Africa. It also discusses their mandate.
|Table 1 Government SME Support Institution and their Role in the Small Business Sector in South Africa|
|SME SUPPORT INSTITUTION||PURPOSE OFINSTITUTION & ACTIVITIES|
|The Department of Small Business Development (DSBD)||To lead and coordinate an integrated approach to the promotion and development of entrepreneurship, small businesses and co-operatives, and ensure an enabling legislative and policy environment to support their growth and sustainability|
|The Small Enterprise Development Agency (SEDA)||SEDA offers a range of business development services. It provides non-financial services through integrated support agencies across the nation with more than 284 Enterprise Information Centres in municipalities.|
|Small Enterprise Finance Agency (SEFA)||To foster the establishment, survival and growth of SMMEs and Co-operatives, and thereby contributing towards poverty alleviation and job creation.|
|National Youth Development Agency (NYDA)||The institution was established to be a single, unitary structure, established to address youth development issues at National, Provincial and Local government level. The National Youth Development Agency was set up in 2008 (Act 54 of 2008) by an Act of Parliament which provides for capacity programmes and grant funding to SMMEs from R1 000 to R100 000.|
|National Empowerment Fund (NEF)||NEF provides various start-up options for small businesses and rural and community transformation. It is financing capacity ranges from R250 000 to R10m. NEF focuses specifically on disadvantaged people.|
|Industrial Development Corporation (IDC||The IDC generates its funds independently of the government. It provides various sector-focused financing products ranging from R1m, with a specific focus on SMEs and empowerment.|
|(Source: Cook, 2000:30)|
Barriers to Government Support Initiative for Small Business
Botha (2014) states that entrepreneurs face specific barriers, such as limited access to finance, lack of support, negative prevailing socio-cultural attitudes, gender discrimination and bias, personal difficulties, lack of training and education. Rankhumise and Masilo (2017) in their study found that though the government agencies are making strides with their support, numerous challenges are still experienced, namely, access to finance and access to the market. In the same vein, Meyer and Meyer (2017) also found that lack of access to finance and credit resources are challenges for SMEs. However, the effect of these barriers can be contracted by support structures that can contribute to more successful SME owners, hence the support initiatives by the government agencies. Support institutions should be able to assist existing small business entrepreneurs in identifying bottlenecks while providing guidance and the necessary support to solve problems.
Even though there are numerous institutions providing training and advisory services to SMEs in South Africa, there is still a skills gap in the SME sector as a whole (Rankhumise & Masilo, 2016). Notably, small business owners cannot afford the high cost of training and advisory services and others do not see the need to upgrade their skills due to complacency. The survival and growth of SMEs may be hindered by many challenges, such as amongst other government regulatory and law issues and the state of the economy (Kamunge et al., 2014). However, effective support can only be rendered to SMEs only if the prospective support providers have a clear understanding of the challenges faced by SMEs. According to Berry et al. in Rogerson (2004), there is a general mistrust of external agencies among SMEs on the one hand and the incapacity of support institutions to persuasively raise awareness about their existence and effectiveness on the other hand. There is a need for solutions to reduce the continuing high failure and underperformance rates in the SME sector for the country to reap some of the benefits that come because of having an effective SME sector.
Sample and Procedure
In this study, a quantitative research method was adopted and a self-administered questionnaire was used. A structured questionnaire was used to collect data from the targeted SME owners. This cross-sectional study was conducted at Soshunguve which is part of Gauteng province. At the beginning of the questionnaire, an information leaflet outlined the instructions, the purpose of the study and explained that proceeding with the questionnaire resulted in the participants giving consent. Furthermore, they were informed that participation was voluntary and responses will be kept confidential. As regards Anonymity no personal identifiers were used in the report. The sampling technique used was non-probability, namely, convenient sampling and this allowed the researchers to collect data easily and quickly among the SMEs. In complying with the research protocol of the university, the researchers applied for ethical approval. Ethical approval was granted and the research was carried out following the provisions of the approval granted. A total of 222 questionnaires were distributed to achieve a confidence level of 95% with an error margin of 5%. At the end of data collection, a total of 207 responses were obtained, giving a response rate of 93.24%. The reason for the high response rate could be attributed to the fact the researchers personally distributed the questionnaires among the SME owners and also the hope the respondents had perhaps they would get assistance from the government. Various statistical methods were used for data analysis in each part of the questionnaire using Stata version 16. First, descriptive statistics were conducted to explain the sample characteristics and tests of the constructs relating to the study.
Characteristics of the Respondents
Below in Table 2 are the demographics of respondents. A total of 222 questionnaires were distributed and only 207 questionnaires were successfully returned and they were all usable. A total of 64% were males and 36% were females. The age groups were as follows; 43.48% were between age 31 -40 years old; followed by 31-40 age group; those between 41-50 accounted for 34.78% and the rest of the age groups were below20 (0.95%), 21-30 (12.56%) and great than 50 (8.21%).
|Table 2 Demographics of Respondents-SME Owners|
|Category||N= 207||Percentage %|
|21 - 30||26||12.56%|
|31 – 40||90||43.48%|
|41 – 50||72||34.78%|
|Level of Education||No schooling||8||4%|
|SME type of industry||Manufacturing||8||4%|
|Source: Researchers’ design|
The level of education indicates that35% of SME owners possess matric certificates followed by 31% with three-year qualifications. It also emerged that amongst the SMEs owners in Soshanguve area at least 18% have high school education and only 8% at primary school while 4% have no formal education at all. These SMEs are operating in different trading sectors with 54% them in retail which is the highest followed by the service industry at 31%. The lowest types of industry are manufacturing at 4% and construction and engineering at 11% respectively.
Major challenges of growth of SMEs
Under the literature review section identified seven major challenges of growth of SMEs namely; access to finance, lack of information, access to business networks, lack of entrepreneurial training, lack of profitable markets, gender discrimination and access to technology. The survey questionnaire allowed the different types of SME ownership to choose their level of agreement or disagreement on government interventions' success in reducing barriers to entrepreneurship in Soshanguve. The outcome of the survey findings are presented in Table 3 below which indicate:
|Table 3 Challenges that Affect SME Growthby Type of SME Ownership|
|Type of SMEownership||Mean||Standard Deviation||P-Value|
|ACCESS TO FINANCE|
|LACK OF INFORMATION ON HOW TO START A BUSINESS|
|Multiple comparisons by group|
|Partnership VS Sole Prop||0.929|
|Company VS Partnership||0.175|
|Close Cop VS Sole Prop||0.041*|
|ACCESS TO BUSINESS NETWORK|
|LACK OF ENTREPRENEURIAL TRAINING|
|LACK OF PROFITABLE MARKETS|
|Multiple comparisons by group|
|Partnership VS Sole Prop||0.481|
|Company VS Partnership||0.312|
|Close Cop VS Sole Prop||0.106|
|ACCESS TO TECHNOLOGY|
|Multiple comparisons by group|
|Partnership VS Sole Prop||0.775|
|Company VS Partnership||0.312|
|Close Cop VS Sole Prop||0.976|
|*P-values of less than 0.05 shows the significance between major challenges SME growth by the type of SME ownership|
Access to Finance:
The results confirm the report done by Makina et al. (2015) for the FinMark Trust, according to which 87% of South African registered SME’s have never received funding, and 93% of all SME’s have never had access to funding. Further to this, Bouazza et al. (2015) in their study found a similar finding that lack of external financing is key to the business factors affecting Algerian SMEs. The result in Table 2 shows the following; A high number of companies with an average rating of (μ = 3.16) indicated that the government is not doing enough to address the challenge of access to finance, followed by close corporations at (μ = 3.05). While sole proprietors at (μ = 2.55) and partnerships at (μ = 2.71) scored lower and this means SME owners of sole traders and partnerships had negative perceptions of government as not doing enough to address the challenge of access to finance in Soshanguve.
Lack of information:
According to the results in Table 2 government is perceived as not doing enough to address the challenge of lack of information by different types of SME owners. This finding confirms what Muriithi (2017). The results on the efficacy of government in providing information to Soshanguve entrepreneurs differ significantly by the type of business ownership, F(3,203) = 4.47, p < 0.05. Furthermore, this statistical significance is indicated by close corporations having the highest average rating of (μ = 3.33) which means not much is done by the government to reduce this challenge then followed by companies at (μ = 3.30). however, the lowest average rating which indicates a negative perception of government not doing enough to address the challenge of lack of information is that of partnerships at (μ = 2.80), followed by sole proprietors at (μ = 2.57). The findings are consistent with Hussain et al. (2006) who found that even though governmental support is essential for SMMEs during the start-up phase, most of them do not get adequate government support and information.
Access to business networks:
The results show that the highest average rating is that of companies at (μ = 3.33), followed by close corporations at (μ = 3.30) which means the government is highly perceived as not doing adequate work in addressing the challenge of access to business networks by SME owners from these two types of ownership. The lowest average rating is those of sole proprietors at (μ = 2.57) followed by partnerships at (μ = 2.78). Scholars such as Rankhumisem and Masilo (2016) and Krasniqi and Tullumi (2013)affirm these findings, suggesting that exposure to business networking opportunities is an obstacle to effective entrepreneurship.
Lack of entrepreneurial training:
Mboko and Smith-Hunter (2009) state that policymakers must concentrate on improving small enterprise owners' ability to develop and execute strategic decisions. However, results indicate that SME owners of companies and close corporations perceive the government as not doing enough to provide entrepreneurial training to SMEs in Soshanguve, than sole traders and partnerships. The statistical significance (0.0069) confirms the above by indicating a high average mean of (μ = 3.38) being that of companies followed by close corporations at (μ = 3.19). The lowest rating is that of partnerships at (μ = 2.69), followed by sole proprietors at (μ = 2.64).
Lack of profitable markets:
The respondents of close corporations at a highest average mean of (μ = 3.32) perceive the authorities as not doing enough to address the challenge of lack of profitable markets, followed by those in companies at (μ = 3.16) and the least being those in sole proprietorship at (μ = 2.69) and partnerships at (μ = 2.87). These results are in line with what Nieman et al. (2007) found in their study that exposure to competitive and sustainable markets is essential for any business venture's triumph.
The multiple comparisons by groups indicates that close corporations recorded the highest average rating of (μ = 4), followed by companies at (μ = 3.75). The lowest rating is for sole proprietors at (μ = 2.80), followed by partnerships at (μ = 3.25). It is the government's responsibility to promote its policy about gender discrimination in business. This is in line with what Mboko and Smith-Hunter (2009) found in their study that gender discrimination influences entrepreneurs as it affects their self-confidence, their attitude towards success and their motivation toward entrepreneurial feats.
Access to technology:
The lack of technology is a major barrier affecting many entrepreneurs, the absence of which leads to the lack of start-up and development of many small businesses. The finding confirms what Amaradiwakara and Gunatilake (2017). The results in Table 3 are in support of the above statement as they indicate that access to technology as shown through the multiple comparisons by groups that companies have the highest average rating of (μ = 3.33), followed by close corporations at (μ = 3.30). The lowest rating is for sole proprietors at (μ = 2.57), followed by partnerships at (μ = 2.78). The highest average rating indicates that different types of SME owners perceive the government as not doing enough to address the barrier of access to technology.
This study was aimed to investigate whether the use of government support initiatives contributes to the growth of SMEs in the area of Soshanguve. An extensive literature review on the challenges faced by SMEs was done and from the study outcomes, it can be concluded that SMEs s play a vital role in the South African economy, particularly in the quest to create employment. Notably, SMEs face many challenges for the respective businesses to grow and be sustainable. It is sometimes that the government of South Africa has implemented several SME advancement programmes but they are however perceived by respondents of this study as having a slight if not a zero effect on the growth of SMEs in the township of Soshanguve. This limited impact of the government’s SME aid programmes is ascribed to numerous variables and reasons. Based on the findings discussed in this paper, the following recommendations can be put forward to government agencies that assist SMEs in South Africa and as well as SME owners.
The government should obtain as much information as possible on the problems faced by small and medium-sized businesses. Some of the major challenges to SME growth, as identified in this exploration, can be used as a point of departure. Competent and skilled staff should guide the management of these government SME support initiatives and programs. The public servants working on these programmes must be dedicated to developing small and medium-sized enterprises. The government’s Department of SmallBusiness Development and related agencies must increase awareness of the services they provide to small and medium-sized businesses. It is also advised that the government extend its promotional campaigns on SME progression to areas where it is needed most.
This study focused only on the SMEs in Soshanguve and the rationale was due to the financial constraints and the project was of limited scope. In this instance, no generalisability of the findings can be made and as such they become applicable to the setting where the study was conducted. This study had methodological challenges as the only quantitative method was used with a structured questionnaire. This type of methodology limits the respondents to answer what is not stipulated in the questionnaire. A mixed-method design could have been adopted to get rich data from the two methods. Future research should consider using a mixed-method design with a larger sample drawn for the quantitative method.