South Africa is a developing country with a unique political and economic history. Wrought with poverty, inequality and unemployment; South Africa is still in the process of overcoming the difficulties of underdevelopment. These issues (poverty, inequality and unemployment) are interlinking and are seen to discourage economic growth. The academic disciplines of economics and development economics focus on these issues in an often-impersonal manner. One of my concerns with current research into poverty and unemployment is that the authors diagnose the problems without posing adequate solutions. While this is understandable as the dynamics of developing economies are complex, these diagnoses’ do little to assist the people at the lowest income levels, who are directly affected by these developmental issues.
I have found that research on poverty, inequality and unemployment is therefore often out of touch with and lacking in urgency. If we connect with the people most intensely affected by the ‘conditions’ found in developing economies, I believe we will no longer be able to simply assess poverty, but we will be forced to solve it. Statistics South Africa (2010) reports that the South African unemployment rate is currently 25.3%. This is more than 4.3 million people, actively and unsuccessfully seeking employment in South Africa today. It is one thing to diagnose a ‘problem’ within an economy, but it is essential to understand the scope and intensity of it, especially for those people described in the statistics.
Recent research has demonstrated that small businesses can be engines for growth in developing economies at a grass roots level. There are varieties of studies from India, Brazil and beyond that demonstrate the power of small, micro and medium enterprises (SMEs) to uplift the poorest of the poor through profit driven business. Small businesses arise out of the failure of private and public sector to adequately satisfy consumer demand. They not only have the potential to draw income for a business owner but also are able to create employment opportunities where none existed before. Griffiths and Tan (2010) emphasize that small business is one solution to poverty and unemployment that developing economies are looking for.
I have had the fortunate experience of working closely with a small business in some of the poorest townships in South Africa. Their contribution to employment and development in South Africa is significant for a profit driven firm working in a township. The company is Silulo Ulutho Technologies; a computer training, sales and resource centre franchise. They only work in townships and claim to understand that ‘poorer’ market best. Their story is an inspirational tale of two brothers from the Eastern Cape with a dream. Their idea was one that commercial banks in South Africa refused to support. Five years after a R15 000 personal loan, the brothers are proud owners of an SME that has outperformed the competition, created over 50 jobs and trained almost 6000 disadvantaged people to use computers.
The above case study, which I did for my honors thesis, shows that small enterprises are engines of economic growth that are often pro-poor, effective in reducing unemployment and are able to cater for a social need. Page et al. (1984: 2) record a wide range of development objectives that were achieved in Africa, due to the expansion of the SME sector. This reiterates the value of SMEs in development. Harper (1985: 11) explains that the very nature of SMEs, inherently identifies their capacity for growth and thus ability to benefit an economy. Further more as SMEs grow- employment opportunities naturally become available. Thus there has been an increase in attention towards the development of small firms as a source of economic salvation for developing countries. The value of these SMEs is their ability to generate capital and employment opportunities where they are most needed.
SMEs in developing countries constitute large portion of the informal and rural sectors (Harper, 1985: 21). Small businesses are catering for the percentage of the population that governments are distant from. Harper (1985: 22) argues that small enterprises are able to take goods directly to the poor. This is because if they are in developing countries, many of them, at a very basic level, are interacting with grass roots level consumers (Griffiths and Tan, 2007: 32). They are also largely concerned for the social impact that they have because this has an impact on how they are perceived in the market. Market perception in turn affects the SME’s turnover.
Since 1994 the South African government policy has specifically targeted poverty and unemployment and this has lead to a slow improvement in the environment for sustainable small business. Small businesses are supported through a variety of public and private initiatives but the high failure rate of businesses demonstrates that this support is currently insufficient. Estimations of existing data suggest that 80% of business startups would have failed within their first five years of operation. My current research measures the impact that SMEs have on GDP growth, employment and poverty. I am readily discovering hard evidence that SMEs are an immediate and effective solution to the problem faced by the poorest people in South Africa.
It is with the above in mind that I believe governments in developing economies should support and develop entrepreneurs as much as possible. Extensive research into the areas of poverty, unemployment and economic development has complimented my work with small businesses and I have discovered that SMEs are an innovative solution to the big problems of development.
