Catalyzing SME Growth in South Africa

The Small and Medium Enterprise (SME) sector in South Africa provides an estimated 11.6 million employment opportunities. Excluding the small business owners themselves, this means six million jobs, mostly in companies that employ either less than five people or more than 300.

Many of these smaller companies represent an abundance of microenterprises that benefit business owners, but do little to stimulate job growth. However, the delivery of quality business development support (BDS) services, such as business training programs, technical skills training, and mentoring, may provide an opportunity for small businesses to grow and create employment opportunities.

Earlier this week, J.P. Morgan, in partnership with Dalberg and South African business development support providers Aurik and Raizcorp, announced the launch of the SME Catalyst for Growth Programme, which aims to provide support and BDS to selected entrepreneurs in order to stimulate economic growth and contribute to the South African government’s goal to create five million jobs over the next five years.

Nadia Oshry, Project Leader in Johannesburg

Dalberg’s research revealed that although access to finance is a challenge for SMEs, there are several pools of capital targeting the sector. A more pressing challenge is the lack of management capacity and skills in the start up and early growth phases of a business. According to the 2010 Finscope Small Business Survey, 50% of entrepreneurs cite business strategy, such as limited skills and awareness of the business environment, as their main obstacle for launching a business. The survey also showed that 94% of small business owners are not using business support services.

“SMEs, particularly small and growing businesses, require skills and networks to grow,” said Nadia Oshry, a Project Leader in Dalberg’s Johannesburg office. “BDS providers have the potential to support growth, however, there are few quality providers at sufficient scale and limited publicly available data on what successful BDS means, and who the best providers in the market currently are.”

Over the next two years, the SME Catalyst for Growth Programme will provide BDS services to 20 entrepreneurs, with a strong accompanying focus on monitoring and evaluation. This will inform the development of a comprehensive platform for sharing BDS performance information with the public, which will help funders and small businesses make smarter investment decisions for business support.

Dalberg will continue working closely with J.P. Morgan, Aurik, and Raizcorp to implement the Catalyst for Growth Programme and assess its impact. Additional information on the program can be found in the full report, available here.

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