SMEs hold the key

At the heart of economic development minister Ebrahim Patel's new plan for economic growth is the creation of more and better jobs - 5m more jobs by 2020 to be exact. And he's going to achieve this target by focusing on the areas that have the potential for creating employment on a large scale.

This strategy relies on its backers, government, to get things going in the short term through direct employment schemes. But, in the long term, the minister is clear that the state must focus on facilitating growth in sectors that can offer big bang-type employment in terms of numbers.

It seems that the minister's focus for achieving his ambitious undertaking is on big business. But big isn't always best. There are an estimated 1,5m small and medium-sized enterprises (SMEs) in this country. They contribute about half of our GDP and employ around 60% of the SA labour force. The SME sector can't be ignored when it comes to economic growth and development. If each SME increased its staff complement even fractionally over the next nine years, the minister's employment target could be achieved. It seems so simple except for the fact that SMEs feel hamstrung by rigorous labour laws and high staff costs.

Small businesses need flexibility when it comes to managing their workforce. To operate efficiently and remain profitable, staffing should be managed like any just-in-time process; ramp up your numbers for harvest time or a specific project. But then scale back when necessary to control your cash flow. However, in SA it's difficult to terminate employment and because SMEs don't have the time or money to jump through those hoops, it is easier (and cheaper) to motivate and stretch the existing workforce or ask a family member or two for help when it's needed rather than employ another person.

Though we will only see the comprehensive strategy for his growth path early next year, Patel has said his plan for economic growth will strengthen initiatives to support SMEs. A core component will be to eliminate red-tape and simplify regulations. I've been servicing the SME sector for 21 years. Based on what I hear from thousands of customers, I would encourage the minister to make it easier for small businesses to employ staff on a more flexible basis. By doing so, he’ll be considerably closer to achieving employment growth. Of course fewer forms, more incentives and easier access to capital will certainly boost the sector too, and further improve employment potential. But more jobs is only one half of the equation. The minister wants better jobs too. With 25% of our population unemployed, how fussy should we be about the type of work that is available? Patel makes the point that among the employed, many have poorly paid insecure and dead-end jobs. Indeed, the salary figures produced by Stats SA are low, but surely something is better than nothing?

We're all familiar with the psychological theory around a person's hierarchy of needs. Only once the most fundamental of needs like sustenance, security and safety are met do individuals focus on secondary needs and constant personal betterment. And isn't that what economic growth and development is all about - a cycle of ongoing improvement? In developed countries SMEs can contribute up to 90% of GDP. A review of our labour law to be more accommodating to the needs of the SME sector is almost guaranteed to create more jobs. And with more people working and SMEs making a real contribution to the economy, better jobs will become available too. Certainly, we need to start our socio-economic turnaround somewhere and the minister's plan is a good start. But we need real fire-power to get us out of the starting blocks and small business is raring to go - don't leave them behind.