Experts deliberate about SMME policy

Government and private experts in the fields of entrepreneurialism and SMME development recently sat down over dinner and deliberated on issues of policy. This informal discussion format is an initiative by Blue Catalyst to encourage honest and robust public-private debate. The outcome? - we have strong views, we don't all agree, and we should talk to each other more often.

Blue Catalyst is a Gauteng Provincial Government Blue IQ project that is commercialising knowledge- and technology-intensive business ideas. "By hosting the dinner, we deliberately tried to mix research, commerce, government and finance brainpower," said CEO Kevin Fleischer. "Too often we work in isolation, even if we have the same ultimate goal."

In welcoming the guests, Bongi Kunene, HOD of the Gauteng Department of Finance and Economic Affairs, noted that the Gauteng Government is investigating new policy options to support SMMEs in the province. "This innovative open forum is a valuable source of insight for us," she said. "It helps us to design effective interventions at the complex interface between government and the commercial sector."

Three leading research institutions, which have recently produced research on entrepreneurialism, agreed to co-operate in setting the basis for the discussion. They are Centre for Development and Enterprise (Key to growth: supporting South Africa's emerging entrepreneur), UCT Graduate School of Business Centre for Innovation and Entrepreneurship (Global Entrepreneurship Monitor 2003) and World Wide Worx (SME Survey 2004).

Based on the common themes in these three sources of market intelligence, guests were assigned topics to discuss. These included government's SMME strategy and role, financing, education, regulatory issues, research and communication. Guests were encouraged to express their own views, and as expected, a gathering of well-informed academics, civil servants, educators, bankers, economists and entrepreneurs made confident contributions.

Overall, the clearest conclusions included:

Advisors must have skills

• The staff of SMME support agencies must have business experience. There were many suggestions of subsidising private sector "intermediaries" to deliver these services.

"Micro" is different to "Small", which is different to "Medium"

• Interventions should be defined and vary according to size segmentation.
• A single-person, survivalist entrepreneur does not have the same needs as a growing formal business.
• Do not lump the services together.
• Do not expect service providers to cover all segments.

Communication

• Government must improve on communications. Delegates expressed concern on information dissemination.
• Set up a central repository of information and communicate it frequently. Information must be easy to find and in 'user friendly' formats.
• Use the mass media, using real case studies to create heroes and role models.

Education

• Develop a national 'venture creation learnership' to foster business skills and accommodate failure without stigma.
• Entrepreneurial education should be part of the national curriculum and embedded in core courses, at all levels of schooling.
• Business games and projects with real businesses can provide hands-on learning opportunities.

Other areas for further discussion included:

Government's role is to create the environment, not dominate it

• A fundamental fault-line ran through this debate. Some felt that strong regulation is necessary. It inspires investor confidence, is the only way to redress historical imbalances, and can forcefully bring about changes in the economy.
• At the other extreme, some believed that Government should exit from the SMME sector altogether, and focus on creating a supportive environment.
• They looked forward to the review of the Companies Act, the Labour Relations Act and tax laws in particular, and noted other international examples such as the UK. The aim is to ensure compliance without onerous administration.
• An example of a flashpoint was the suggestion of a "Minister of Entrepreneurialism".

Government finance

• While most agreed that Government finance for SMMEs is not working well, there was no agreement on the solution. Some expressed exasperation at the failure of development finance institutions in this sector.

On the other hand, several constructive suggestions were made:

• Government should subsidise transaction management costs so that financial institutions can increase their appetite for risk in lending to SMMEs.
• Focus on creating collateral for commercial lending. For example, encourage the development of co-operative savings institutions, to take advantage of the high correlation between savings and access to lending.
• Look at initiatives to create access to real-estate capital through title deeds. This provides important collateral for access to micro-finance.
• Be aggressive with tax incentives - for immigrant entrepreneurs, for investments in plant and equipment, for creating jobs.

At the end of the evening, it was generally agreed that SMME policy in the context of SA is not simple, and there are no "cookie-cutter" solutions. "By bringing together different players in the sector to share views, let off steam, and get to know each other, we are contributing to the final SMME policy solutions. After all, no-one has all the answers," said Fleischer. A summary of the debate at each table has been compiled for the Gauteng DFEA.

Blue Catalyst plans to host further "Food for Thought" dinners because of the success of this one. Several topics have already been suggested - clearly there are many more points of view to be heard...

For more information on the above contact Craig Carter or Chris Sochanski at Blue Catalyst on tel 011 401 7057.

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