Institute for Economic Research on Innovation

1. Institute for Economic Research on Innovation Lindile Ndabeni Small Medium And Micro Enterprises in South Africa’s National System of Innovation, International Seminar on Innovation: BRICS Experience, Trivandrum, 19-21 August 2009

2. History matters South Africa’s SMME economy South African SMMEs in the national system of innovation Issue of gender in SMME development Public policy environment conclusions Outline Of The Presentation

3. Historical background provides context to understand policy issues RSA experienced over 3 hundred years of colonialism and over 50 years of apartheid Large enterprises were promoted and blacks were expected to provide labour Policy not to promote SMMEs especially for black population History Matters

4. Small-scale producers were left to produce inferior goods catering for lower end of the market and using labour-intensive means of production Resulted in suppressed entrepreneurship and human capital development Following 1994, task of deracializing the economy and opening up business opportunities began History Matters

5. 1995 SMME development and promotion strategy Acknowledged SMMEs for their role in poverty eradication, job creation and to effect economic development in previously disadvantaged regions SMMEs seen as vehicle to address wealth distribution Strategy also acknowledged constraints History Matters

6. Historically, two disconnected and parallel economies have existed in South Africa Entrepreneurs engaged in formal businesses, equipped to understand and engage in mechanisms of market Survivalist entrepreneurs mostly from poor and disadvantaged communities, lack markets, finance, low levels of human capital Two Economies

7. Official term is SMME In some economies SMMEs are said to generate more revenue, and engines of economic growth In South Africa the majority of SMMEs are survivalist and undertaken mainly by people who are unable to find jobs Product of supply-push forces rather than demand-pull forces Our Context

8. From 1950s apartheid state introduced series of programmes aimed at shifting geographical patterns of investment away from metros into several peripheral growth points in Bantustans Birth of democratic South Africa resulted in significant policy shifts 1990s South Africa began using the systems of innovation 1995/6 SDI program was launched as an important component in restructuring post-apartheid space economy SMMEs In National System Of Innovation

9. Key principle of SDI was to move away from protected and isolated approach to economic development Encourage international competitiveness, regional cooperation SDIs attempt to overcome legacy of apartheid Reorientate economic activities away from narrow focus on import substitution towards production for global markets SMMEs to benefit from spin-off opportunities SDIs

10. Sectoral focus aimed at improving performance and competitiveness of specific sectors, e.g. manufacturing Most of them are focused on large industries Still at their early stages of development Motor industry in Eastern Cape Backbone of the Province’s industrial base Linkages to textile industry SMMEs are seen as beneficiaries of spin-offs Sectoral Focus

11. South Africa is characterized by two incubation movements, business incubators and technology stations Technology stations programme was developed by Department of Science and Technology to strengthen and accelerate interaction between Universities of Technology and SMMEs Business Incubators and Technology Stations

12. Focus on technology transfer and offer support and advice to low technology-based SMMEs to improve performance and graduate into high-tech SMMEs Focus on electronics and electrical engineering; clothing and textiles; metals and manufacturing; automotive components; chemistry and chemical engineering; composite materials Technology Stations

13. Technology incubators focus on provision of physical facilities and incubation Their key objectives are economic growth, job creation, technological innovation, international competitiveness Focus on software; life science technologies; ICT and electronics; chemicals; manufacturing; small-scale mining Technology Incubators

14. women’s economic empowerment is an integral part of the broader economic agenda By overcoming problems of women marginalization in the economy, greatly achieve objectives of broadening participation in mainstream economy Science and technology is seen as a major mechanism for increasing innovation in women’s enterprises Enable them to move from sidelines of economy to mainstream economy Gender

15. 1995, White paper on National Strategy for the Development and promotion of Small Businesses First time that a comprehensive policy and strategy on SMMEs was formulated in the country Seek to address enabling environment; facilitate access to markets, finance, technology; capacity building, and institutional strengthening 2005 following the Review of Ten years of Small Business Support, an Integrated Strategy on the promotion of Entrepreneurship and Small Enterprises was released SMME Public Policy Environment

16. Acknowledged great diversity of the SMME sector Many support programmes only tackle symptoms of deeper lying problems Lack of skilled human capital due to legacy of apartheid education and low levels of education Lack of markets for SMME products due to isolation of many SMMEs to mainstream economy and their inferior products The Review of Ten Years of Small Business Support in South Africa

17. For those with acceptable credit history and sufficient collateral, access to finance is not a problem For the majority of entrepreneurs mainly from previously disadvantaged communities who are landless, tend to have no or limited or weak credit history, access to finance remains a problem The situation reinforces the limited range of economic activity occurring in SMME economy Finance

18. Compared to other contexts in the developing and developed world, South Africa has a short history of SMME development Dates back to 1994 In other contexts, SMMEs are acknowledged for their contribution technological innovation and economic growth Conclusions

19. SMME promotion remains a key element in Government’s policy Due to history and several constraints, South African SMMEs remain weak Majority of them tend to be less innovative and more concerned with issues of survival Public policy acknowledges them for their role in poverty eradication, job creation, and black economic empowerment Conclusions

20. During the First Ten Years, SMME support was mainly supply driven and treated SMMEs as homogenous group Uneven geographical distribution of service providers and mainly tend to cluster in urban areas To increase innovation in the sector would require, inter alia, massive investment in the sector, large numbers of highly skilled and technically competent human resources, and greater degree of confidence in the sector Conclusions

21. Thank You Dr. Lindile L. Ndabeni Research Associate Institute for Economic Research on Innovation (IERI) Faculty of Economics and Finance Tshwane University of Technology 159 Skinner Street Pretoria 0001 Tshwane Gauteng South Africa Email: ndabenil@tut.ac.za Telephone: +27 (012) 382 3073 Facsimile: +27 (012) 382 3071 Institute for Economic Research on Innovation