During the recent (SA)UEO panel discussion, Jason Morris, joint Managing Director of Snaden Morris and Vice Chair of the British Chamber of Commerce in Southern Africa, offered valuable insights on the obstacles and opportunities for SMEs in South Africa. His presentation highlighted key areas where SMEs can shift their thinking to unlock growth and success.
1. The Lack of a Clear SME Definition
One of the fundamental challenges SMEs face in South Africa is the absence of a consistent legal definition of what constitutes an SME. Different sectors and institutions, including government and banks, have varying criteria. This lack of clarity often results in SMEs being treated unfairly and missing out on support and resources designed for them.
Conclusion: SMEs need to engage with industry bodies and advocate for a standardised definition that ensures proper support and resources. This will help foster growth and establish a clearer framework for business development.
2. High Interest Rates and Economic Pressures
Jason emphasised the heavy burden that high interest rates place on SMEs, making it difficult for them to grow. As a highly geared economy, South Africa’s SMEs struggle to access affordable financing, which hampers their ability to expand and innovate. This challenge is exacerbated by the lingering effects of state capture and other economic pressures.
Conclusion: To mitigate the impact of high interest rates, SMEs must explore alternative funding models such as business incubators, venture capital, and partnerships with larger corporations. These avenues can provide much-needed capital without the crippling costs of traditional loans.
3. Incubating SMEs to Become Big Businesses
Morris stressed the importance of a strong culture of business incubation in South Africa, which is currently lacking. SMEs often fail to grow because they continue to think small, rather than developing the mindset and strategies of larger enterprises. With Africa expected to host 60% of the world’s youth population in the coming decades, fostering this talent through business incubation will be critical for economic growth.
Conclusion: SMEs must shift their focus from survival mode to growth mode. By participating in incubator programmes and seeking mentorship, small businesses can adopt the strategies and mindsets that will allow them to scale up and succeed.
4. Visa and Labor Requirements as Barriers
South Africa’s complex visa requirements and labour laws present significant hurdles to SMEs. The long turnaround times for skilled work visas, coupled with rigid labour regulations, make it difficult for businesses to access the talent they need. Compared to countries like the UK, where flexible labour contracts exist, South Africa’s labour market remains rigid, limiting SME growth.
Conclusion: Business advocacy groups should push for reforms in visa processing and labour regulations that offer more flexibility to SMEs. This will enable businesses to scale more effectively by accessing the right talent when needed and adapting to project-based work requirements.
5. The Need for Corporate Identity Separation
A critical issue facing many SMEs, according to Jason, is the failure to distinguish between personal and corporate identity. SMEs often treat the business as a personal savings account, which leads to poor financial management and eventual failure. Corporate governance is essential for long-term success.
Conclusion: SMEs must adopt sound corporate governance practices, keeping personal and business finances separate. This discipline will ensure more responsible financial management, paving the way for sustainable growth.
6. Business Rescue: An Ineffective Solution
Jason pointed out that South Africa’s current business rescue system is largely ineffective. Most business rescues end in liquidation, with companies being sold off at low prices. This not only strips SMEs of their assets but also prevents new businesses from accessing the capital they need to start fresh.
Conclusion: Business rescue mechanisms need to be reformed to provide struggling SMEs with real recovery opportunities, rather than simply prolonging the inevitable. Engaging with policymakers to review and enhance these processes will be key to improving SME survival rates.
7. Building a Global Brand Despite Political Concerns
Finally, Morris highlighted South Africa’s reputation on the global stage. While the country’s workforce is highly regarded for its work ethic, political instability and foreign policy missteps, such as the handling of immigration and labour requirements, are creating scepticism among international investors.
Conclusion: SMEs must actively engage in building a strong, positive corporate identity that can withstand political uncertainties. By demonstrating good governance, innovative thinking, and a focus on export markets, South African SMEs can position themselves as global players despite local challenges.
Moving from Small to Big Thinking
Jason Morris’ insights provide a clear roadmap for SMEs looking to grow. From rethinking financial management to pushing for labour reforms, the path forward requires a shift in mindset and an active approach to advocacy. By embracing these strategies, SMEs can move beyond survival mode and begin building towards sustainable success.