Enterprise Development and Employment: Experiences in South Africa and South Eastern Europe

Unemployment is currently at 26% according to the official statistical body in South Africa, Statistics South Africa.  Other unofficial broader measurements place the unemployment rate closer to 40%. It appears that the formal economy is not growing fast enough to absorb the masses of unemployed individuals.

The most recent program put in place by the South African government, spearheaded by the Deputy President, Phumzile Mlambo-Ngcuka, is the Accelerated and Sustainable Growth Initiative - South Africa (ASGISA).  This initiative aims to eradicate unemployment in South Africa by focusing on three sectors; mainly bio-fuels, contact centres and office support services, and tourism. These sectors were chosen for their relative reliance on labour, and also for the belief that South Africa has a comparative advantage in them.

One of the major objectives of ASGISA is to increase the Gross Domestic Product (GDP) growth rate to 6% per annum by 2010. However, it is still a subject of contention whether this will achieve the underlying goal of halving unemployment by 2014.

Since the formal economy seems to be too slow in responding to the unemployment problem, the authorities in South Africa are now looking to the Small, Micro- and Medium Enterprises (SMME) sector to deliver. Perhaps this is the way to go, because it has been implemented with relative success in the South Eastern Europe (SEE) region.

Both the Stability Pact for South East Europe and the Investment Compact for South East Europe have been at the forefront of Enterprise Development in the region. From the Conference on Entrepreneurship and Employment in Bucharest, Romania to the Workshop on Training for Employability in Thessaloniki, the organisations focus on addressing the unemployment problem.

Some of the trends already emerging include issues surrounding access to finance, support for small business, and the impact of industrial restructuring.

As a general rule, large commercial banks are not enthusiastic about financing small business start-ups. Despite the fact that commercial banks in South Africa have committed about $ 700 million to small business loans, there are still requirements on track-record to assess creditworthiness. Similarly, the SEE region has commercial banks supporting large enterprises with a proven track-record of profitability. This is not where the similarities between the regions end.

Due to this gap in the SMME sector financing, a number of Micro Finance Banks and Institutions have sprung up. In the SEE region, Procredit bank has proven that it is profitable to lend to small enterprises at high interest rates. Similarly, South Africa has a number of micro lenders to cater for the SMME sector. In the same vein, commercial banks are starting to realise the importance of small business, in both regions.

In terms of support for the SMME sector, the SEE region has started a process of simplifying business start-ups. These include reducing the administrative obstacles, and establishing “one-stop” business help-centres.  In South Africa, this process involves eliminating the bureaucratic red tape that entrepreneurs have to go through before starting a business.

The last pillar of the efforts to stimulate enterprise development involves education and training. In the SEE region, the emphasis is on developing an enterprise culture in society, which is the key to job creation and competitiveness. By contrast, South Africa places a greater emphasis on formal education and reducing illiteracy. It is for this reason that the South African government spends close to 20% of the general public expenditure on education in 2003 (SA Reserve Bank Quarterly Bulletin ). This basically means that South Africa chooses to first educate the population, before promoting an enterprising culture.

In the SEE region, the challenge is to incorporate entrepreneurship into the formal educational system.

Most of the job creation initiatives in South Africa are modelled on economically advanced nations, with very limited impact. If more of the experiences of regions like the SEE were analysed in South Africa there would be more relevant factors that could be applied.

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