whythawk ratings: measuring effective development

Whythawk Ratings (white-hawk), the South African NGO rating firm, has just released their review of the performance of enterprise and small business development consultants in the Western Cape, South Africa.

Rated organisations collectively managed to create approximately 8 200 jobs in the past 12 months. The average level of unemployment in the Western Cape is about 26% and, according to research conducted by the Human Sciences Research Council, this would equate to a requirement of creating a minimum of 67 000 jobs a year in the Western Cape in order to halve unemployment by 2014.  

"Western Cape small business support is falling far short of this requirement meeting only 12.2% of this target," says Hermann Jeuschenak, Director of Ratings at Whythawk.  "Of concern is that businesses created are extremely small, generating 2.15 jobs per business at an average salary of R 1 300 per month. That said, businesses who received support and then entered the market have an 83% chance of still being in business 12 months after the completion of the consultant's intervention."

The average business plan produced by an enterprise development consultant calls for loans of R 165 000, while banks prefer to finance an average of R 233 000 per business.  "Development organisations are not equipping their clients with business plans likely to secure finance," says Jeuschenak.  "Only 15% of individuals who apply for business finance actually receive any.  Banks are also extremely slow at reviewing business plans.  It can take two to three months just to find out whether or not the bank will support a loan."

Whythawk Ratings defines an Enterprise Development Consulting Agency as an organisation providing or arranging to provide for the skills development of a person wishing to, or already operating, a business. Such skills development may encompass a wide range of services: from personal skills assessment, to training, business plan development or assessment, business process / systems / product development, introduction to finance, and implementation care and support.

To provide such designated business support services the organisation: i) accepts a fee from the client for the work so produced; ii) works via a government or private institution through a voucher program; or iii) works on project-based work as part of government or private institutions’ involved in small business development.

The average rated score of Western Cape organisations is BB. On the Whythawk scale of ratings this qualifies as marginally sub-standard and of an inadequate quality to produce meaningful results.

This aggregated review encompasses work performed in the Western Cape in the evaluation of individual enterprise development consultants operating in the region. A total of 36 organisations operating throughout the Western Cape were analysed. The organisations have, between them, consulted to an estimated 5 200 individuals either wishing to start a business or improve their existing ones. Organisations were interviewed and then their clients (the beneficiaries) were sampled to ascertain their views on their experiences.

Consultants report a general dissatisfaction with the support they receive from government and an overall low level of confidence (at 4.63 out of a possible score of 10). Of major concern is that the Western Cape Provincial RED Door enterprise development initiative is actively recruiting the most capable staff from enterprise development agencies and, thereby, undermining the abilities of these organisations without adding in additional consulting capacity.

"By rating and reviewing the performance of enterprise development consultants we are able to determine the overall level of new business and job support, as well as the capacity of the development sector to realise government’s intention of halving unemployment by 2014," says Jeuschenak.

Overall the industry needs to focus more attention on improving their effectiveness to ensure that a greater number of businesses are started and that these are of a greater size.

View the full report  

Keywords : business, development, western cape, enterprise, support, consultants, finance, ratings, whythawk, unemployment, work, government, jobs, skills