Small businesses are a big business in South Africa. They represent 98% of all businesses in the country and generate just over R2 trillion turnover annually in the formal business sector. It's no wonder SMMEs are referred to as the engine of the country's economy.
The provincial government of Gauteng has also realised the significance of small businesses, specifically small enterprises operating within townships. The value of this township economy is estimated at R200 billion from the economic contributions of a variety of small businesses like the 30,000 spaza shops across the province.
On 29 April 2022, Gauteng Premier David Makhura signed into law the Gauteng Township Economic Development Act (TEDA). The act "provides a regulatory framework that makes it possible for entrepreneurs living in townships to establish viable and thriving small enterprises and co-operatives" and seeks to formalise the township business economy while also providing much needed support to township business owners.
Among the interesting objectives of the act is the development of micro central business districts at taxi ranks, real estate development to create township high streets, and the promotion of the establishment of representative associations of township-based enterprises.
For business owners in the township economy, receiving support to enable the survival and growth of their enterprises can be transformative, considering the substantial value within the township economy.
As an enterprise and supplier development incubation organisation, Black Umbrellas focuses on driving an inclusive economic future by enabling the success of emerging SMEs.
The pandemic and challenges within the economy have increased the challenge of successfully operating a small business. The number of small businesses has declined overall and, according to the Department of Small Business Development (DSBD), 70% to 80% of small businesses fail in the first year and only about half the remaining businesses survive for the next five years.
Among the top reasons why small businesses fail are lack of knowledge or skills, lack of access to funding and lack of access to networks. Does the Gauteng Township Economic Development Act address these challenges?
One of the benefits of TEDA is how the provincial organs of state can facilitate the flow of funding to township-based businesses. This can also include assistance with the preparation of business plans and information on the available sources of funding.
In the Black Umbrellas Business Foundation Programme, business coaching covers all these aspects over a period of three months and includes a resilience programme to help entrepreneurs cope with the stresses of starting a business.
What is exciting is that the act makes provision for organs of state to partner with small enterprise development agencies to provide this type of support.
Black Umbrellas supports budding entrepreneurs by teaching that a great idea needs proper planning. Compliance with registration, taxation and finance is an area where new enterprises benefit from coaching.
One hopes that TEDA initiatives will offer the same guidance and facilitate the processes required for compliance with detailed feedback and knowledge on how to build an effective business plan.
Another benefit listed in the act is capacity building programmes. Provincial government can partner with private institutions to provide business development services, entrepreneurship programmes and promote technological modernisation.
Effective business incubation can help build capacity and establish good management practices especially in stock-holding, cash flow and marketing. As part of the Black Umbrellas Business Readiness Programme, the skills of the business owner are developed for a more efficient operation to be considered seriously for procurement and finance opportunities.
Township-based enterprises find it very difficult to secure funding from private institutions. Which is what makes the TEDA even more compelling because it is accompanied by the Gauteng Township Economic Development Fund.
The fund not only exists to finance the initiatives set out by the act, but it will also provide affordable and accessible funding to township-based enterprises in the form of credit or loans.
Just like the Township and Rural Empowerment Programs (TREP), the fund intends to boost the township economy by being the catalyst for new businesses to be established or for existing businesses to expand.
While Black Umbrellas does not provide funding to small businesses, it does offer guidance on accessing funding and then assistance to ensure that funding is apportioned effectively for the success of the SMME. These decisions are based upon the individual needs of the business and the sector in which it operates.
Support when it comes to funding is critical because that money can make or break a business's future potential or could mean it's survival or closure. While the establishment of the fund is to be lauded, supporting the recipients of that fund will determine its success.
Overall, TEDA is an innovative piece of legislation in that it seeks to transform the township economy through better regulation, improved infrastructure, access to funding and support through training for business owners. On paper, it addresses the challenges faced by small businesses — the implementation thereof is what remains to be seen.
To date, Black Umbrellas has incubated over 2,700 businesses and helped them achieve over R3 billion in turnover. This success is the result of great partnerships both within the private and public sectors. There is no doubt all eyes will be on whether or not Gauteng's provincial government will create a robust network of partnerships that can facilitate implementation of the act.
It will also be a test of time to see if the act is simply a list of goals or if the implementation is successful. There are a lot of programmes to establish, municipal by-laws that may need to relax and it is unclear what systems are effective to deal with the administrative requirements of various government entities. If these potential hurdles can be resolved with pragmatic solutions, then this act has a chance at being a historic success for the country's economic hub.
