CHAPTER 5: DATA ANALYSIS AND INTERPRETATION
5.4 Challenges faced by SMMEs
Challenges faced by SMMEs were discussed in Chapter 2, where it was indicated that developed and developing countries face similar challenges, but that the severity of the challenges weighs more heavily on developing countries. In Chapter 4 it was indicated that although the government of South Africa has put much effort into developing institutions and policies that promote the development of SMMEs, SMMEs have a high failure rate. Fourie & Skinner (2018), Bhorat et al.
(2018) and Ngcobo and Sukdeo (2015) indicate that in South Africa, SMME owners face challenges with starting and growing their own businesses. The following challenges encountered by SMMEs in the Matatiele Local Municipality are discussed in the following sections: lack of funds and information about sources of SMME support, lack of technical and business management skills, and inadequate basic infrastructure.
5.4.1 Lack of funds and information about SMME support
In Chapter 2 it was mentioned that SMMEs in developed and developing countries face financial challenges and that the government and other institutions provide support to SMMEs to promote
development and growth. In Chapter 4, the government support structures that have been established to support SMMEs in South Africa were discussed. Fowowe (2017) and Quartey et al.
(2017) explain that SMMEs in Africa and other developing countries find financing of their businesses as the most significant challenge compared to SMMEs in developed countries. The SMME owners who participated in this study highlighted that they struggled to obtain funds to start or expand their businesses. Some also mentioned that they received start-up funds from relatives, while others used their retirement funds to start their businesses. Agwa-Ejon and Mbohwa (2015) and Burgstaller and Wagner (2015) emphasise that finance is significant to the development and growth of SMMEs. Mpiti (2016) and Kamange et al. (2014) confirm that SMME owners were compelled to self-finance or seek family support to start their businesses due to lack of knowledge regarding where and how to obtain financial support. However, these funds are often not sufficient for the SMMEs to purchase all the equipment and raw material necessary for operating a fully functional business. Bhorat et al. (2018) and Chimucheka and Mandipaka (2015) state that SMMEs need machinery, raw materials, and capital for the effective functioning of their ventures and that without these, the growth of an enterprise is hindered. One SMME owner said:
“Lack of equipment has affected my business since I miss the planting season while waiting for hired equipment. The hired equipment is not enough and to support all the farmers around our area. If one fails to hire in time due to lack of funds one misses the planting season as he will get the equipment after the planting season has passed”.
The SMME owners who operated funeral parlours mentioned that they lacked the funds to purchase all the equipment they needed, and that it was common for them to borrow vehicles and other equipment from each other. These SMME owners confirmed that they had never received any support from the government and that they did not know what they needed to do to gain access to such support. It has been acknowledged that lack of access to finance for acquiring equipment is a hindrance to the growth of SMMEs in both developed and developing countries (Osuagu, 2016; Bhorat et al., 2018).
The lack of knowledge about sources of SMME support is emphasised by Herrington and Pew (2018) and Songling et al. (2018). Moos and Sambo (2018) add that there is a lack of information on support provided to SMMEs by both government and private organisations. Malebana (2017) states that although there are various kinds of government agencies and private organisations, there is low awareness about such support; hence there are difficulties in accessing such programmes.
SMME owners stated that they were unable to use the Internet to gain access to knowledge on how to look for government support because they did not know how to use the Internet. This also severely limits their ability to search for and access available markets. This lack of knowledge about where to obtain support reduces the ability of SMMEs to make an impact on job creation
and poverty alleviation, and affects the growth of SMMEs negatively (Malebana, 2017).
Researchers such as Leboea (2017) and Rungani and Potgieter (2018) opine that most SMMEs find it costly to use the Internet, which affects their growth. It is also important to note that, in South Africa, informal SMMEs, like many of those that participated in this study, encounter more difficulties in accessing credit compared to SMMEs in the formal sector (Agwa-Ejon & Mbohwa, 2015). There is therefore a greater need for them to gain access to government support.
5.4.2 Lack of technical and business management skills
In the 21st century, SMME owners are expected to have competency skills such as analysis, synthesis, and problem-solving skills, as well as interpersonal skills such as motivation and communication skills that are needed in a business to ensure that they are able to cope in modern society (Bhorat et al., 2018). Schwartz and Hornych (2010), Oyelana and Fiseha (2014), and Chimucheka and Mandipaka (2015) realised that SMMEs are inexperienced in the field of business since they lack technical, managerial, and marketing skills, and that these challenges hinder the success of SMMEs in developing countries. Most of the SMME owners who participated in this study indicated that they lacked training in business management skills such as strategic and business planning skills, as well as marketing and financial management skills. The inadequacy of business planning and management skills was also highlighted in Section 5.2.2.
Government officials explained that although they provided training in business management skills, such as planning and financial management, the level of education of SMME owners varied.
Those with a low level of education are not easy to empower, which impacts negatively on their business growth, while those with higher levels of education are more easily able to implement knowledge acquired from workshops and training sessions in their businesses. Therefore, it will be imperative that horizontal learning takes place where successful SMMEs share their experiences and further mentor SMME owners with low level of education since they are familiar with the industry.
5.4.3 Inadequate basic infrastructure
SMMEs need to operate where basic infrastructure such as roads, bridges, electricity, water, and land exists as the availability of such promotes the development and sustainability of SMMEs.
Gaal and Afrah (2017) affirm that where there is proper infrastructure, there is economic growth and improved quality of life. Poor roads cause high transport costs and limit the accessibility of inputs and access to markets, which hinder SMME growth (Akinyele et al., 2016; Bhorat et al., 2018). Most of the participants raised concerns about poor infrastructure, such as lack of water for
agricultural SMMEs. Owners of funeral services, bakeries, and sewing SMMEs stated that lack of electricity due to load shedding affected their businesses negatively. One SMME owner stated:
“Loadshedding is the problem here. If it starts in the morning, then the entire day there will be no electricity. So, this means my business will not function on that day because I cannot do anything since my machines use electricity. Loadshedding affects my business severely because I fail to meet delivery dates and my clients are not happy. It is really a serious thing and I cannot afford to buy a generator as a back-up because I do not make enough sales.”
The European Bank for Reconstruction and Development, European Investment Bank, and the World Bank (2016), Amentie et al. (2016), and Bhorat et al. (2018) confirm that irregular power supply causes a significant loss of sales for many SMMEs as it causes low productivity and can expose SMMEs to theft at night when it is dark.
One SMME owner mentioned:
“The road is very bad here in the rural areas, in summer when there are floods, we are unable to go to town for a week because the water overflows the bridge and this affects the business since one cannot stock items for the business. The road is so bad that I spend money repairing my vehicle instead of buying stock and delivering to clients.”
Bhorat et al. (2018) and Mugo et al. (2019) confirm that the deterioration of the road conditions affects the sustainability of SMMEs because it results in high transportation costs due to costly vehicle maintenance or hiring of other people’s vehicles.
SMME owners and government officials who participated in the study mentioned that inadequate land for farmers limited their production, while lack of own business premises forced some SMME owners to rent other people’s buildings, which is often costly for small businesses. They also pointed out that lack of business premises compels SMMEs to run businesses from home, which often limits their clients to those who can access the business, especially given the fact that they do not have good marketing strategies. Some SMME owners in the manufacturing and service sectors also indicated that municipal business centres have high rental fees and they could not afford to pay the rent along with the rates; hence they preferred to run their businesses from home.
Akinyele et al. (2016) and Jili et al. (2017) attest that for SMMEs to develop and grow, they need access to affordable premises that are secure and easily accessed by employees and clients.