CHAPTER 5: DATA ANALYSIS AND INTERPRETATION
5.3 The contribution of SMMEs to socioeconomic development
5.3.1 Economic growth and innovation
In Africa, South Africa has the third largest economy after Egypt, which is second, and Nigeria as the country with the largest economy (Stats SA, 2021). The country recognises the importance of SMMEs to the extent that a Ministry of Small Business Development was established in 2014 (World Bank, 2016). Globally, growth of the economy is associated with the reduction of unemployment and poverty and a better lifestyle for the people (Banda, 2016; Makaringe &
Khobai, 2018). SMMEs are also recognised for their contribution to the GDP, employment creation, and the reduction of poverty (Soni et al., 2015; Sityata, 2019). SMMEs play an important role in South Africa’s economic growth. However, there has been a decrease in the growth of the country’s GDP since it has been growing at 1.1% less over the last five years compared to 3.4%
over the preceding 14 years (SEDA, 2019). South African SMMEs contribute 36% to the GDP.
The contribution of South African SMMEs to the GDP is relatively low compared to other developing countries such as Brazil (59%) and Chile (57%) and developed countries such as Japan (55%), China (60%), and Germany (87%) (Fatoki & Van Aardt Smith, 2011; Leboea, 2017).
Various SMME sectors contribute to South Africa’s economic growth. In 2020, SMMEs that contributed negatively to the GDP growth were manufacturing (-10.8%), trade (-10.5%), transport (-6.6%), and mining (-6.0%). Agricultural SMMEs contributed positively (+0.3%) to GDP growth.
The negative contribution by some SMMEs to the growth of the GDP was as a result of the COVID-19 pandemic that led to the shutdown of the country and severely affected SMMEs (SEDA, 2020). South African SMMEs contributed 33% to the GDP in 2010, and their contribution increased to 42% in 2015, but dropped to 20% in 2019 (Stats SA, 2020; Kavese, 2020). The World Economic Outlook (2019) shows that global economic growth was expected to drop from 3.6% in 2018 to 3.3% in 2019, before it increased to 3.6% in 2020. The drop was caused by factors that affected major economies such as the COVID-19 pandemic, a global manufacturing downturn, and increasing trade barriers (World Economic Outlook, 2019).
SMMEs are important as they play a significant role in promoting rural provinces, such as the Eastern Cape province in South Africa. The Eastern Cape province is the poorest province in the country in terms of GDP per capita (Kavese, 2020). In 2020, there were 231 011 SMMEs in the Eastern Cape community services, 7% in agriculture, 7% in finance, 6% in manufacturing, and 5% in transport (Stats SA, 2019b; Eastern Cape Socio-Economic Consultative Council [ECSECC], 2015). The economy of the Alfred Nzo District Municipality is dominated by SMMEs in the service sector, while agriculture, mining, manufacturing, and construction have remained
unimportant in terms of their contribution to the district’s GDP (Alfred Nzo District Municipality, 2020). In comparison to other district municipalities, SMMEs in the Alfred Nzo District Municipality contribute 5% to the GDP of the Eastern Cape province, which is the second lowest district municipality contribution to the GDP, while the SMMEs that contributed the least were in the Joe Gqabi District Municipality, with a 3% contribution to the GDP. The district municipality with SMMEs that contributed the most to the GDP in the Eastern Cape was Nelson Mandela Bay, with a contribution of 39% by the SMMEs. SMMEs in the Matatiele Local Municipality contributed 36% to the GDP, which is the highest contribution in the district municipality compared to 28% in Umzimvubu, 27% in Mbizana, and 9% in Ntabankulu, which is the lowest in the district municipality and is one of the most underdeveloped and underinvested areas with poor infrastructure and limited access to basic services (Matatiele Local Municipality, 2019; Alfred Nzo District Municipality, 2019b). According to Quantec (2018) and the Matatiele Local Municipality (2020), the economic growth of the Matatiele Local Municipality was 4.7% in 2010 but dropped to 2.0% in 2017.
5.3.1.2 Innovation
In Chapter 2, it was mentioned that innovation has long been considered as the key factor for the survival, growth, and development of SMMEs and that it promotes the sustainability and viability of SMMEs. Kogabayev & Maziliauskas (2017) and Geisinger (2016) define innovation as the introduction of something new. For SMMEs to be innovative, it means they must be able to introduce new ideas in the form of new products or ways of doing things (García-Magariño et al., 2009; Demetriou et al., 2016). The South African economy has been affected by a scarcity of critical innovation skills, which include, among others, thinking, communication, collaboration, and creativity (Fiorillo, 2015). On the one hand, authors such as Mbinda and Spencer (2016) blame the system of apartheid, which discriminated against South African black people in terms of pursuing wealth and job creation, which had a negative impact on their creative skills development.
On the other hand, Domingos et al. (cited by Bruwer et al., 2019) suggest that the scarcity of innovation skills was caused by the HIV/AIDS pandemic that affected many skilled labours and the government that does not invest in skills development initiatives.
Thorissón et al. (2014), Demetriou et al. (2016), and Bruwer and Smith (2018) suggest that scarce innovation skills are critical for economic growth and that they can be learned and mastered since they assist SMMEs to realise their objectives. Entrepreneurship, innovation, and knowledge are interconnected, while also taking into consideration that SMME owners who use innovative management in their businesses perform better (Tidd & Bessant, 2018; Gerber, 1995). SMMEs
that can meet the needs of their customers are innovative and are able to create new products that are affordable to their clients (Tahereh et al., 2015; Kogabayev & Maziliauskas, 2017). Tahereh et al. (2015) further emphasise that innovation is critical for firms to sustain competition in today’s dynamic environment. Research on the innovation of South African SMMEs discovered that SMMEs are generally not innovative or involved in research since they lack expertise and skills (Agwa‐Ejon & Mbohwa, 2015; Vorster, 2017; Francke & Alexander, 2019). The SMME owners in the Matatiele Local Municipality who participated in this study were not innovative since they lacked management experience, lacked knowledge on the business, and had insufficient resources, which are internal barriers to innovation (Tehseen et al., 2016; Deshati, 2016), as explained in Chapter 2. Furthermore, the SMME owners lacked markets, access to technology, and funding opportunities, which are external barriers (Asare, 2014; Tehseen et al., 2016).
The agricultural SMME owners alluded that they were unable to gain access to supply supermarkets with products because the supermarkets needed products that were approved and of a high standard, which affected the SMMEs’ market threshold, range, and business growth. One farmer in the focus group said:
“Most of us sell vegetables to schools nearby and to the local community. Supermarkets refuse to take our production because they say our production is not according to the specification and standard required”.
Innovation is vital since it is a factor for SMMEs to be competitive in existing market, especially for new start-up businesses (Alfirevic et al., 2011). Gereffi and Lee (2016), Hussein and Suttie (2016), and Das Nair et al. (2018) attest to smallholder farmers and SMMEs that mentioned that they had a challenge of entering markets such as supermarkets since they expected the SMMEs to meet basic food quality standards, as well as the private standards of supermarkets. Kogabayev &
Maziliauskas (2017) concurs that innovative SMMEs that produce quality goods can penetrate markets and expand their business while creating jobs. The SMME owners explained that they needed to be trained in innovation so that they could improve their products and target more clients.
The officials of the national, provincial, and local government levels explained that they provided training and workshops on business management. An official from local municipality said:
“We provide coaching, supplier development, export development, incubation, quality and standards, training in financial management and business development and customer care. We have not trained SMMEs in innovation but we acknowlegde that this is something that needs to be done.”
The issue of training and workshops needed for SMMEs to be innovative is attested to by the IFC (2012), Abdul (2018), and Das Nair and Landani (2020). This is supported by Rabie, Cant & Wiid
(2016) as they state that in today’s competitive business environment, the capabilities and skills of employees are fundamental requirements for continuous productivity, innovation and success of SMMEs.