CHAPTER 6: SUMMARY, FINDINGS, AND RECOMMENDATIONS
6.2 The findings of the study
6.2.2 Findings related to the role of SMMEs in socioeconomic development
SMMEs in developed countries grow and become competitive companies. Their growth is influenced by a conducive environment that promotes SMMEs and allows prolonged economic growth and improved standards of living for people. SMMEs in developed countries are innovative, competitive, and resilient against global crises, and they reduce poverty while balancing income inequality in developed countries. In developed countries, SMMEs are innovative as they adapt their products to meet the needs of their clients. They supply the local market and grow by exporting their products and services. They create employment, contribute to economic growth, and generate a competitive income that reduces inequality. They employ experienced pensioners to manage their SMMEs in the rural areas with the purpose of allowing them to explore their skills and expand the businesses. SMMEs are generally seen to be crucial for national economic growth in developed countries.
In developing countries, SMMEs are regarded as drivers to attain the NDGs of Africa, such as poverty reduction, employment creation, and the growth of the economy. African countries such
as South Africa, Egypt, Nigeria, and Kenya have SMMEs that contribute 70% to employment, 40% to the GDP, and 4% to export earnings. Although developing countries have high unemployment and increased poverty, SMMEs contribute to improving the standard of living and the economic wellbeing of communities in each developing country.
SMMEs in South Africa contribute to the economic growth of the country as they introduce new or advanced products and services that improve the standard of living for the citizens. SMMEs further contribute to the GDP when they create employment. SMMEs strengthen the social and personal capabilities of rural communities. The sustainability of SMMEs in South Africa is associated with the reduction of poverty and unemployment and balancing inequality. 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 is the poorest province in the country in terms of GDP per capita. There were 231 011 SMMEs in the Eastern Cape in 2020 that operated in various sectors, namely 39% in the trade sector, 19% in construction, 16% in community services, 7% in agriculture, 7% in finance, 6% in manufacturing, and 5% in transport.
Chapter 5 indicated that SMMEs play an important role in reducing poverty in South Africa since they supply the rural population with basic needs such as food, clothing, and housing, as well as additional goods and services. The South African government promotes the establishment of SMMEs as a means to address unemployment and high poverty levels. The most poverty-stricken province in South Africa is the Eastern Cape, followed by Limpopo and KwaZulu-Natal. The Eastern Cape provincial government is determined to improve the welfare of its people through achieving the SDG of alleviating poverty. The ECDC provides support to SMMEs so that they can reduce unemployment and alleviate poverty.
It was noted in Chapter 5 that Matatiele is found in the Alfred Nzo District Municipality, which remains one of the poorest districts in the Eastern Cape, with a poverty intensity of 44.3% in 2016.
Matatiele has the lowest percentage of people living in poverty compared to the other three local municipalities in the district, namely Umzimvubu, Mbizana, and Ntabankulu. In 2018, the poverty level in the Matatiele Local Municipality was 80.4%, 82.3% in Umzimvubu, 88.5% in Mbizana, and 89.4% in Ntabankulu (Alfred Nzo District Municipality, 2019b). The study discovered that SMMEs in the Matatiele Local Municipality improved the standard of living of their employees since they confirmed that they were able to take care of the basic needs of their families since they started to work for SMMEs.
Chapter 5 found that the South African government recognises the importance of SMMEs to the extent that a Ministry of Small Business Development was established in 2014. SMMEs are recognised for their contribution to the GDP, the creation of employment, and the reduction of poverty. SMMEs play an important role in the economic growth of South Africa. However, there
has been a decrease in the growth of the country’s GDP, since it has been growing at 1.1% less over five years compared to 3.4% over the preceding 14 years (SEDA, 2019). South African SMMEs contribute 36% to the GDP. There are various SMME sectors that contribute to the South African 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%), while agricultural SMMEs contributed positively (+0.3%) to the GDP. The negative contribution of 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. South African SMMEs contributed 33% to the GDP in 2010, and their contribution increased to 42% in 2015, but decreased to 20% in 2019. The decrease was caused by factors that affected major economies, such as the COVID-19 pandemic, global manufacturing downturn, and increasing trade barriers.
SMMEs are important as they play a significant role in promoting rural provinces, such as the Eastern Cape. The Eastern Cape is the poorest province in the country in terms of GDP per capita.
There were 231 011 SMMEs in the Eastern Cape in 2020 that operated in various sectors, of which 39% were in the trade sector, 19% in construction, 16% in community services, 7% in agriculture, 7% in finance, 6% in manufacturing, and 5% in transport. The study discovered that the economy of the Alfred Nzo District Municipality is dominated by SMMEs in the service sector, while agriculture, mining, manufacturing, and construction have remained less important in terms of their contribution to the district’s GDP. In comparison to other district municipalities, the SMMEs in the Alfred Nzo District Municipality contribute 5% to the GDP of the Eastern Cape, which is the second lowest contribution to the GDP, while the SMMEs that contributed the least were found in the Joe Gqabi District Municipality, with a 3% contribution to the GDP. The district municipality with SMMEs that contributed the most to the Eastern Cape’s GDP were located in Nelson Mandela Bay (39%). SMMEs in the Matatiele Local Municipality contributed 36% to the GDP, which 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. It is also one of the most underdeveloped and underinvested areas, with poor infrastructure and limited access to basic services. The economic growth of the Matatiele Local Municipality was 4.7% in 2010 but decreased to 2.0% in 2017.
The study further discovered that SMMEs in the Matatiele Local Municipality participated in the NSNP. Due to poverty that has drastically increased throughout the world, the international community has, through the SDGs, proposed the ending of extreme poverty by 2030. The NSNP was initially referred to as the Integrated Nutrition Programme while under the Department of Health and its aim was to provide food security by improving the health and nutritional status of school-going children and to assist in improved school attendance of learners. However, in 2004
this mandate shifted towards the Department of Basic Education with the purpose of improving the nutritional status of learners, to reduce hunger, and to alleviate the impact of malnutrition on their learning capacity through school feeding programmes.
The study found that SMMEs were given contracts by the Department of Basic Education to supply vegetables, bread, and milk to local schools in the Matatiele Local Municipality. Each year, the Eastern Cape Department of Education allocates a budget for SMMEs to supply schools with foodstuff. In the financial year 2020/2021, the budget amounted to R971 734 137. The focus group participants of principals from both primary and secondary schools in the Matatiele Local Municipality mentioned that, under the NSNP, schools tried as much as possible to purchase vegetables, milk, and bread from local SMMEs. The purpose of purchasing from local SMMEs is to ensure that the SMMEs around the schools not only supplied the schools but also realised the importance of producing food to reduce poverty.
The school principals as customer participants in the study indicated that the Matatiele Local Municipality had around 208 public and special schools in 2020, with a total number of approximately 63 800 learners who benefitted from the NSNP. The principals further explained that each school was allocated a budget for the NSNP and the schools thereafter appoint and sign contracts with SMMEs for six months. The contract is renewed based on the consistent supply by the SMME. The school principals as customer participants highlighted that approximately 20 SMMEs benefitted from the programme and individual SMMEs supplied schools based on the number of learners in each school. One agricultural SMME owner participant mentioned that he used to supply 42 schools with a total of 320 learners twice a week before the COVID-19 pandemic and with the sales to the local community he used to make sales of approximately R60 000 per month.
Other SMME owners who participated in the NSNP were not willing to disclose the total sales they made per month as they felt it was too personal. The agricultural SMME owners mentioned that the NSNP boosted their sales and was a reliable market that assisted their businesses to be sustainable. The SMME clients (school principals) mentioned that the NSNP benefitted local SMMEs around each school. The challenges encountered by the schools were that some SMMEs were unable to renew their contracts since each supplier signed a six-month contract. This is because of drought and lack of sufficient land and agricultural equipment. SMMEs produce small quantities seasonally from their vegetable gardens, which are not enough to supply the schools throughout the year. The sewing SMME owners have built a good relationship with the schools by supplying school uniforms made from quality materials. The school principals as clients were able to attest to the quality of the uniforms they produced and further explained that the sewing SMMEs were reliable and provided discount when schools bought in bulk.