Governments intervene in the development of SMMEs, because it is assumed that SMMEs play an important role in the economic growth of any country. It is essential to have a look at the role of SMMEs before discussing the need for public and private supporting institutions’ interventions in the economy. It is perceived that SMMEs contribute to the countries’ economies and development, through job creation, as globally SMMEs contribute approximately 50% of the economic gross domestic product and 95% of total employment (Middle East and North Africa
22 (MENA)-OECD Initiative, 2010:10 and Dalberg, 2011:7). Hence, SMMEs have received significant attention from governments in terms of establishment and sustainable development (South Africa Business Guidebook, 2002-2003). The concept of developing small businesses started from developed countries, namely in the United States of America in the early 1980s (Ngcobo & Sukdeo (2014:1). In developing countries, business development has gained momentum and is evolving rapidly as some developing economies have become innovative just like industrialised economies (Ngcobo & Sukdeo (2014:1).
The economic goal of governments is to have a high and sustained rate of economic growth, consequently governments are concerned about business development (Leduka, 2012:12). Given the discussion in the previous sections, it is imperative to define the word “development”.
Development is a process associated with a better future, meaning it is a term with a positive connotation. It can be measured among others by increasing income or gross domestic product (MENA)-OECD Initiative, 2010:10). Sustainable development can be interpreted as development that can continue “forever” or at least for a very long time; say, for several generations (Pritchett and Kenny, 2013:8).
The development of a country’s economy depends on the economic activities within such a country. The government plays an essential role in overseeing the economic development of the country (Leduka, 2012:12). Governments achieve this by amongst others, creating a favourable business environment that attracts investors. Attracted investors, either domestic or foreign, need government support for them to be established and grow sustainably. This implies that government support is necessary for the sustainability of SMMEs. The government does not get into the development of the country alone as private institutions are also involved, to ensure a favourable environment that could benefit everyone. It is evident that economies are paying careful attention to business development, because SMMEs are considered to play a crucial role in employment creation and economic growth (Ackah and Morrissey, 2005:19).
There is evidence to suggest that governments establish public and private supporting institutions to assist in achieving the overall goal of business development (Hunter, 2010:366). Governments find it important to periodically assess the effectiveness of the frameworks that manage SMMEs.
Policies, economic factors and regulatory frameworks are re-evaluated to create appropriate incentives for enhanced SMMEs’ development. Careful measures are taken to ensure that unintended effects are not imposed on the regulated parties (Council of Australian Governments (COAG), 2007:7). This has contributed to governments playing an important role in providing a prosperous environment for businesses which ultimately leads to a nation gaining a competitive advantage. It is believed globally, that public and private interventions are essential to help
23 businesses to succeed in the constantly changing business environments in which they operate (Ahmad and Xavier, 2012). For instance, both public and private supporting institutions provide services to SMMEs aiming at developing this sector and if training offered to SMMEs’ owners is attended and applied effectively, the useful skills acquired could lead SMMEs to growth level and sustainability in business.
Economies realise the importance of creating a conducive environment for businesses. The OECD (2004a), affirms that countries such as Albania recognised that it is essential to provide small businesses with a favourable environment that eases their operation. The initiative Albania took in 2002 was to launch the Enterprise Policy Performance Assessments aimed at assessing the quality of government policy for the SME sector and regularly monitor its implementation.
However, when creating a conducive business environment, governments can either encourage or discourage the activities of the businesses (Ghauri and Cateora, 2006:120). There are arguments for and against public and private supporting institutions’ interventions. Some authors support institutions’ interventions (Borooah, 2003:3 and Hausman, 2008:1). Others say interventions by public and private supporting institutions have limited effectiveness in promoting business development (Jordana and Levi-Faur, 2004:31).
2.5.1 Argument for and against intervention
There is a debate concerning the intervention by the governments in SMMEs’ development.
SMMEs’ owners lack confidence in the proficiency of the governments in providing services aimed at supporting and growing the sector (Chetty, 2009:194). They argue about the effectiveness of governments’ initiatives which they perceive are always less effective and hinder their growth and sustainability (Meltzer, 2010:1). They assert that governments neither have the experience nor skills to advise them (Pillay, 2006:42 and SBP Alert, 2009:2). They believe that flexibility, innovation and responsiveness to unique and rapidly changing circumstances are required in order to be effective in promoting economic activities (Atkinson, 2004).
These authors additionally declare that even private agencies fail to sufficiently understand their businesses ((Dubihlela and van Schaikwyk, 2014). According to Chetty (2009:33), it is advisable to measure public and private supporting institutions’ efficiency in providing services to SMMEs.
Surprisingly, Smorfitt (2008) argues that participation of private agencies in providing services to SMMEs has risen due to governments’ failure. For instance, Dubihlela and van Schaikwyk (2014) and Kongolo (2010) posit that amongst others, SMMEs in South Africa are faced with the challenge of inadequate institutional support, financial challenges, and lack of managerial skills.
24 Smorfitt (2008), however, have not commented on any failure by private agencies when they are providing services to SMMEs.
What is not said, is an uptake of the available support by the entrepreneurs. Supporting institutions are there to develop the SMME sector, and entrepreneurs are aware of such institutions, but it is perceived entrepreneurs make little use of these institutions. A study by Cunningham and Trah (2004) conducted on the usage of business development services and satisfaction levels, indicated relatively low overall usage of most forms of BDS in Nelspruit. Chetty (2009:266), confirms that SMMEs’ owners are aware of the existing supporting institutions, however, they do not make use of such institutions.