Small and Medium Enterprises (SMEs): Instruments of economic growth and development in a South African regional dispensation

The South African economy is currently characterised by high levels of unemployment, abject poverty, high illiteracy, low productivity and low international competitiveness. It is also struggling to attract and retain foreign direct investment and portfolio investments. Amidst this situation, the formal sector is also continuously shedding jobs. Furthermore, the formal sector absorption capacity is steadily declining as is apparent over the past three decades, where formal the absorption capacity declined from approximately 75 per cent to about three per cent currently. Related to this is the fact that although the South African economy is growing, even at the currently low levels, it seems to be one that can be described as 'jobless growth'. Hence, currently unemployed individuals and future job seekers will be more and more dependent on 'creating employment for themselves' than to merely be able to find a job in the formal sector of the economy. The need thus exists to create a situation where the entrepreneurial flair of individuals must be developed, supported and encouraged. In other words, the need for building capacity to encourage small business development, especially within the previously disadvantaged groups in South Africa, is of paramount importance to the development and long-term survival of the South African economy. Issues such as the absence or limited availability of social safety nets in South Africa, reinforces the dire need for self-employment, growth and development. This will also largely decrease the state of dependency of a large percentage of people, either unemployed or potentially unemployed. Furthermore, the development of entrepreneurial behaviour will lead to the extension of labour market skills and will also combat the possible obsoleteness of current skills due prolonged periods of unemployment. The SME sector is continuously considered as one of the most viable means to create employment and well-being in the South African economy. A business in general, whether micro, small or medium, which produces goods and services that are in demand, will have the over-arching aim of generating income for its owners or operators. It is therefore easy to understand that it is the initiative of a person or persons that leads to the creation of a formal entity and it is the amalgamation of all the individual entities, big or small, that determines the state, nature and direction of a country's economy. South Africa is no different in this scenario. The South African government also realises that SMEs are the logical 'kick-start' mechanism to job creation and future prosperity in the country, therefore the attitude of government has changed significantly towards allowing new opportunities for entrepreneurs. The main concern is that the majority of small businesses do not remain competitive for long enough to pass on the benefits to their respective communities and the economy in general. The main purpose of the paper will be to place the South African regional economy in perspective. Secondly, to provide a better understanding of SME operations in the South Africa regional milieu, especially in ascertaining to what extent an enabling environment is created for SME business entrepreneurs to flourish and prosper. Thirdly, will be the aim to identify where the pit-falls are and which type of constructive support can be developed to assist small business entrepreneurs in their endeavour to set up a formal business and to continue it as a successful going concern.