Small Business

Andrew Layman:  PCB CEO

It is a unique feature of South Africa, by comparison with other developing countries, that we have low levels of employment in the informal sector of the economy.    In many other countries, including a number in Africa, high rates of unemployment in formal jobs are balanced to some extent by activity and employment in the informal sector.   This is particularly true in Latin America and the Far East.  There is a strong correlation between this disappointing state of affairs and the fact that the South African rate of entrepreneurship is substantially below that of most other African countries.   We are among the worst in the world for entrepreneurship, in fact.

I wonder to what extent these circumstances are attributable to both a desire to migrate informal business people into the formal sector too quickly and the lofty dreams of aspirant entrepreneurs who seem reluctant to start at the very bottom.    Developing countries are characterised by informal economies.   Without them, the poverty rates would be significantly higher.  It is here that self-employment flourishes and there is a level of self-sufficiency that lifts many people above the lowest thresholds of poverty.   In Bangladesh, for example, the Grameen Bank found a way to stimulate this informal sector by injecting money into it without laying down unattainable conditions.     We require the formality of a business plan and goodness knows how many other trappings of the first economy.    The Grameen Bank does lay down expectations, by the way.   No request for a loan is refused, but borrowers have an implicit understanding that they are expected to subscribe to the Bank’s ‘Sixteen Decisions’ which are in the nature of promises.    Among these is the undertaking to improve one’s house by maintenance and repair.  Another is to grow vegetables, while another is to “plan to keep our families small”.    They have to do with cleanliness and hygiene and wasteful traditional practices, such as child marriages and the payment of dowries.   In these ways, new standards of living have been associated with the provision of loan finance.    The number of loan defaulters within Grameen’s b usiness model is negligible.    The Bank believes, and this is borne out by its experience, that given the opportunity, every person, no matter how poor, is able to improve his or her own circumstances.   Of course, these poor borrowers and basic entrepreneurs do not have to register for tax or anything else, for that matter.   They can pursue their trade in an informal way, serving their communities with their own styles of business.   I am not advocating laissez faire for informal traders in urban areas, by the way.   The rural informal economy is something rather distinct from the urban environment where informal economic activity has to be regulated.    These regulations need not involve high level registration or other requirements, however.

My second point relates to over-the-top aspirations on the part of people, young people in particular, who wish to start a business.     A young man has written a business plan for a logistics company that he wishes to establish.   He has scant, if any, experience in this field.  He plans to purchase six vehicles and hopes to raise a loan from a bank to do so.   The bank will not consider this at all unless he can produce a contract; he cannot secure a contract without a vehicle.   He believes that all the promises made to young people by government and other agencies are just hot air.  Why can’t he get the money he needs, he wants to know.    What he should be doing  is scraping together whatever money he has been able to save and buying a second-hand bakkie with which he can start a transportation business of micro proportions.    He, himself, and a lot of hard work.  If he does this effectively, it will be a matter of time before he needs another bakkie and, later, another.  And so his business will grow.   When he has the customer base, the experience and a proven track record of sound business, he will get his loan finance for the six vehicles he has in his dreams.     I thought of this during the finals of the Umbono Challenge.  One of the finalists wished to provide recreational opportunities for young people in Umlazi.  He spoke of Play Station games, mountain and BMX bikes and skateboards.   I thought this was a really good idea, especially the healthy exercise-related activities for which he could support from partners, I’m sure.   But he was already talking of four centres.  Why not one small one to start with, for goodness’ sake?      

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