​​​Micro-, Small, and Medium-Sized Enterprises Day is observed annually on 27 June. In an opinion piece for Business Day, Prof Stan Du Plessis, Chief Operating Officer of Ste​llenbosch University, writes that small and medium-sized enterprises need support to realise their potential to create employment and drive productivity growth.

• Read the article below or click here for the piece as published.

Stan Du Plessis*

On the 27 of June, we observe Micro-, Small, and Medium-Sized Enterprises Day, and for the good reason that they foster sustainable development, job creation and productivity growth internationally. According to the World Bank, small and medium-sized enterprises (SMEs) account for more than 90 percent of all businesses and around 50 percent of jobs worldwide with 40 percent of the world's gross domestic product coming from this sector. We must find ways to encourage and support this dynamic part of our business community.

The potential role of SMEs is especially crucial in South Africa (SA) where serious social and economic challenges have been exacerbated by 15 years of economic stagnation. After adjusting for inflation, per capita terms Gross Domestic Production (GDP) in SA is at the same level today as in 2007, while the narrow measure of unemployment has risen from an already high level of 23 percent in 2007 to a staggering 32,9 percent in the first quarter of 2023.

With their potential to create employment and drive productivity growth the significance of SMEs for our future can hardly be overstated. They contribute roughly 34 percent to South Africa's GDP  (according to a report by the International Finance Corporation) and play a vital role in the economy as drivers for reducing unemployment.

To realise their potential, SMEs need a supportive environment, which is currently undermined by three main obstacles.

Firstly, the various shortcomings in the provision of public goods required for cost-effective production and service delivery. Primary amongst these is the failure of ESKOM to provide reliable and cost-effective power. Persistent loadshedding imposes an almost unbearable cost on SMEs for whom the mitigation costs of large battery banks or diesel-powered generators can be prohibitive. Even for those who can afford these mitigations, the impact falls directly on their cost structure, rendering them uncompetitive compared with firms operating in an environment where public utilities function to a minimum standard.

Secondly, electricity is not the only public utility imposing heavy costs on SMEs in South Africa. The rail network and expensive alternatives via road transport in a country with large distances between ports and the interior impact adversely on productivity.

Thirdly, in an era of rising inflation locally and internationally the cost of finance for SMEs is rising with short-term interest rate. While the SARB correctly responds to curtail inflation expectations in South Africa, the unintended and unavoidable impact is to raise the cost of financing these businesses sharply.

At Stellenbosch University (SU), we recognise these difficulties and see an opportunity to extend the institution's positive impact. In a modern research-intensive university, the potential impact of research is exponentially larger when they can be translated into commercially viable products and services, or new production processes. This process of innovation has become an important focus at SU and supported by an entrepreneurial ecosystem that consists of: (i) the University; (ii) SU's Technology Transfer and Innovation Office, Innovus; (iii) the University's business incubator, the LaunchLab; (iv) local business collaborating deliberately in the Stellenbosch Network; and (v) early-stage finance for emerging enterprises by the University Technology Fund, government's NIPMO (National Intellectual Property Management Office ) support funding and TIA (Technology Innovation Agency) seed fund as well as SU's endowment. We designed this ecosystem to encourage and ignite entrepreneurship within and beyond the University and to nurture SMEs until they can thrive sustainably.

At the 2022 University Industry Innovation Network Conference in Amsterdam, marking the ten-year anniversary of the organisation, a presentation on SU's comprehensive platform to support and build entrepreneurship at the institution, that will ultimately benefit the SME sector and our country's economy, was very well received, and was awarded as the global runner-up in the Outstanding Entrepreneurial and Engaged University Category.

To date, SU has created 29 spin-out companies that employ 342 full-time employees across sectors as diverse as designing medical point-of-care smart sensor solutions, cost-effective nanofibre products, genetic pathology, control systems for nanosatellites, green energy, and many more. When an idea ultimately emerges as a sustainable product, service or business process, the impact of society's investment in the underlying research is amplified exponentially.

The long-run growth and prosperity of a society depend on productivity growth and the stagnation of fifteen years in South Africa is evidence of anaemic productive growth. Universities, especially research-intensive universities, are perfectly positioned to make a difference to this trajectory. By working with local and national government as well as industry, they can create entrepreneurial ecosystems where SMEs can emerge and thrive. The taxpayer invests heavily in our universities' research infrastructure, an investment which will yield larger and broader returns when we succeed in the difficult task on innovation from academic research.

As we celebrate Micro-, Small, and Medium-Sized Enterprises Day, we should also move beyond paying lip service to the SME sector but rather commit ourselves to boosting entrepreneurship and helping these businesses to thrive.

• Main Photo by Felix M. Dorn on Unsplash.
  
  

Prof Stan du Plessis

SU ​Chief Operating Officer