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SMEs - why governments contribute to SME failure in Africa
| Guest post by: Dr. Rob Smorfitt |
Article Overview: What are African governments doing that exacerbates the SME failure problem?
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Free Download - SMEs – SMEs struggling in South Africa. Why? By Dr. Rob Smorfitt |
SMEs - why governments contribute to SME failure in Africa
There are a number fo key issues relating to SME failure in Africa.
In the South African context for instance there is no SME strategy for the formal sector. All government's efforts are focused on the informal sector. These people rush headlong into creating poorly conceptualised businesses with failure being the final outcome for the greater bulk of them.
Then there is the drive to push the youth into business. Youth lacks knowledge and experience, and the odds are heavily stacked against their succeeding, and this is reflected in the statistics on the outcomes of these efforts.
The problem with both of these scenarios is that there is consequently no job creation and negligible GDP growth.
The formal sector does not grow as there is no way for the bulk of the population to raise capital.
The whole of Africa is still based upon a feudal system which robs people of the right to own land. South Africa and Botswana as an example have large percentages of land that are state owned or owned by the local chief or is tribal trust land. As Herman de Soto suggests, without land ownership, people have no equity, and therefore they cannot raise capital.
The drive throughout Africa is to correct the imbalances created by colonialism and in the South African context, apartheid as well. Howver, while Africa is busy removing productive farm lands from commercial farmers who generate food and GDP, these self-same governments are sitting on the bulk of the land. This land is not all useless land. I believe that in Botswana 70% of the country is still owned by the tribal authorities and a further 14% is owned by the state! South Africa has a similar situation particularly in the KwaZulu Natal province, where vast tracts of land are owned by a tribal trust.
The problem is that Africa has no idea on how to undo its tribal/feudal system and are too fearful of the change and its consequences tomake the change. They forget that the many people who would be so empowered by this action, would willingly support these efforts and would mitigate any risk asscoiated from this action from the "traditional leaders".
All they have to do is dismantle the feudal system and share the land out. It sounds simple but it is not as simplistic as it sounds. However, the situation requires urgent attention if these govonments want to see progress in formal sector SME development.
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About the Author: Dr. Rob Smorfitt RSS for Dr. Rob's articles - Visit Dr. Rob's website Have an MBA and a PhD in entrepreneurship. Three key areas of ongoing research are entrepreneurship and innovation in large business strategy, the impact of legislation on SME development and SME finance. Run my own SME blog at http://sme-smb-smme.blogspot.com as well as an entrepreneurship and innovation for large businesses blog at http://innoveur.blogspot.com I have been self-employed since 1982. I have started or purchased in excess of 50 businesses since then. Most were sold again and a few were shut down because of a lack of profitability. Many were run by staff or family while I worked full time in my bigger businesses. Author of 6 books. Written articles for various magazines, newspapers and websites. Experienced in research within developing countries.
Click here to visit Dr. Rob's website  
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Related Forum Posts
Re: In-House or Outsource?
- Unfortunately, in the South African context, very few SMEs see outsourcing as an option. They believe it is too expensive, and they are paranoid that someone will "steal their ideas".
I believe that the three main functions that cannot be outsourced are marketing, sales and strategy. These must be done in house I believe. If you do not have the marketing skills then get them. Hire a consultant or attend a course, but get the skills. Even if you use a consultant, you need to understand what marketing is about, as no one knows your market like you do. Marketing is made to seem difficult and complex, but everyone who really understands their markets, can easily learn to do their own marketing.
In South Africa, labour legislation is extremely inflexibile, and consequently labour broking is a large industry. This is an ideal starting point for SMEs in South Africa, as it is a legally complex area, whih comes with severe penalties.
I say do it!
Rob Smorfitt
Re: need advice
- Africa is a pretty big place I think it is a question of where in Africa you would like to open a call centre. South Africa for example actually has plenty of call centres already operating, so it would very much depend on what part of Africa you are considering.
MichelleJ
Re: Will North America make carbon taxes anytime soon?
- There are various carbon taxes sneaking in. The plastic bag being one of them, and in the UK there are higher taxes on bigger cars.
Governments to me never seem to shut up about green stuff, and their answer is carbon tax and re-investment (with lots of money wasted in between due to governments being less efficient than the market).
Personally I am more for tax breaks to companies and individuals that are efficient and pollute less. So that such companies have a competitive advantage, without more money being wasted through governments.
Just think how quickly green technology would evolve if businesses and employees paid little to no tax. The motivation factor would be tremendous.
Re: Newbie from Africa
- Hello Biiyke
Welcome to the forum. Which part of Africa are you from it is quite a big continent? I live in South Africa.
MichelleJ
Re: A great website is closing down
- Hmm..
Sad to see such hard work result in failure. Although we've all experienced and anticipate the potential for failure it's always unfortunate when a venture doesn't work out.
Hope they can catch the next one.
Phil
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