Small business development is a crucial part of government's strategy to reduce unemployment and increase black economic empowerment.
Whythawk has recently completed rating individual small business development consultants in the Western Cape and Gauteng as well as their overall impact on supporting emerging entrepreneurs.
Gauteng beneficiaries' businesses are three times larger, employ 30% more staff and pay a third higher wages than those in the Western Cape. Yet only 47% of beneficiaries of small business programs in Gauteng are self-employed one year after the intervention compared to 76% for the Western Cape. "This is despite greater opportunities in Gauteng," says Hermann Jeuschenak, Director of Ratings at Whythawk.
Gauteng entrepreneurs secure significantly less finance (R 42 000 per business relative to R 233 000 in the Western Cape), are less likely to invest and three times more likely to remain unemployed post intervention. In addition service providers in Gauteng charge 250% more for their services than in the Western Cape.
Many of the small business support voucher programs, such as the Umsobomvu Youth Fund, do not require consultants to conduct follow-ups, guide their clients through the loan application or implementation phases post-intervention, or even to provide mentorship. Many consultants in the Western Cape endeavour to provide this anyway while virtually no Gauteng consultants do. The results are visible in significantly higher implementation rates in the Western Cape.
Gauteng service providers, in particular, regularly make unrealistic loan applications with limited hope of success. Both regions make similar loan representations (58% vs 59% of all clients) but only 15% in the Western Cape and 11% in Gauteng go on to have their loan applications granted.
"These are poor results and indicate consultants have little interest in progressing beyond simply producing business plans," says Jeuschenak. "This is a pity as banks have expressed interest in working with consultants who consistently identify and support successful entrepreneurs."
This is the first year that ratings of this nature have been conducted and the objective is to improve the transparency of development as well as offering beneficiaries the ability to choose consultants who will offer them the greatest chance of success.
"Our results offer consultants, as well as development programs, the opportunity to improve their effectiveness in order to create more businesses and more jobs," says Jeuschenak.
To learn more about this author, visit Gavin Chait's Website.
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