Background:

Small, Micro and Medium Enterprise (SMME) development has proven, in many parts of the world, to be the leading driver for economic growth, employment creation and poverty elevation. The very same fact has been emphasised in the approach of the South African government in solving the socio-economic problems that this country is facing two decades into democracy.

SMMEs are estimated to contribute over 55% of private sector employment and over 35% of the gross domestic product (GDP). According to Statistics South Africa the official unemployment rate is 25.5% and GDP has been slowing down to a point where growth targets will not be achieved. Furthermore, GDP growth in South Africa lags other developing world economies. Against this backdrop, the growth of the SMME sector cannot be over emphasized. The resultant sustainable job creation is dependent on fostering entrepreneurship in an environment where entrepreneurship skills are low due to the historical lack of an entrepreneurial culture in South Africa.

Recent findings according to the Global Economic Monitor (GEM) indicated inter alia the following:

• Aside from Mexico, South Africa's start-up businesses are the least likely to mature into established companies.
• 75% of new SMEs do not become established companies, which is a lower probability than other GEM-sampled countries.
• A lack of managerial experience and skills are the main reasons why new firms fail.
• Only 2% of new SMEs in South Africa are able to access bank loans.
• 75% of applications for bank credit by SMEs in South Africa are rejected

Given the historical background and resultant present day inequalities in South Africa, the above problems are found to be even more profound amongst historically disadvantaged entrepreneurs. Investment and loan book performance among development financiers is a lead indicator to SME failure and the current trend supports the findings above. In a number of cases, impairment rates above 50% are reported according to results published, often despite the fact that a number of development financiers also provide coaching and mentor ship. An analysis of bad debts written off by a leading SMME investor indicated that in over 80% of the bad debt cases, a strong degree of inadequate entrepreneurial capability was a major contributor.

In South Africa, it is often said that there are more funds available for entrepreneurial ventures than what there are good business enterprises to fund. The high rejection rates mentioned above bear testimony to this. However, inadequate business and entrepreneurial skills are the main contributors to this problem. This is coupled with the fact that businesses are often funded before the key business fundamentals in terms of systems and markets are in place.

It can therefore be concluded that the prerequisites for the best chance at establishing a successful, sustainable business are:

• a robust and proven business case underpinning the business plan;
• entrepreneurial and business skills to execute the plan effectively and manage strategically;
• timely access to appropriate resources, including adequate and appropriate finance, effective systems/processes; and
• ongoing mentor ship and support to create an enabling environment in which a business can grow.