iKhokha – Payment processing in South Africa

Payment processing in South Africa is a huge issue for many readers of Zapreneur. As readers of Zapreneur will know, I hardly ever provide space for financial products because I believe that our financial institutions are one of the biggest constraints on small business development. Beyond offering critique, Zapreneur will profile alternatives that offer “something” that begins to put the power back in the hands of entrepreneurs.
Today we chat to founders of iKhokha, Ramsay Daly and Matt Putman. A product like iKhokha offers an alternative to the big banks, and offers a way to process both debit and credit cards. This is huge as it allows businesses not wanting to run on credit cards to process debit cards, at reasonable payment processing rates. In sum, iKhokha offers a competitive pricing structure and allows small businesses to begin using new and innovative ways of charging customers. We asked the founders a couple of questions about the product and what it offers.
 
iKhokha looks like an excellent product. Our readers might not know about what iKhokha does. Please give us your elevator pitch? 
iKhokha enables any business formal or informal to be able to process card payments through their smartphone, by inserting our Edge adapter into your phone and downloading the iKhokha app, SME’s can turn their phone into a Smart Speedpoint device. Businesses follow the straight forward online sign up process at www.ikhokha.com, and once approved entrepreneurs and businesses alike will be able to benefit from the additional services embedded in our mobile app. We cater for both Android and Apple devices. The Edge device also has the highest level of international accreditation.
 
(Editor’s Note: The video of Piet the Plumber is worth watching as it provides a cool story of iKhokha in action). 
https://www.youtube.com/watch?v=lCXc-QGBYuk
How does this benefit businesses in South Africa?
It allows them to take a secure card payment anywhere, anytime driving additional sales and removing the risk that comes with carrying cash. It also gives them a real time view of all their sales, card and cash.
 
How is it different from products being offered by large banks? 
Pricing is considerably more competitive that the large bank led offerings, i.e 2.75% commission with no monthly fees.  We charge the same rates irrespective of who the merchant banks with and have a dedicated support team focusing on our merchant base. We are a bank agnostic brand that is looking to constantly innovate, bringing real value to our merchant base.
 
APP: 
The intuitive design of the app makes it easy to understand for the end-user and easier for a merchant to process a payment. The business analytics feature allows the business owner to track all their sales very easily, meaning that the SME is empowered with more information at their fingertips that they have ever had before. This is an area that we will continue to focus on in order to provide powerful data to each one of our merchants.
 
VAS
We have enabled all of our merchants to sell value added services through the app to any of their clientele for a rebate, the first phase of this strategy is Airtime sales which will be followed by other digital products. We are creating a product suite which will become attractive to the more informal sector as in essence they will be able to download an app and a suite of products which will earn them a living.
 
Do you have any plans of partnering with larger financial institutions? 
ABSA is the acquiring bank whose license we are leveraging, however we can sign up merchants from all banks irrespective of the provider.
 
What would the ideal business look like to benefit from iKhokha?

  1. Any business that currently has a Speedpoint machine, but is paying costly monthly fees or high transaction commission
  2. Mobile businesses that want to be able to accept payment on-the go i.e. tradesmen, graphic designers, website designers, personal trainers, independent consultants, door to door salesmen, musicians, performers, private metered taxis, informal taxis and take-away deliveries
  3. Businesses that want to move away from cash transactions for safety & convenience i.e. as boutique retail outlets, jewellers, medical practices, physiotherapists, chiropractors, optometrists, beauty salons, independent DVD rental outlets, bakeries, deli’s, take away food outlets, hairdressing salons, bars, bookmakers, independent bottle stores, butcheries, pet shops, dry cleaners, and dog grooming parlours

Let’s talk money. What does it cost to get started with iKhokha? How is payment processing charged?
R989.00 once off fee for the Edge card reader (including delivery) OR monthly rental option of R69 a month (plus R160 delivery fee)
2.75% per transaction
 
Is it possible to customise where the headphone connector on the Android iKhokha sits to accommodate some Android phones which have jacks on the bottom left, bottom right and on top?
The Android unit will still technically work with the different orientation on some Smart devices, best to refer to our safe list of tested devices provided on the website. We are also bringing in a cable to assist with Android Smartphone devices with different orientation of the Audio Jack.
 
If possible, could you provide us with a couple of companies that are using iKhokha?
There is quite a spread of companies to name a few, Victor Design, My Renaissance, Courtney Shaw Skin Care and Body Therapy.
 

One large business vs. 1000 little ones

Possibly, the most important question in public policy is “who benefits”.
In answering this question, not only can distributional outcomes be assessed, but often the underlying power structures. The recent reporting on the Public Investment Commission investing R1.5 billion of government employee pension funds in CAMAC Energy raises just this question: “Who benefits”.
Three features of CAMAC Energy are important. First, the company has several investments across the African continent, mostly in oil and mining. Second, it is regarded as a high risk penny stock in New York. In fact, reports show that the first tranche of PIC investment staved off its liquidation. Third, the owner of CAMAC Energy is described as well-connected to political leaders, including those in South Africa.
Now, imagine if the PIC decided to spend this money on businesses in South Africa. For arguments sake, let‘s remove the question of patronage from the equation. The exercise is to explore the possibilities of spending R1.5 billion on venture capital for smaller businesses.
The simplest option would be to divide the total into equal stakes of R 1.5 million each given to one thousand small businesses in South Africa. Assuming that each of these businesses employ the founder and create an additional two jobs, this would yield 3000 jobs. However, we know that business failure is high, so something in the region of 1500 jobs could have been created. More to the point, even in a pessimistic scenario 500 new businesses would be created, with substantial impact on the asset holdings of the owner and her family. The broader social good would be served not only with broadening ownership, but also with small impacts on economic growth.
Another option would be to limit the selection of companies for venture capital to those working with successful franchises or incubators. The investments decision are more cautious aiming to scale currently successful experiments. The number of jobs could easily reach between 5000 and 10000 new jobs, assuming that small successful franchises runs two shifts a day.
The possibilities are however even wider. In one of the tech incubators, a company is conjuring up an open source solution to a problem facing businesses, and in so doing establishes in addition to the software cloud services. This company supports the businesses of 200 South African companies, who provide extensions and maintenance around the software that has been created. The impact on direct and indirect jobs would multiply quickly, and a guess of around 10 000 jobs would be plausible. This is not as farfetched as it seems, as research suggests that South Africa could create 145 000 jobs from cloud computing.
A more adventurous option of matching funding would expand the funds available and test the plans of entrepreneurs. Entrepreneurs would be required to receive matching funding to access government funds. This is common today in American cities. Entrepreneurs would proposition venture capitalists, banks and invest their own cash to access government funding. The total available funds would now be R 3 billion, and the potential gains for economic growth and employment much greater. More importantly, the small number of angel investors could grow rapidly, thus supporting an ecosystem for entrepreneurs seeking smaller sums of equity investment.
The mind could run wild with possible options. For instance, imagine investing R 500 million into manufacturing companies in the “East Rand”, to support the Ekhurhuleni initiative to create a aerotropolis. Or investing R 200 million into the burgeoning tech sectors in Johannesburg and Cape Town. Or, investing in logistics to support smallholder farmers to bring goods to market.
The possibilities are in fact endless, and in each of these policy options the distributional impacts on opportunities, jobs and economic growth would be greater than investing in CAMAC Energy.
These proposals should not be construed as suggesting that all pension funds start investing in risky startup activity, or that the success of any of the ideas mentioned here is guaranteed. Rather these ideas are meant to show in the world of investment opportunities, spending R 1.5 billion on a single company raises substantive questions. This is especially true given that the investment in Camac is comparable in size to investments in agencies like the Jobs Fund and the National Empowerment Fund, which have larger mandates.
In answering the question “who benefits”, it is certainly not small business. The ANC has in its explanation of the term “radical economic transformation” argued that it means amongst other things, an expansion of economic opportunity and equal ownership of assets. It is a certainty that this agenda is not aligned with an investment of R1.5 billion in CAMAC Energy.
The investment in Camac begins to shed light on the underlying power structures that guide investment decisions. However, the important conclusion is that we have prioritised one opportunity with limited gains for our society, over possibly starting one thousand small businesses.
An edited version of this article first appeared in the Sunday Times : Business Times 
 

Small firms may not be SA's saviours

Small firms may not be SA’s saviours

WHAT do Clem Sunter and Julius Malema have in common? They share the policy goal of creating a million small businesses in South Africa.

The arithmetic is seductive: by creating the businesses, jobs and new assets come into existence. If these outcomes were achieved, the results would be spectacular.

For Malema and his supporters, a substantive change in ownership patterns would have been achieved. For Sunter and his supporters, more open and transparent markets would provide evidence of successful market-based reforms.

The pair obviously differ on how the million new jobs would be created, but the agreement on a target is useful and rare in an increasingly polarised South Africa.

Small business as a creator of jobs and wealth is an influential idea and, some would say, one whose time has come.

To arrive at this outcome, important assumptions must be true — the most important being that small businesses need to survive beyond 36 months, which is when they could be described as “established businesses”. As important is that the growth of small business will be labour intensive or, at the very least, require additional labour.

But an article published on the website Econ3X3 asks us to confront a world in which neither of these assumptions hold true today. The authors, Andrew Kerr, Martin Wittenberg and Jairo Arrow, who are academics at the University of Cape Town or Stats SA, use Quarterly Employment Survey data to estimate the contribution of big and small firms to job creation and job destruction. Their major finding is that large firms have higher rates of net job creation than small ones.

It is important to remember in interpreting the findings that the authors are measuring both job creation and destruction.

Traditionally, in South Africa we have measured only job creation and assumed that about 50% of new jobs are created by small business.

The problem with this assumption is that we tend not to measure the loss of jobs over time. In fact, it is more correct to say that small businesses destroy lots of jobs, because the majority of these firms fail before their third year. Kerr and his co-authors argue: “Firm death as a cause of job destruction is stronger among smaller firms: only 7% of the 37 000 job losses of the largest firms has been due to closures, as against 34% for the smallest firm category. (The 34% entails thousands of small firms.)”In fact, they suggest that a firm with 500 employees is a threshold for positive net employment creation. The arithmetic of a million new businesses each employing a couple of people thus needs to be questioned, because very small firms do not have the cash flow to employ people.

However, the deeper question remains: Why do small businesses contribute so little to net job creation? Kerr and his co-authors do not provide a definitive answer, but point to the possibilities of setting wages by collective bargaining, although they also hint that labour legislation may not be as onerous to firms as is widely believed.

A deeper look at structural factors could reveal constraints to the survival of small businesses, such as the pricing of steel or the availability of high-quality bandwidth. More research needs to be undertaken in this regard.

The core lesson for setting policy targets is twofold. First, the idea of creating a million new small businesses has gained ground and plays a useful role as a rallying cry.

Second, if we are serious about small businesses contributing to job creation, a different target needs to be developed. That target would focus on the number of successful small businesses after three years. It is a target that Sunter and Malema need to pay attention to if small business is to play a meaningful role in contributing jobs and creating new wealth.

• Hassen is a public policy analyst who writes about small business. See zapreneur.com

• This article was first published in Sunday Times: Business Times

Small Business Ministry Should Learn by Doing

Strategy before structure – President Jacob Zuma should heed this guideline when considering a small business ministry.
The idea of creating a small business ministry was given strong support on the election campaign trail by senior leaders of the African National Congress. Supporters of the idea, especially from organised black business, correctly point out that public policy on small business requires a major overhaul. Intriguingly, organised black business have argued that a small business ministry is required to support and create “black industrialist”, which suggests a possible focus on creating smaller manufacturers.

Strategy and structure

 
The idea has however not received unanimous support as small business advocates worry that it will create a “ghetto” into which all small business issues will be consigned, without impacting on broader economic policy. The alternative suggestions include creating a commission or locating small business in the Presidency.
Taken together, there is agreement that improving public policy for small business requires an institutional home, but disagreements on exactly what that home should be. Underpinning this call for a home for small business in government, is the widely accepted view that public policy on small business requires a major overhaul. It is on this foundation, that the tensions between strategy and structure can be merged.
Traditionally, the process of developing public policy culminates in a White Paper. Usually, this is based on research, available evidence and consultation. A more experimental approach to public policy making could however serve small business owners better and improve the quality of public policy. The idiom “learning by doing” summarises this approach. [ref] This experimental approach has gained credence with the publication of books such as Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty by Abhijit Banerjee and Esther Duflo  and More than good intentions: Improving the Ways the World’s Poor Borrow, Save, Farm, Learn, and Stay Healthy by Dean Karlan and Jacob Appel  These books provide important ways to understand how to make choices between public policy options and to scale successful initiatives. In the case of South African small business it is worth considering such an approach. [/ref]

Experiments

As an example, government could create a venture capital fund that aims to accelerate startup activity in South Africa. Innovations such as requiring entrepreneurs to find matching funds from other sources, or from their savings could be introduced. In addition, partnerships with existing small business support programmes could be fostered. Importantly, government would begin to understand its role as a venture capitalists, and through that explore whether a shift from providing loans to venture capital would work.
As another example, government could reduce the risk of starting a business by dramatically reducing or eliminating taxes for small business. This would be a much more ambitious programme of tax reduction for small business than the existing programmes. Government would thus learn whether eliminating taxes on small business would support businesses to move beyond the startup phase.
In yet another example, government would seek to grow the number of suppliers into value chains. This would require creating markets in which smaller companies could sell to larger companies, on a fairer basis. The small scale agricultural sector could be a prime candidate for such an initiative, through both selling of produce and through small scale agro-processing. In this case, government plays a role as an intermediary and market maker, either directly or through partnerships.
More experimentally, government could support the creation of maker spaces – which provide tools for prototyping products and reduce the costs through digital innovations. The current work by the Department of Trade and Industry on incubators could be leveraged to support South Africa’s innovators.
 
These examples are all affordable, within existing resources, but require careful  reprioritisation of both taxation and expenditure. Importantly, the small business ministry in these examples would not be playing an “integrating and coordinating” role but rather as a space to test several carefully selected ideas. In this process, it would construct its relevance and provide leadership to government departments.

Structural Change?

The Achilles heel of adopting a more experimental approach; critiques would argue; is that it does not tackle wider structural changes needed in the economy. This warning must be heeded, if we are to proverbially “get bang for our public bucks”. Thee lessons learned from the experiments would be vital to understanding how to scale interventions in the small business sector, especially the links to industrial policy . In so doing, projects selected to scaled up would support wider structural changes.
In providing a mandate to experiment with several ideas would create a model of evidence based public policy making, where government learns by doing. In adopting such an approach the speed of getting products to support small business is increased, as is the ability to scale up what works. In making decisions on small business ministry President Zuma must focus on the development of strategy through experiments, rather than a staid process that leads to a White Paper that emphasises “coordinating and integration”.
 
An edited version of this column first appeared in the Sunday Times on May 18, 2014.

Just Start – Go small, quick, iteratively and cheaply

“Just start” is a mantra by all startup gurus. This post uses the example of the Tuts + network to show how working with what you have is crucial to starting quickly.

Of all the entrepreneurial mantras out there, probably the most famous is possibly “Just Start”. It sounds reasonable and even motivational mantra, and gels with our ideas of entrepreneurs as creatures who throw caution to the wind. Yet, when one looks carefully at successful entrepreneurs they are neither risk takers, nor running around aimlessly doing stuff. The risks are smaller, and there is a process of learning.
I have been a customer on Envato for four years. Envato runs a network of sites selling digital files and a set of educational sites, and a couple of other things. It is the biggest marketplace for WordPress themes in the world. It is however a very successful business. From a customer perspective I have some issues with the business, but still regularly purchase from them. In 2010, the CEO/ Founder of Envato gave a five minute talk that helps us understand the “Just Start” philosophy using the Tuts + network as an example.

Three features of the presentation are worth noting:

  1. Start small – In the presentation notice how they started with literally a basic static website, and overtime invested in the development of the
  2. Start quickly –  Everything does not need to be perfect, but having a product or service available provides a
  3. Make changes – These days the concept of a pivot is popular in the startup community. In building the Tuts Plus network the changes the important feature is that they were making changes as they better understood there customers.
  4. Cash flow – In this presentation, Collis Ta’eed notes that it took them 18 months to become profitable. Managing costs and keeping costs down are crucial.

Means in Hand

The story told in the video resonates with one of the principles of effectuation. The principle is called “Bird-In-Hand”, which focusses on the means that are available to entrepreneurs. It is drawn from the idiom “a bird in hand, is worth two in the bush”. The presentation shows this principle. Ta’eed has at his disposal the following:

  • Photoshop skills: Knowing how to use Photoshop is a fairly common skill
  • HTML skills: Again, a resource available to most people, and fairly easy to learn
  • 3 Tutorials: Again, developing a couple of tutorials is not that difficult.

The important lesson is that using these available resources, they were able to get started really quickly and test an idea – with available means.

10 Myths of Entrepreneurship

Amongst the many myths of entrepreneurship, the most jarring is the existential question:

Am I really an entrepreneur? 

This is the self-doubt that almost every entrepreneur faces at some point. The reasons for this self-doubt are many, and include the hero status that some entrepreneurs have. In the face of outstanding success by these entrepreneurs we wonder whether we have the insight, determination, product and skills to build what we dream. The narrative is intended to empower, but may have the opposite result.
The video below dispels several of the myths associated with entrepreneurship, including understand who and what entrepreneurs are. The video draws on the excellent work of Saras Sarasvathy, who has introduced the concept of “effectuation” to the entrepreneurial world. The video starts with super entrepreneurs, and helps us to learn lessons. Most importantly, through understanding the myths, it helps us deal with self-doubt and get started.

 Myths Of Entrepreneurship


The important learning for me from this video are:

Entrepreneurship is Not Extraordinary

At one point for all of us, riding a bike was extraordinary. After a few stumbles and bruised knees we learned to ride a bike. In doing that riding a bike became both enjoyable and ordinary. In the video the same point is argued, entrepreneurship should not be viewed as extraordinary, but that each of us have this capacity.

Start with available means

I have seen business plans that need such huge investment that no bank or investor are likely to finance it. The ideas underlying the business plan are often sound and sometimes inspiring. The problem is that it is just a plan, the company has literally no customers, and they have not taken the time to test their idea. Starting at a different point would help these entrepreneurs. They should instead start with what their available means. Tapping into networks, using money to build a prototype or even getting commitments from potential clients are all within our available means. It may even help getting finance for your business, but more importantly it may allow you to bootstrap your business or in the worst case realise that your idea is not that good.

Multiple Goals

Personally I have many, many ideas. This creates a huge problem of focus for me, and everyone tells me that I need to focus on one idea. Effectuation looks at ideas and actions differently. It encourages having various possible goals and to develop solutions to these specific problems. Importantly, it asks you to reassemble your available means in creative ways to reach a goal. A word of warning though, managing multiple ideas, goals, action plans and customer service is extremely difficult, and not what I am suggesting.

The learning point is rather not to  fixate on one outcome, but rather be open to various endpoints.

This is a lesson we learned at Zapreneur. I started this looking to develop an online publication focussed on economic inclusion and small businesses. My intention was to run this as a paid subscription model. In the process we learned that South African entrepreneurs have a very different set of problems, and that we could develop small and useful online applications that could solve real problems. Proposal Desk is our first attempt.

Affordable Loss

Dreaming of making a million bucks in a year or even a month? Dreaming of buying an island? Stop!
Rather than focus on the upside, focus on the downside potential. Knowing how much you can afford to lose is vitally important. It provides a constraint to your ideas, and as a result brings discipline, effectiveness and reduces financial stress. In fact, go so far as to have a very specific number in mind. You need to know for instance that, I am willing to lose R 10 000-00, and willing to invest six months of time into starting this business. Knowing that allows you to plan your expenses, pay the kids school fees, design a realistic marketing plan and know your breakeven point.  That is an incredibly empowering position to find yourself in.

Create The Future, Do Not Predict It

The exciting part of entrepreneurship is that we have the opportunity to create products and services that make the world a better place. Through using principles like affordable loss and using available means, creating the future becomes more action orientated .  See you at the start line !
(Over the next few weeks, I hope to discuss effectuation in greater detail and with examples. )
 

Global Competitiveness Index South Africa – Whose reality counts for small business?

 
“Global Competitiveness Index South Africa” is a common heading on slides discussing economic policy in South Africa.The data from the Global Competitive Index by the World Economic Forum plays a very important role in South Africa because it is seemingly reputable and rigorous. Motivations for several policy initiatives, in fact,  are directly substantiated by our rankings in the this international league table. The data is however derived from both national surveys (such as those conducted by Stats SA), but also includes a set of questions posed to business leaders. The questions related to perception of business leaders in South Africa (a handful actually) leaves me wondering why my reality is so different from theirs. I found the responses to issues related small business , extremely worrying, as the respondents to the survey share a world very different from that of a startup like Zapreneur.
Three questions stood out for me:
 

  1. Intensity of local competition: The question asked was “In your country, how intense is competition in the local markets? [1 = not intense at all; 7 = extremely intense] “ . ?The survey placed us at number 45 out of 148 countries, with a score of 5,26.
  2. Extent of market dominance: ?The question asked was “In your country, how would you characterize corporate activity? [1 = dominated by a few business groups; 7 = spread among many firms] “. ?The survey rated South Africa 37 out of 148 countries, with a score of 4.28.
  3. Effectiveness of anti-monopoly policy: The question asked was In your country, to what extent does anti-monopoly policy promote competition? [1 = does not promote competition; 7 = effectively promotes competition]. Wait for it Zapreneur readers, we are ranked number 8 in the world, with a score of 5.32.
GCI - South Africa Competitiveness Index (Zapreneur)
South African Respondents on Competition

Small Business Realities

Over the last two years and nine months since Zapreneur started, I have discussed issues with many small businesses in South Africa. This interaction tells me that there is a wide gap between the business leaders asked to respond to the World Economic Forum survey on the one hand, and the entrepreneurs starting and running businesses in South Africa. The perception I am left with is of an economy that is highly concentrated, where big players have dominance of value chains and where good initiatives on competition policy have yet to yield results in the day-to-day realities of starting and running a small business in South Africa.  I would thus of answered the questions asked in a very different way, and from a very different perspective.
This worries me a great deal, as part of what Zapreneur does is to advocate for easier starting of businesses in South Africa, but also for structural change to support small businesses and the entrepreneurs that run them to run viable opportunity based businesses. Yet, it seems before we can do that, we need a set of common understandings on what the nature of the South African economy in terms of its competitive landscape is. At the core of good public policy making on small business is understanding the nature of the problem we have, and if our business leaders think that we have an economy supportive of startups we are clearly have differences in understanding of the our economy. It raises the question ” Whose reality counts”?
(Perhaps, a useful way to start the discussion would be to better describe my understanding of the challenges we face. I have made a start but more is still needed to develop evidence based policy on small business in South Africa.)
 
 

South Africa's Jobs Fund Is Not For Startups and Small Business

Six reasons why the Jobs Fund is not supporting start-ups in the South African economy.

Jobs Fund Logo
Is the Jobs Fund supporting small business?

At a  workshop with the Black Business Council the Jobs Fund (see associated presentation)  has indicated it will not fund:

Start-up companies and initiatives with no track record or proven capacity to implement.

(To access the presentation, please see the “Latest News” section of the Jobs Fund
The New Age reports that start-up companies need to  partner with empowered companies with proven track records. The intent behind this is to ensure that the Jobs Fund targets projects that have the strongest case for success, in terms of addressing unemployment.
The logic behind this decision however is questionable for six related reasons.

South Africa Jobs Fund meeting its objectives?

First, adopting this approach is unlikely to meet the Jobs Funds objectives. The Jobs Fund states its goals as follows:

  • The ultimate goal of the Jobs Fund is to identify and learn from effective interventions and programmes that will contribute to accelerated job creation and a better functioning labour market.
  • The specific goal of the Jobs Fund is to provide a mechanism that can identify and fund creative solutions to overcome identified barriers to job creation and active labour markets.
  • In the process, the Jobs Fund aims to create a minimum of 150 000 sustainable jobs in South Africa over a five-year period. A “sustainable” job in the context means a new, full-time equivalent job that is self-sustaining beyond the lifetime of the initial grant.

The goals are laudable, however it will not offer answers to the question – What interventions are potentially scalable to encourage start-up activity? This is potentially the biggest unanswered questions in our attempts to bring about more equal ownership of the economy. The Jobs Fund has however structured itself in a way that it will not learn about the experiences of start-ups in South Africa. Ironically, this approach limits the role of potential jobs arising from South African start-ups.

Small business creates jobs

Second, small business must play a role in job creation. However, the revised criteria not only places onerous conditions on start-ups, but also signals that it will focus on high growth sectors and labour absorbing sectors. The focus aims to align spending with opportunities that have strong focus on growth, and could create jobs. However, successful small businesses will emerge not only in current growth sectors, but in sectors that are embryonic.
Reading between the lines it is thus conceivable that the small business are left out from a potential funding source as by their very nature they are often in sectors that are outside government definitions of “high growth” sectors .
To be fair, the current reports on the Enterprise Development window shows that funds are directed at intermediary organisations, some providing financial and non-financial support to small business. The point being made is that the Jobs Fund should work more closely and more directly with small business especially in terms of government supported venture capital.

Unfair to startups

Third, the terms of entering into partnerships are unfair to startup owners. Essentially, what The Jobs Fund is suggesting that start-ups enter into agreements with larger companies, with larger empowered companies holding the trump cards. Arguably, partnerships could be based on a non-financial contribution. Even in this case, it is an onerous process to undergo, to access potential government funding. To be clear, start-ups need all the support they can get, but potential founders are less likely to emerge when they are required to (a) find matching funding and (b) possibly give up equity to a larger partner.

Support opportunity Based Entrepreneurship

Fourth, opportunity based entrepreneurship creates jobs. The Global Entrepreneurship Monitor (GEMS) shows that across the globe focusing on opportunity based entrepreneurs yields good outcomes on the creation of jobs. Testing what makes opportunity based entrepreneurship works is thus crucial to the goal of creating long-term sustainable employment.

Misunderstanding Risk

Fifth, the Jobs Fund does not understand risk in a way that is supportive to the goal of job creation. The Jobs Fund adopts an approach that is focused on the These criticism of The Jobs Fund should however be viewed in relation to a startling admission:

The Jobs Fund is not intended to tackle the long-term, structural causes of low growth and unemployment. (emphasis in original).

The approach advanced by the Jobs Fund is thus inherently contradictory. On the one hand, it seeks to create sustainable jobs. On the other hand, it aims to do that without tackling the underlying causes. It fails to understand the risk of long term structural unemployment requires tackling the underlying reasons for structural unemployment. This can be done through supporting start-up activity, but also supporting interventions that focus on making access to value chains more accessible.

Crowding out venture capital

Sixth, start ups will compete with the Jobs Fund for limited funding.  Xolani Ndungane is quoted in Engineering News as follows:

Our target is higher, not just in terms of jobs, but also in terms of the amount of money we bring in from the private sector to co-fund the initiatives,”

The stated aim is to raise an additional R 10 billion from the private sector. There would be no problem with raising additional funding if the criteria supported new entrants into the economy, especially black small business. However, as it stands the raising of funds may impact on the already limited venture capital funding available for start-up funding. Should companies be incentivised to support Jobs Fund, or directly support opportunity based start-up businesses?

A Lost Opportunity?

Sadly, the positioning of The Jobs Fund does not change the opportunity basket available for start-ups and small business. We could receive a better impact for the initial R 9 billion invested by government in the Jobs Fund, through supporting start-up activity. The first investments in start-ups might not yield much needed jobs immediately, but could over the longer term begin to transform the underlying reasons for economic equality. Ultimately, the Minister of Finance is not going to be able to report to Cabinet about lessons learned about starting up in the South African economy, and that means we have not taken steps to utilise public funds to understand the practical steps to structural change in the economy. In short, the current approach to funding projects by The Jobs Fund fails to support a key vehicle of economic democracy and employment creation – start-ups.

Presentation – Government's Role in Supporting Small Business

Presentation on government’s role in small business and entrepreneurship.

How do we create viable small businesses in South Africa? The presentation below provides initial thinking to answer this question, and was presented at a workshop organised by the Economic Development Department (EDD).

Like the presentation? Want to keep up to date with small business in South Africa?  Join Zapreneur.

BRICS – Total Entrepreneurial Activity

Brics - Entrepreneurial activity bubble map

The Global Entrepreneurship Monitor (GEM) provides a basis for comparing entrepreneurial activity, aspirations and intentions globally. The chart below shows the Total early-stage Entrepreneurial Activity (TEA). TEA is defined as

TEA = Percentage of 18-64 population who are either a nascent entrepreneur or owner-manager of a new business

The data shows that there is a gap between South Africa which is has moderate economic growth, and Brazil, India and China which have significantly higher economic growth rates in terms of Total Entrepreneurial Activity. (Curiously, Russia has high growth rates but low TEA rate). The data however suggests that South Africa may be catching up, with these high growth countries.
Continue reading “BRICS – Total Entrepreneurial Activity”