RURAL ENTERPRISE DEVELOPMENT AS A MEANS TO POVERTY ALLEVIATION

by

D.C. BODLEY

2020

RURAL ENTERPRISE DEVELOPMENT AS A MEANS TO POVERTY ALLEVIATION

by

David Cyril Bodley

Submitted in fulfilment of the requirement for the degree of PhD Business Management from the Faculty of Business and Economic Sciences at the Nelson Mandela University

December 2020

Supervisor: Dr E.J. Zeelie Co-Supervisor: Prof H.R. Lloyd

DECLARATION

I, David Cyril Bodley (Student number: 215145720), hereby declare that the thesis for PhD Business Management is my own work and that it has not previously been submitted for assessment or completion of any postgraduate qualification to another University or for another qualification.

David Cyril Bodley

16 November 2020

ACKNOWLEDGEMENTS

I would like to thank my supervisor, Dr. E.J. Zeelie, for his guidance and constant support throughout my journey at the University. I am also appreciative of the wisdom imparted by my co-supervisor, Professor H.R. Lloyd.

I would like to thank the people of Geluksburg for affording me the opportunity to conduct research in their community. In particular, I am grateful to Sifiso Mkhize for his immeasurable assistance with organising and co-ordinating learning circle sessions, focus groups and individual interviews.

I would like to thank Leon Pienaar for his editorial advice in the compilation of the final dissertation.

DEDICATION

This dissertation is dedicated to my two children Bronwyn and Kimberleigh Bodley.

Pursue what you are passionate about, then persist whilst seeking the best guidance you can. This formula will bring you success and reward. My hope is that this work inspires successful fulfilment of your own passions in life.

Abstract South Africa’s disappointing economic performance over the last decade has resulted in a socio-economic crisis, with unemployment and inequality rates being of the highest rates anywhere in the world. Furthermore, unemployment is concentrated among the young, unskilled, and previously disadvantaged population posing a considerable threat to South Africa’s new democracy.

Internationally, a method to absorb job seekers into the economy is to make small business the engine-room of economic growth and development. Consequently, the South African Government has identified in its National Development Plan the establishment of small businesses as a priority, including the development of small businesses in rural and marginalised communities.

As rural communities in South Africa experience systemic problems such as the lack of infrastructure, financial capital, skills and potential markets, establishing enterprises in rural settings is often more complex than those more advanced parts of the economy elsewhere where fewer constraints exist. This makes the task of establishing and growing rural entities particularly challenging, suggesting bespoke policy and support is required.

This study analyses the literature to gain an understanding of economic development theory and how this intersects with and informs small enterprise development policy. It then looks at South Africa’s strategy and policy framework pertaining to enterprise development. Specifically, the literature examines the role of rural enterprise development to establish whether this enables people to move out of poverty or further entraps people in poverty.

The study collates data from a rural and marginalised community through observation and interview techniques. Firstly, multiple in-depth interviews were conducted with nineteen entrepreneurs in a rural community to collect data on business opportunities and explore the type of support entrepreneurs would require from government. Secondly, a focus group interview was conducted with entrepreneurs that had

i experienced institutional support to understand how well current policy and programmes support rural enterprise development.

The primary data was analysed in conjunction with the literature on economic theory and enterprise development using the technique of triangulation to avoid logic leaps and formation of false assumptions. The insights and findings from the analysis reinforced certain facts within the body of knowledge pertaining to enterprise development, but there were also some interesting new insights that emanate from the data.

South Africa has been able to introduce a wide range of policy initiatives and has multiple programmes and strategies to support small enterprise development. It has achieved firm success and impetus as well as experiencing certain failures. The study clearly highlights both and makes recommendations to improve policy promoting rural enterprise development as a means to alleviate poverty.

ii Table of contents

Abstract ...... i Table of contents...... iii List of tables ...... v List of figures ...... vi

Chapter 1 Introduction – Research Problem and Research Objectives ...... 1 1.1 Background of the Study ...... 1 1.2 The Research Problem ...... 5 1.3 Purpose of the Study ...... 5 1.4 Research Objective ...... 6 1.5 Scope of the Study ...... 7 1.6 Contribution of the Study ...... 8 1.7 Definition of Terms ...... 8 1.8 Synopsis of Chapters ...... 12 1.9 Summary ...... 13

Chapter 2 Literature Review on Economic Development in Post-Apartheid South Africa ...... 14 2.1 Introduction ...... 14 2.2 Ideas that have shaped Economic Development Strategy in South Africa .. 14 2.3 Breaking out of a Slow-growth Trap: The National Development Plan ...... 33 2.4 Implications for South Africa’s Contemporary Economic Development Policy ...... 40 2.5 Summary ...... 43

Chapter 3 Literature Review on Small Enterprise Development, Entrepreneurship and Economic Development ...... 45 3.1 Introduction ...... 45 3.2 Entrepreneurship and Economic Development ...... 45 3.3 Framework for Small Enterprise Development in South Africa ...... 57 3.4 Implications for Enterprise Development Policy ...... 72 3.5 Constraints to Enterprise Development in South Africa ...... 75 3.6 Summary ...... 98

Chapter 4 Research Design and Methodology ...... 100 4.1 Introduction ...... 100 4.2 Research Methodology ...... 100 4.3 Summary ...... 120

Chapter 5 Research Findings ...... 121 5.1 Introduction ...... 121 5.2 Findings from Documentation ...... 121 5.3 Empirical Findings in the Setting ...... 129 5.4 Arrangement of the Data ...... 144 5.5 Synopsis of initial analysis and some key insights from the setting ...... 159 5.6 Summary ...... 160

iii Chapter 6 Analysis of Findings ...... 162 6.1 Introduction ...... 162 6.2 Analysis using the Growth Diagnostics Taxonomy ...... 162 6.3 Summary ...... 180

Chapter 7 Conclusion and Recommendations ...... 182 7.1 Introduction ...... 182 7.2 Research Findings ...... 182 7.3 Recommendations ...... 187 7.4 Caveats ...... 192 7.5 Recommendations for Further Research ...... 193 7.6 Conclusion ...... 195

REFERENCES ...... 198

Appendix 1: In-depth Interview ...... 218 Appendix 2: Focus Group Interview ...... 220 Appendix 3: Information and Informed Consent Form ...... 222 Appendix 4: Written Information Sheet ...... 225 Appendix 5: Written Information Sheet (isiZulu) ...... 227 Appendix 6: Oral Information Guide ...... 229 Appendix 7: Study Circle Worksheet ...... 230 Appendix 8: Geluksburg existing employment ...... 241

iv List of tables

Table 3.1: Informing policy and strategy initiatives from government since 1994 .... 58 Table 3.2: Laws and Regulations Supporting Enterprise Development in South Africa ...... 64 Table 3.3: Small Business Development Intermediaries Founding Legislation and Primary Outputs ...... 69 Table 3.4: Poverty rate estimates for South Africa ...... 81 Table 3.5: Percentage share and contribution to poverty reduction of income sources for the poverty headcount ratio (Po) 2008 at the R307 poverty line ...... 82 Table 3.6: Poverty-effectiveness ratios for the decomposition of the poverty headcount (Po), 2008 ...... 84 Table 5.1: SEDA’s definition of small enterprises ...... 122 Table 5.2: Programmes that are offered by SEDA ...... 122 Table 5.3: Direct and Wholesale Products from SEFA ...... 128 Table 5.4: Formal and informal sector representation (%) across income category in the Geluksburg* economy (farm and non-farm economy combined) ...... 139 Table 5.5: Initiate small enterprise ideas of participants (in-depth interviews) – and status after eighteen months from first engagement with participants...... 141 Table 5.6: Geluksburg livestock auction sales and revenue ...... 151 Table 7.1: Research questions linked to investigating methodology ...... 182

v List of figures

Figure 1.1: Unemployment rates in selected countries (%) ...... 1 Figure 2.1: World Bank Development Indicator – GDP per capita PPP ...... 17 Figure 2.2: South Africa’s GDP per capita growth -50 years ...... 18 Figure 2.3: The Historical Index of Human Development ...... 19 Figure 2.4: An Approach to Change ...... 34 Figure 2.5: South Africa’s key economic development policies and their underlying ideological influences (1994-2020) ...... 41 Figure 3.1: Employment in Agriculture: Percentage of total employment in South Africa ...... 48 Figure 3.2: South Africa’s broad policy framework informing small enterprise development ...... 57 Figure 3.3: National economic development plans, small enterprise development strategy and support institutions timeline...... 61 Figure 3.4: Institutional support for small enterprise development in South Africa ...... 70 Figure 3.5: Small enterprise development framework in South Africa ...... 74 Figure 3.6: Propensity to employ, by accounting status ...... 88 Figure 3.7: Propensity to employ, by specific location, 2013 ...... 89 Figure 3.8: Major service delivery protests, by year (2004–30 September 2018) ... 90 Figure 3.9: Experience and levels of performance ...... 96 Figure 4.1: The Hausmann-Rodrik-Velasco Growth Diagnostic Taxonomy ...... 114 Figure 5.1: Demographics of participants in the structured interview: Age ...... 130 Figure 5.2: Demographics of participants in the structured interview: Gender ...... 131 Figure 5.3: Demographics of participants in the structured interview: Education levels ...... 131 Figure 5.4: Demographics of participants in the structured interview: Experience levels ...... 132 Figure 5.5: Representation of firm type in the focus group interview ...... 133 Figure 5.6: Characteristics of participant enterprises: Firm types ...... 134 Figure 5.7: Characteristics of participant enterprises: Firm requirements ...... 134 Figure 5.8: Map of Geluksburg and surrounds ...... 136 Figure 5.9: Firm status of participant firms after eighteen months ...... 144 Figure 7.1: Rural informal small business development framework in South Africa ...... 183

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Chapter 1 Introduction – Research Problem and Research Objectives

1.1 Background of the Study

Reducing poverty is seen as one of the world's foremost challenges and in South Africa it is one of a triad of serious threats, the other two being unemployment and inequality (Nicolson, 2017). Poverty alleviation is a challenge in all quarters, especially in the rural areas where 35.2 percent of the population resides and, in a country, where only 43.3 percent of the total working age people are employed (Peyper, 2017). South Africa’s official unemployment rate for the second quarter of 2019 was 29.1 percent and using the expanded definition (which includes discouraged jobseekers), it increases to 38.7 percent (Mkentane, 2020). These unemployment rates are amongst the highest anywhere in the world (Figure 1.1).

Figure 1.1: Unemployment rates in selected countries (%)

Source: Mkentane, 2020

Poverty is more pervasive and entrenched in rural areas, particularly in the former homelands of the Apartheid era (Woolard, 2002; Machethe, 2004). For

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many in the rural economy, the preferred route is to earn an income by finding a job in formal commercial farming or in non-farming companies in sectors such as construction, milling, tourism and retail. Public entities such as municipalities, schools and clinics also provide significant formal employment and income earning opportunities. A further possibility, although a much more challenging route, is to generate income from self-employment through the establishment of small, medium and micro rural enterprises or cooperatives (Haggblade et al., 2010).

In South Africa, economic development is partly informed by a macro socio- economic framework launched in 2012 by Government, the National Development Plan (NDP). The NDPs overarching long term plan to 2030 (Vision 2030) aims to improve the living standards for all South Africans through the elimination of poverty and reduction of inequality. It prioritises employment creation through education, training and innovation as well as building the capacity of a developmental state. The NDP envisages the elimination of income poverty by reducing the proportion of households with monthly proceeds below R419 per person (in 2009 prices) from thirty nine percent to zero by 2030. Furthermore, the NDP’s Commission believes that around ninety percent of all new jobs by 2030 will be created by small business (National Development Plan, 2012).

An overall assessment of South Africa’s progress in implementing the NDP’s Vision 2030 is afforded by the Organisation for Economic Co-operation and Development’s Economic Survey of South Africa (OECD, 2017). The survey finds that the South African economy has “accomplished enormous progress” over the past two decades, boosting living standards and lifting millions out of poverty nationwide (OECD, 2017: 14). However, advances in poverty alleviation in South Africa have come from a social welfare approach, which includes pensions, disability payments and child support grants (Mkentane, 2020). These comprise the bulk of the government’s poverty alleviation and redistribution interventions. Other interventions such as government housing provision and free water allocation have also been important, but payments in grants outstrip these by a large margin (Rossouw, 2017). More than eighteen

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million people in South Africa currently receive a social grant and in the 2020 budget social development accounted for 15.9 percent of the government’s projected R1.95-trillion expenditure (Crotty, 2020; South African Treasury Budget Review, 2020). The importance of the grant system cannot be overstated. In many cases entire households subsist on these payments and would be rendered destitute without them. Recipients make use of these funds to purchase the bare necessities, like food and other essentials. To survive, recipients must spend whatever they receive with little possibility of any savings (Van Heerden, 2017).

Globally and especially in developing countries such as South Africa, enterprise development is viewed as a key strategy for economic growth, job generation and poverty reduction (Seekings & Nattrass, 2016). Instituting reforms to revive economic growth and promote small enterprise development rather than relying on social grants to support significant sections of the population is eminently more sustainable and preferable. To this end, the OECD’s Economic Survey (2017) identifies boosting entrepreneurship, which is low in South Africa in comparison with other emerging economies and growing small businesses as a critical strategy for economic recovery and job creation (OECD, 2017).

In rural areas, entrepreneurship is evident in small enterprises such as hairdressers, motor mechanic workshops, spaza shops and in small-scale farming. Importantly, these small enterprises represent assets that, with proper support and infrastructure, are able to generate income and have the potential to make a meaningful contribution to combating and eradicating poverty (Angelsen & Wunder, 2003; Alcock, 2016; 2018). However, given South Africa’s GDP per capita, the rate of early-stage entrepreneurship should be three times greater than the current rate according to the International Finance Corporation (IFC, 2019). Ferreira et al., (2010), as well as Chimucheka and Mandipaka (2015), point out that despite the support entrepreneurship has received in South Africa, it remains regrettable that more than seventy percent of new ventures fail within three years of being established. The key contributing factors for failure are suggested by Herrington et al., (2017) in the 2016/2017 GEM Report to be access to finance when starting a business, gaps in

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entrepreneurial skills resulting from a poor education system, and a lack of work experience. As a result, with fewer start-ups and a low rate of survival, there is a narrow pipeline of small businesses able to contribute to economic development.

In this context, a standalone Department of Small Business Development (DSBD) was established in 2014 to address the performance of the SMME and cooperative sector in South Africa. The DSBD’s mandate is “to support the radical transformation of the economy through the promotion and development of sustainable and competitive entrepreneurs, small business and co- operatives, that contribute to job creation and economic growth”. Its vision is “a vibrant culture of entrepreneurship and enterprise growth, where small business and co-operatives act as drivers of job creation and inclusive economic benefit” (DSBD, 2018). Unfortunately, the DSBD has been unable to improve matters, and on the 15th March 2018, the Chairperson of Parliament’s Portfolio Committee on Small Business Development, Ms Ruth Bhengu, expressed concern: “The failure of the DSBD is tantamount to a sabotage of the pro-poor agenda, thereby depriving SMMEs and cooperatives opportunity to realise their full potential. Drastic changes need to happen in order for South Africa to create 9.9 million new jobs through SMEs and cooperatives by 2030” (Parliamentary Communication, 2018).

The notion that small enterprises have the potential to generate income for people and households in the rural economy and thus contribute significantly to poverty alleviation, is a cornerstone assumption of the NDP and is widely supported by researchers including Haltiwanger, Jarmin and Miranda (2013), Chimucheka and Mandipaka, (2015); Seekings and Nattrass, (2016); and Alcock (2016, 2018). There is, however, an unacceptable record of failure and a need to streamline and improve the effectiveness of institutional assistance and policy for small enterprises if a meaningful impact on poverty alleviation is to be realised by this sector.

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1.2 The Research Problem

A key objective of the Republic of South Africa, as described in its National Development Plan, is to reduce inequality and eliminate income poverty by 2030. Development economists agree that an important approach to eliminating income poverty, is the development of a vibrant small enterprise sector. This task, however, is a challenging one particularly in the case of rural enterprises which typically are started by people with low skill levels and little or no business experience. Despite the introduction of the DSBD to coordinate enterprise development policy, it remains disappointing that the majority of small enterprises in South Africa fail within a short period of time. It is therefore important to investigate the relationship between economic development and small enterprise development, to ascertain if this strategy can produce pathways out of poverty or if this approach contributes to keeping people in poverty.

1.3 Purpose of the Study

The purpose of the study is to investigate the relationship between small enterprise development as a means to poverty alleviation in rural economies and economic development in South Africa. The starting point of the study will be to consider economic development theory to establish if a low level of entrepreneurship is a key factor in low economic performance of developing countries. Thereafter government policy, regulations and strategy to support the development of small enterprises will be examined in South Africa. Empirical evidence to provide deep insight into the issues constraining enterprise development will be elicited by engaging with persons owning or starting a small enterprise in a rural setting. Analysis of policy, legislation and programmes that are coordinated by government to assist the small enterprise to overcome constraints and be successful, will follow. This analysis will include formal applications for financial and non-financial support from the state to gauge the effectiveness of institutional support as provided by the state. Data collected during the study will be from observation, documents and structured and group interviews with participants from small enterprises in a rural setting. The study

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is therefore concerned with the intersection of enterprise development and developmental studies as well as empirical evidence from the rural setting. The study ultimately intends to produce fresh insights for enterprise development policy and the implementation thereof.

1.4 Research Objective

1.4.1 Primary objective

In line with the problem statement, the primary objective is to examine the relationship between economic development and small enterprise development as a poverty alleviation strategy, providing new insights for enterprise development policy and the implementation thereof in rural economies with systemic problems such as a lack of infrastructure, financial capital, skills and potential markets.

1.4.2 Secondary objective and research questions

The secondary objectives (SO) of this study are:

SO1 To identify the binding constraints that inhibit the development of small rural enterprises in South Africa.

The following research question will be addressed under this objective:

- What are the binding constraints that inhibit the development of small enterprises in the rural economy?

SO2 To investigate policy design improvements to overcome the constraints to small rural enterprise development.

The following research question will be addressed under this objective:

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- What improvements should be made to policies, regulations, and programmes that support the development of rural enterprises?

SO3 To motivate recommendations on how to institutionalise policy decisions and actions to sustain meaningful economic development in rural economies.

The following research question will be addressed under this objective:

- How can policy design improvements be institutionalised to ensure ongoing and continuous economic development in rural economies?.

1.5 Scope of the Study

This study will examine the intersection of economic development theory and small enterprise development to understand how enterprise development can support economic growth. This task will initially examine economic development theory to establish a framework for further analysis of the NDP and small enterprise development policy. Thereafter, secondary and empirical evidence will be assimilated to substantiate if this strategy creates pathways out of poverty or alternately entraps people in poverty. In completing this task, policy, regulations, financial and non-financial programmes to support small enterprise development will be investigated, and their effectiveness evaluated. Although numerous factors and approaches can influence poverty alleviation, the specific scope of this study is whether policy and programmes provided to small enterprises by the state in the rural economy are appropriate for development. The focus of the literature study and the empirical investigation is development economics, small enterprise development and state policy.

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1.6 Contribution of the Study

This study is important for the streamlining and improvement of policy and institutional assistance for the development of small enterprises in the rural economy. If policy, regulations and support programmes are to be improved in a meaningful way, economic development theory along with an in-depth understanding of the obstacles hampering enterprise development and solutions to overcome constraints will need to be considered. Although some research has been conducted on state sponsored training programmes, the DSBD was only established in 2014 and co-ordination between the intermediaries remains weak. A study that investigates how best to streamline and/or reform policy to aid rural enterprise development is therefore timely and helpful in the context of South Africa’s overall economic development. Insights from this study will assist policymakers as well as non-government agencies and local municipalities to improve rural enterprise support and enable this sector to create employment and alleviate poverty.

1.7 Definition of Terms

With the focus of this study being to provide insight into how to improve policy and the effectiveness of institutional assistance when developing rural enterprises, clear definition of the following terms is presented.

1.7.1 Deliberate practice

Doing an activity that is outside your comfort zone, with a specific goal in mind, informed by expertise. This is opposed to naïve practice (simply doing an activity) and purposeful practice (doing an activity outside your comfort zone, with a specific goal in mind). (Ericsson, 2006).

1.7.2 Development

Refers to a process or to a state: either at the act of developing or else the state of having been developed (Clunies-Ross et al., 2009).

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1.7.3 Development Economics

A branch of Economics concerned with the efficient allocation of scarce resources and their sustained growth over time, interfacing with the economic, social, political and institutional mechanisms in primarily the less developed countries of the world (Todaro & Smith, 2011). The discipline’s primary aim is to understand developing economies to assist in improving livelihoods of people across the globe.

1.7.4 Development and growth

These are two separate issues which are both required, and which overlap.

In one sense, economic growth is indicated by a country’s total national income, while development means the increase in its national income per head of population.

In the other sense, economic growth can be denoted by an increase in national income per head of population (considering only the computable material aspects of economic advancement), whilst development is broader and less simple to measure, as capabilities of people, in the Amartya Sen sense, are considered alongside per capita material advancement (Clunies-Ross et al., 2009).

In this study, economic growth will be referred to as growth in total income, or to growth in income per head. Where the term development is referred to without qualification, it should be taken to mean an advancement in the broader sense, incorporating growth in average income but also an increased equality of distribution and the associated changes in sociopolitical development.

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1.7.5 Entrepreneurship

Entrepreneurship represents “the resources, process and state of being through and in which individuals utilize positive opportunities in the market by creating and growing new business firms”. As a resource entrepreneurship is attributed as institutional value in economics, as a process it provides for the science of management studies on the start- up and growth of firms, and as a state-of-being entrepreneurship is allowed greater value than making a profit (Schumpeter, 1950; Naude, 2013).

1.7.6 Firm

In the literature, enterprises are often referred to as “firms”. This reference emanates from ‘Theory of the Firm’ which broadly speaking is the study of how the means of production such as raw materials, labour, capital and technology are organised by the entrepreneur in the pursuit of profit maximisation (Seth, 1994; Lombard & Vosloo, 1994). In this study, the terms enterprise and firm are used interchangeably.

1.7.7 Informal business enterprise

In South Africa, enterprises that are below a R1 million rand per annum turnover, are not required to register to pay VAT, and it is these entities that are classified as ‘informal’ in the literature. It is also evident that as far as employment is concerned, jobs can be ‘informal’ in any sector if appropriate contracting and benefits are absent (Cichello & Rogan, 2018).

1.7.8 Policy

Dunleavy (1980) suggests that policy can be defined as an implicit or explicit position adopted by or attributable to decision makers in state apparatus, entailing specific patterns of activity or inaction by state

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agencies. The Etymology of the word ‘policy’ can be traced from Latin via French to English where it ended meaning a plan of action. Such plans are not confined to government’s only, but for the purpose of this study ‘policy’ refers to government plans on various aspects pertaining to poverty alleviation and rural enterprise development.

1.7.9 Poverty alleviation

The term “poverty” conjures images of starving children, overcrowding and informal settlements. However, poor people have their own understanding and interpretation of poverty, which is often a multifaceted reality consisting of, inter alia, lack of power, income and resources to make choices and take advantages of opportunities (Davids et al., 2009). In this study, the use of a poverty line (which is monetary in nature) is used to develop a dichotomous indicator to separate ‘the poor’ and ‘the non-poor’. Those who move above (or dip below) the poverty line are held to have ‘escaped poverty’ (or to have ‘entered’ it) (Du Toit, 2005).

1.7.10 Rural economy

The definition of “rural South Africa” includes villages and small towns as well as larger “rural clusters” in the former homelands, created as a result of apartheid removals, which largely depend for their survival on migratory labour and remittances (Department of Rural Development and Land Reform, 2015). In these areas the collective activity in the farm and non-farm sectors constitutes the rural economy.

1.7.11 Small enterprises

“Small enterprise” is defined in the National Small Enterprise Act No 102 of 1996, as amended, as “A separate and distinct business entity, together with its branches or subsidiaries, if any, including co-operative enterprises, managed by one owner or more predominantly carried on in any sector or subsector of the economy mentioned in column 1 of the

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Schedule and classified as micro, very small, a small or medium enterprise”. This definition encompasses and recognizes both informal and formal enterprises in all sectors and includes co-operatives.

Notably, the 1996 Small Business Act originally incorporated non- governmental (NGO) organizations in its definition, which are excluded in the amended Act.

1.8 Synopsis of Chapters

Chapter one is an introductory chapter which details the objectives of the study, provides background to the research question and details the contents of the study.

Chapter two is the first literature review chapter which will contextualise Development Economics, then track the major ideas that have informed Development Economics over time. Insights for economic development policy and the implementation thereof will conclude this chapter.

Chapter three is the second literature review chapter which investigates theoretical insights from the intersection of enterprise development and developmental theory and reviews empirical evidence on that relationship. A framework for analysis will be derived from the theory and this will be related to the National Development Plan.

Chapter four is the research methodology chapter which gives detail on the research philosophy and approach as well as the reasons for this selection. The research strategy and data collection instruments that were designed for primary data collection are also discussed in this chapter.

Chapter five incorporates an analysis of programmes offered by the SBD Portfolio in support of small enterprise development. Furthermore, the primary data collected from the setting is ordered and presented for further analysis.

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Chapter six is the data analysis chapter where the data is processed using triangulation between data sets. The analysis is guided by the Growth Diagnostic taxonomy to systematically address the preset research objectives and questions. Chapter seven contains final conclusions and recommendations on both policy design and the institutionalisation thereof.

1.9 Summary

Poverty in South Africa is one of the country’s triple threats, the other two being unemployment and inequality. Potentially, people that are unemployed can be assisted by establishing viable income-generating businesses that have the potential to alleviate poverty. In 2012, South Africa adopted the National Development Plan which articulates the view that small business will account for ninety percent of all new jobs by 2030, highlighting the government’s ambitions for entrepreneurship and enterprise development as a strategy to alleviate poverty.

Despite implementing sound small business development policy, research indicates that business start-ups are more likely to fail than succeed in the South African environment as most entrepreneurs are poor, live in poor communities and have little disposable income. This reduces the odds of success, especially when entrepreneurs are young and have no work or business experience.

The Department for Small Business Development was established in 2014 to coordinate policy, regulations and programmes that promote small business development in South Africa. With high failure rates persisting in the small enterprise sector, it is appropriate to examine the relationship between economic development and enterprise development to investigate if enterprise development is an appropriate growth strategy that enables pathways out of poverty and to provide fresh insight into policy supporting rural enterprise development in South Africa.

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Chapter 2 Literature Review on Economic Development in Post-Apartheid South Africa

2.1 Introduction

The background to and need for this study has been dealt with in Chapter one. The intention of this study is to investigate a single aspect of development that aims to generate employment and reduce poverty and inequality – the establishment of rural enterprises as a means to poverty alleviation. However, economic theory recognises that enterprises exist within the broader economy, supplying the market with goods and or services to make a profit and survive (Audretsch et al., 2006; Brakman et al., 2006). Therefore, as a component of a wider system, the study of this single solution extends beyond enterprises development to development aspects in the macroeconomy. It follows that the examination of enterprise development incorporates the relationship between economic development theory and enterprise development.

In this chapter, the literature will be reviewed to contextualise development economics and then track the major ideas that have informed development economics over time. Consideration of how these ideas have influenced post- apartheid South African development policy will be discussed concurrently. Thereafter, a theoretical framework containing key developmental ideas will be established and progress under the National Development Plan investigated. This review will culminate in an analysis of contemporary economic development policy in South Africa and direct the study in achieving its cited objectives.

2.2 Ideas that have shaped Economic Development Strategy in South Africa

2.2.1 Background

On 15 February 2018, Cyril Ramaphosa was inaugurated as the President of the Republic of South Africa and a new administration

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embarked on the reform of the country’s economy to raise the economic growth rate, create jobs and ensure that the growth benefited as many people as possible. South African experience regarding economic prosperity mirrors that of the wider international community. It is both difficult to achieve and to sustain. If this was not the case, all nations would be wealthy (Mathebule, 2019). Ramaposa’s ‘Thuma Mina’ call to action sought better implementation of the National Development Plan (NDP). It was not the policies that needed change, it was the implementation of these policies that was wanting. Afterall, the NDP was a product of the National Planning Commission (NPC), comprised of twenty-six highly qualified commissioners with disparate skills and ideological inclinations, which had developed a relatively detailed twenty- year plan over eighteen months. In its methodology, the NPC tested ideas in economic development through a number of two-day thematic consultative conferences as well as by social media to canvas ‘public opinion’. This quasi-democratic consultative process presented South Africa with a long-term development plan that required people to unite under and play their part in its implementation towards a prosperous nation.

Globally, and in the pursuit of a more egalitarian world, development economics as an academic discipline gained momentum after World War II with the reconstruction of war-ravaged countries and the nation- building of newly independent colonies (Krugman, 1996; Lin, 2017). Finding possibilities for developing countries to attain large-scale societal transformation became the essence of development economics. For example, development economists such as Rosenstein-Rodan, Lewis and Hirshman in the 1940s and 1950s reached a broad consensus that economies do better when they are more export-oriented, promote foreign direct investment, lift savings and investment rates to twenty five percent or more, and invest in human capital and infrastructure (Altman, 2019).

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A central concern was the extreme poverty of most of the world, as viewed against the affluence of the Northwest Europeans and their overseas descendants. The concept of poverty is not a simple one as it includes a subjective aspect: what individuals regard as poor depends to a degree on what they themselves are familiar with and would expect. As such Clunies-Ross et al., (2009) make the distinction between relative and absolute poverty. The ‘relative’ poor are those who are poor in their own eyes and in the eyes of those with whom they live. Normally this is a function of an income that falls below the median for their society, resulting in the lowering of status, but this may not necessarily mean the person lacks essentials such as reliable food or shelter. For those experiencing malnutrition, who are seriously deprived of essential resources such as food, potable water, secure shelter, basic healthcare and so on, these people are experiencing ‘absolute’ poverty. In development economics, the finding of solutions and the implementation of policy to eradicate absolute poverty in the world is most pressing.

A cornerstone assumption in development economics is that economic growth enables development, which requires economists to develop metrics of economic growth for countries. In 1940, one year into the second world war, John Maynard Keynes developed a method of calculating what an economy could produce with its available resources. His method of calculating Gross Domestic Product (GDP) is still used today. It primarily measures the size of a nation’s economy and includes governments spending in a country’s income (Kapoor & Debroy, 2019). For example, Figure 2.1 illustrates the World Bank’s use of GDP on a per capita basis to compare the improving economic performances of select developing countries including Chile, Vietnam, China and South Africa. China, Chile, Malaysia and Vietnam have raced forward since 1990 while others such as Colombo and Peru have proceeded at a slower pace. As all these countries share deeply challenging environments and are “mere mortals”, this illustration suggests that if some developing countries can achieve strong growth, so can they all (Altman, 2019).

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Figure 2.1: World Bank Development Indicator – GDP per capita PPP (Purchasing power parity)

Source: World Bank, 2019

A further observation from the data in Figure 2.1 is that economic performance does not necessarily correlate with a specific political ideology. China and Vietnam are one-party communist states that are producing good economic growth, but so is Malaysia which is a federal constitutional monarchy categorised as a representative democracy. Globally, there are examples of highly successful economies that follow divergent ideologies: The United States, United Kingdom (free- market capitalism), Denmark/Sweden/Norway (democratic socialism), and China/ South Korea (a developmental state approach). Notwithstanding that there is no ‘set menu’ for obtaining economic growth and accelerating development in its broader sense, global comparisons of economic growth strategies as conceptualised in understanding the logic of what has worked for developing economies (Greig et al., 2007; Bigsten, 2016).

In South Africa’s case, the data shows a trajectory of economic performance since 1994 that has been generally promising. Furthermore, in Figure 2.2 a longer-term view is considered, with

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historical data showing that South Africa has experienced growth, measured by GDP (in US dollars) per capita, over the last fifty years. The data shows that South Africa’s GDP per capita declined sharply in the period 1980-1992, as sanctions on the apartheid government took its toll. The period from 1994-2008 was, in spite of HIV epidemic, characterized by significant growth under an ANC government, aided by a commodity boom and bolstered by prudent management of the public finances (the debt to GDP ratio fell from forty-three percent to twenty-eight percent over this period). The period following the 2008/9 global financial crisis has been characterised by negligible economic growth and substantial population growth, both trends adversely affecting the GDP per capita ratio (Cameron, 2020). Despite this slowdown in the last ten years, the average growth rate over this troubled period has averaged 1.7 percent, indicating that there are serious problems that need to be redressed but also signalling that the economy is stagnating rather than imploding.

Figure 2.2: South Africa’s GDP (measured in Rands) per capita growth -50 years Source: Trading Economics, 2020a

GDP metrics of an economy’s performance do however not present a complete picture of how a country’s citizens are advancing. The average level of output of a country, or GDP, has conventionally been

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used as an indicator of the general level of potential material welfare and for this reason is a major component on what development policy aims to increase (Ghatak, 2003). However, measurements of development using GDP data alone do not provide evidence of how that income is being distributed nor do these metrics offer clear insight into which economic development philosophy is more optimal (Hess & Ross, 1997). As a result, economists have developed metrics that consider the impact of economic growth on the wellbeing of people. In Figure 2.3, economic historian Leandro Prados de la Escosura (2019) uses life expectancy, access to education and decent standards of living measured by GNI per capita over the course of two centuries. When applying this data to compare South Africa to its SADC neighbours, select Asian tigers and the USA, growth across all countries can be observed albeit at vastly different levels. Despite a drop in South Africa’s and the SADC countries human development indices in the early 2000’s, thought to be caused primarily by the impact of HIV on life expectancy, the data is virtually without exception optimistic.

Figure 2.3: The Historical Index of Human Development Source: Roser, 2019

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The long-term data presented by Our World in Data shows that countries across the globe have advanced in terms of human development indices, suggesting that most countries in the world are becoming increasingly developed. There is an argument from economists such as Solow (1970; 1987) that in time similar technologies will be available to all nations and that performances of the world economies will converge as have those of the United States, Japan and South Korea (Figure 2.3; Mitra, 2008).

The use of the Human Development Index illustrates the progression from national-accounting measures and a single metric point to more holistic methods with multiple metric points. Notably, the capabilities approach in development economics has gained momentum. It views development in terms of expanding substantive freedoms and directs attention to the issues that make development important rather than merely to some means that, inter alia, play a prominent part in the process (Sen, 2000). They see development as a process of expanding the real freedoms that people enjoy. Growth in GNP or individual incomes are considered important as a means of expanding individual freedoms, but it is also argued that freedoms depend on other determinants such as social and economic arrangements (for example, facilities for education and health care), as well as political and civil rights (for example, the liberty to participate in public discussion and scrutiny). If freedom is what development advances, this highlights the need for policy to focus on that overarching objective, rather than on a particular means and the measurement thereof (Sen, 1997; 1999). Furthermore, numerous studies demonstrate that people’s happiness is not closely correlated with higher income as normally computed (Layard, 2005).

Whilst South Africa has been able to sustain reasonable growth over the last fifty years in GDP per capita terms and has benefited from the establishment of a constitutional democracy with universal suffrage, there is still widespread frustration over the lack of freedom these

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gains have advanced for the majority of its people. High inequality, deep poverty, a divided society, crime and corruption all feature as critical developmental challenges in the South African context. Argument can therefore be made that long-term trends in the country’s economic history suggest further economic growth and development is probable, but that the current socio-economic problems are serious and require government to rectify these, failing which, the economic trajectory of the country will become unsustainable. Accordingly, and in pursuit of advancing development, the central ideas in development economics are considered in the following sub-sections, tracing how these have influenced economic development policy in post-apartheid South Africa. In doing so, a theoretical framework to examine the relationship between economic development and small enterprise development in pursuit of large-scale societal transformation and poverty alleviation will be established.

2.2.2 Classic economic development theories

Adam Smith is seen to be the first “development economist”, publishing his Wealth of Nations treatise in 1776. The period from the 16th to the late 18th century is known as the era of merchant capitalism and witnessed western currency systems being introduced to Africa, South American and Asian economies by wealthy merchants, whose primary purpose was the extraction of value in the form of raw materials and labour (or slaves). On a world scale, while economies had become more interconnected, the capitalist centre in the North (Western Europe, the United States, and Canada) was clearly dominant (Nafzinger, 2012). Smith’s theory argued for a world without trade barriers, the division of labour and specialisation, and for competition to drive the production of goods and services for better standards of living in society. He argued that in the pursuit of self-interest, competition between suppliers will ensure “an invisible hand of the market to bring order” (Stiglitz, 1991). British economist David Ricardo (1817) expanded on Smith’s work, and argued that all countries, even those less productive, would benefit from

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free trade and not protectionism (Yueh, 2019). Furthermore, led by the thinking of Joseph Schumpeter (1930s), it was theorised that survival imperatives force capitalists to seek new profits through the pursuit of new markets, which leads to innovation along with a shift of capital to these new markets. This causes sectors of industry to be devastated as a ‘creative destruction’ brings about the death of the old and the birth of the new (Kishtainy et al., 2012).

The role of free-market capitalism remains at the centre of economic debate in contemporary South Africa. The dominance of free markets is the preference of most external investors offering investments that would help stimulate economic activity in South Africa and grow its economy. The Bureau for Economic Research (2019) found that the South African economy could have been up to thirty percent or R1-trillion larger and created 2.5 million more jobs had the economy kept pace with its Sub- Saharan African peers over the last decade. Their conclusion is that slow global growth and falling commodity prices were initial drag factors but it is the domestic factors – policy uncertainty, mismanagement of state- owned enterprises and falling business and consumer confidence – that have caused the most damage to economic growth in recent times (Kemp, 2018). It is argued that at the heart of poor economic performance are policies that allow too much interference in the economy. The South African economy would be better served, they believe, if policymakers left things to the “invisible hand” and of the market self-correction.

A principal critic of Ricardo and free market capitalism, Karl Marx (1867), shaped his alternative theory of historical materialism based on historical changes in Western Europe: the French Revolution, the rise of industrial capitalist production, political and labour revolts and a growing secular rationalism. This paradigm introduces political factors and argues that the world order is a result of a clash of interests between the bourgeoisie (the capitalist class), proletariat (wage-earners in hire of an employer) and the peasantry (small agricultural producers making a living through

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selling crops and livestock). Development was seen as a revolutionary break from capitalism to a more equitable structure of society such as socialism. Marx viewed history dialectically: a progression from feudalism to capitalism to socialism driven by class conflict and, ultimately, the successful overthrow of the class controlling production by the oppressed class (Todaro & Smith, 2011).

In the South African context, political ideology plays a significant role in shaping economic policy and this has implications for this study and its objective of better informing policymakers on enterprise development. The South African Communist Party (SACP) was the political home for early leaders of a liberation movement which later became a political party, the African National Congress (ANC), and many leaders remain members of both parties, sharing Marxist political and economic ideology. The trade union movement headed by the Congress of South African Trade Unions (COSATU) has been successful in mobilising the working class and fundamentally changing the rules of how the South African economy operates. In post-apartheid South Africa, these three organisations constitute the Tripartite Alliance, which is firmly rooted in Marxist ideology and hopes to bring about a socialist revolution. Socialism is often the position of those marginalised or excluded from the economy and in South Africa this represents a significant portion of the electorate who are ideologically opposed to leaving matters up to the market (Rautenbach, 2017).

Where economic policies require careful political management, scholars from India suggest a tactical approach to implementing contentious policy. Vora and Palshikar (2004) maintain that for the developmental states of east Asia, economic reforms are easier to drive in authoritarian regimes, which is not always the case in democracies. In India, as in South Africa, reforms influence politicians at the ballot box and there exist major differences in reforms that affect the elites versus those that impact on the masses. To this end, Varshney (2004; 2007) suggests that a simple test be done to ascertain whether the reform measure will attract

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the attention of the masses or not. If the masses are well-organized and the policy is direct and obvious, the reform will enter mass politics and possibly lead to protests, and should, therefore, be avoided.

This strategy provides insight into India’s reform experience in the 1990s, which led to a five percent growth in the economy. However, with ballooning debt in South Africa’s state-owned enterprises and the downgrading by rating agencies, the implementation of unpopular policies to rescue the South African economy cannot be avoided even though popular resistance to these measures is more than likely (Silke, 2019). This still leaves room for initiatives that are eminently achievable. For instance, the commitment to a more stable allocation of budget to tourism and the creation of innovative market linkages to assist small- scale farmers achieve scale and ultimately graduate from emerging to commercial farmers. Such policy initiatives are important tactically, as they would seek favour across communities and ideologies, providing political space to implement more contentious economic policy (Mathebule, 2019).

2.2.3 Economic development theories of the period 1920s-1980s

Social and political unrest in Russia in 1917 led to the adoption of communism in that country and in the years following World War 1, the trust in the free market was tested by the Wall Street crash and United States recall of debt from Europe. Many economies in the world experienced a severe depression alongside. John Maynard Keynes in 1933 responded to the failings of a total free market in an open letter to US President Roosevelt recommending that government spending be used to kick-start the economy – this later took place in the form of a “New Deal” whereby the US government embarked on huge infrastructure projects and all banks were taken under federal control (Timlin, 1942). Keynesian economics advocated greater state intervention in or management of the economy, with government spending the prime method for boosting demand and lifting economies

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out of depression. The results were spectacular, and the Keynesian approach came to dominate economic policy in America and Europe following World War II (Bardhan, 1993). In contemporary South Africa, the Presidential Infrastructure Coordinating Commission (PICC) and the employment opportunities created for the poor through government’s Community Work Programme (CWP) are viewed as important job creation vehicles for economic inclusion at a significant scale, without relying on the markets alone to do so and without expecting the poor to self-employ themselves out of poverty (Altbeker and Bernstein, 2017).

Economic development thinking was also applied to address persistent problems of economic development in Africa, Asia and Latin America as compared to the economic progress experienced in Europe and North America. Modernisation theory evolved, based on the thinking that “less- developed countries” will become developed by following the path taken by developed countries. An example of modernisation theory is Rostow’s Stages of Growth Theory (1960) which proposes that countries follow a series of five stages from “underdevelopment” to “development”. This theory introduced the idea that investment is required in less developed economies leading to takeoff in per capita income and thereafter sustained growth (Davids et al., 2009).

Whilst Rostow’s classic theory has several weaknesses, including insufficient empirical evidence on conditions for takeoff, the notion of industrialisation as a means to sustain growth became a cornerstone theory in development economics. Simon Kuznets in 1967 illustrated that income per capita grows rapidly, even in the face of an expanding population, by introducing new technologies and growing manufacturing. Countries achieving this have populations that increasingly exit rural areas and move to the cities for work. Industrialised labour requires more skill and education than agricultural work. Workers benefit from the learning process and become better equipped to contribute towards culture change and business growth. Succeeding generations continue

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to benefit from these cultures and industrial advances, making industrialisation a sustainable growth strategy (Krishtainy et al., 2012). Rostow’s notion of takeoff made a comeback with Jeffrey Sachs’ book The End of Poverty. It provided the following argument: ‘A combination of investments well attained to local needs and conditions can enable African economies to break out of the poverty trap. These interventions need to be applied systematically, diligently, and jointly since they strongly reinforce one another’ (Sachs, 2005: 208). Sachs argued that takeoff would naturally follow sound developmental plans and adequate foreign aid. As a result, the takeoff narrative gained momentum in an international effort to meet the UN Millennium Goals for improvements in social and economic indicators in developing countries by 2015 (Altman, 2019).

A further influence on contemporary South Africa that has its roots in the 1960s, is the achievement of independence for most developing economies from colonial administration. The collective concern in these countries about the exploitative relationship between them and their colonial administrators triggered the rival of a Marxist-based paradigm in contrast to the pro free-market modernisation theory. This is best demonstrated by dependency theory, which pays attention to external variables rather than the internal explanations of previous theorists. A major dependency theory economist, Andre Frank (1972), maintained that countries become underdeveloped by integration into, not isolation from, the international capitalist system. Dependency theory argues that development should proceed within a traditional framework and that developing countries should adapt western technologies to their own conditions, circumstances and needs (Oumar & Samu, 2015). In contemporary South Africa, dependency theory continues to influence policy, an example being the continued call for the decolonisation of South African education curricula at schools and universities. This paradigm is also reflected in policies of the UN Development Program (UNDP) and International Labour Organisation (ILO), which in turn

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influences policy in South Africa towards multi-dimensional development issues such as social welfare, health, education and labour.

2.2.4 Economic development theories of the period 1980s-1990s

This period is dominated by the neoliberal counterrevolution, a market fundamentalist model that challenges the existence of public ownership, planning and regulation of activities by the state. To improve economic performance developing economies were encouraged to build well- functioning market economies by implementing a set of measures prescribed by what became known as the ‘Washington Consensus’: privatisation, marketisation, and liberalisation (Williamson, 1993). This neoliberal approach to development favours ‘shock therapy’ rather than gradual adjustment to price control, market creation, reduction in government spending, monetary restriction, deregulation and privatisation. Importantly, developed economies belonging to the Organization for Economic Co-operation and Development (OECD) were largely supportive of this free market, privatisation, supply-side approach, and these positions were adopted in turn by the two post- World War II international financial institution’s, the World Bank and the International Monetary Fund (IMF).

During this period, in 1994, the ANC participated in the first truly democratic elections in South Africa and was elected on the promise of “a better life for all”. In its election manifesto, encapsulated in its first macro-economic policy statement, the Reconstruction and Development Programme (RDP), it promised that “attacking poverty and deprivation” would be “the first priority of the democratic government”. The RDP would empower the poor to seize opportunities “to develop to their full potential” and “to sustain themselves through productive activity”, with government safeguarding access to social security, public education and other services (Seekings & Nattrass, 2016: 5). The underlying paradigm was one of growth through development rather that growth before development. The latter, the RDP argued, was the prevailing century-old

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problematic growth trajectory that would reproduce the systemic legacy challenges of inequality, poverty, chronic unemployment, and patterns of geographical underdevelopment.

To this end, an RDP office was established under the presidency to coordinate and lead democratic-orientated RDP government programmes. The concept of a developmental state was introduced with the RDP and has been a constant theme of the ANC-led government’s development strategy. The RDP approach was however short-lived. In 1996 the RDP office was closed and the more market-oriented GEAR (Growth, Employment and Redistribution) macroeconomic programme was instituted. The paradigm had shifted to growth, which was argued as a priority that must precede development. GEAR depicts development as a marginal effort of redistribution to areas of urban and rural poverty. In this view, development is a deduction from growth and the shift from the RDP to the GEAR represented a move from an interventionist and redistributive state strategy to a broadly neoliberal framework (Streak, 2004).

Tracking South Africa’s economic growth over a twenty-year period (1981-2011) Laubscher (2013) shows that South Africa real GDP per capita increased by thirty-three percent in the period dominated by neoliberal macroeconomic policies. Sustained acceleration in economic growth from 1994 to 2007 was achieved (except for the period 1998 to 2002 following a then crisis in emerging markets and worldwide economic slowdown). Reintegration of the South African economy into the global economy accounted for new business opportunities, increased competition, a predominantly business friendly and fairly predictable policy environment up to 2007, and a reduction in the cost of capital as a result of lower inflation and the consolidation of the government’s financial position.

Despite early gains in economic growth under GEAR, the neoliberal economic policy was viewed by members of the Tripartite Alliance as a

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clear failure. The following quote from a submission to parliament by the Peoples Budget (Cosatu, 2011: 3) describes a typical view from neoliberal critics about the inability of conservative macroeconomic policy to address developmental issues in the country: ‘Macroeconomic policy can either aid or retard development to the extent that it maximises or constrains resources available to implement developmental programmes. Over the past five years or so, the emphasis on fiscal austerity has produced a perverse planning paradigm in which developmental objectives have been supplanted by the secondary objective of reducing the government deficit ….. The hope that tight fiscal and monetary policy would attract private investment which, in turn, would drive growth has not materialized – in fact, the opposite has happened. Instead of leading job creation, private capital has led to job shedding and capital disinvestment’.

The critics of GEAR and the neoliberal approach, which amounted to the state playing a ‘facilitative’ role in a market-oriented economy that encouraged competition through the deregulation and liberalisation of trade across economic sectors, argued that this approach would not deliver on developmental needs and the removal of inequality in South Africa. Consequently, President Mbeki was removed at the 2007 ANC National Conference by a faction led by left wing elements within the ANC and the balance of the Tripartite Alliance (Nelana, 2010). Strong ties with Marxist ideologies remained within the leadership of this grouping and consequently the state’s role in the economy was transformed from being ‘laissez-faire’ to an active and developmental one. The 2007 Conference noted ’a broad consensus to build a developmental state with specific South African characteristics’ and that this would have the ‘capacity to intervene in the economy’ to ‘address the challenges of unemployment, poverty, and underdevelopment’ (ANC, 2008: 17).

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2.2.5 Contemporary economic development theories

In recent times, policy based on neoliberalism has been challenged on two accounts. Firstly, developing economies implementing neoliberal policies were unable to achieve growth in contrast to countries following alternate development strategies, as evidenced in Asia (Nafzinger, 2012). Consistent and fast economic growth was being achieved in East Asia where countries did not adhere to the Washington Consensus. One possible reason for this development was thought to be a cultural element: Chinese, Japanese, Korean and Vietnamese culture being a precondition. Even the South-East Asian countries amongst the fast developers (Malaysia, Thailand and Indonesia), had significant minorities that were of Chinese descent and who were predominant in business.

Secondly, an alternate explanation for rapid development outside the Washington Consensus framework, was attributed to superior resource endowments existing in these countries. Making this argument more plausible was the example of India, a fast-growing economy with a distinctly different culture and not subject to Chinese influence. The notion is that fast developing countries began this century with a high ratio of people to land and natural resources, low levels of education but a literate traditional culture, centuries of specialised skilled traders, some modern manufacturing, a highly educated elite, and an established administrative tradition. Endowed with this human resource blend these countries were ripe and able to implement fast economic growth (Li & Zhang, 2008).

Whichever argument is adopted, it is evident that development cannot be explained only by cultural and resource differences, most starkly demonstrated by the differences between people’s affluence in South and North Korea. In the latter case, it is evident that governments can prevent growth from occurring when it might otherwise occur despite favourable cultural endowments. Alternatively, South Korea and the

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cluster of fast developing nations with a substratum of culture or resource-endowments in place, experienced policy that switched on development, arguably by enabling interaction with the wider world. Therefore, the selection and implementation of appropriate policy represents a critical component in development.

Policy focused on the problems of inequality and poverty have led to the idea that underdevelopment is perpetuated by one or more ‘vicious cycles’ which have the effect of preventing growth and confining the economy to low-income, or a ‘poverty trap’. Rather, development should be stimulated by ‘virtuous cycles’ that would have the opposite effect, promoting growth by self-reinforcing, income-raising systems which work through ‘circular and cumulative causation’ (Myrdal, 1957). Viewed from this standpoint, poverty alleviation required the economy to attain a state of stable equilibrium. A vicious cycle could not be breached by small incremental improvements as it required interventions large enough and sufficiently prolonged to create a new equilibrium, preferably one that enabled per capita income to permanently outpace population growth. If the shock was not enough, per capita income would tend to return to its original low-level equilibrium value, thus perpetuating poverty.

The possibility that growth may be stalled by the existence of vicious cycles, suggested to economists the need for a special effort to push the economy over a threshold and into a region where sustained increase in per income capita is achieved. The specific nature of the special effort would depend on the nature of the factors inhibiting growth. The doctrine of balanced growth, associated with Rosenstein-Rodan (1943) and Nurkse (1953), asserts that development requires simultaneous expansion across a wide range of industries – a ‘big push’ to break the constraints of the ‘low-level trap’. Michael Kremer (1993) used the 1986 space shuttle Challenger as a metaphor for coordinating production in “The O-Ring Theory of Economic Development” - the concept being that the Challenger had thousands of components, but its malfunction was due to one faulty component, an O-Ring unable to handle the

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temperature at which it was launched. Similarly, production consists of many tasks (performed either simultaneously or sequentially), all of which must be completed to have full value. The inability in an economy to deliver on key aspects of production will fail to achieve equilibrium, resulting in a vicious cycle of underdevelopment. The UN Millennium Project (2005) for example, argued that coordination failure in poor countries results in a ‘poverty trap’ and that escaping the trap requires: ‘ a big push of basic investment between now and 2015 in public administration, human capital (nutrition, health, education) and key infrastructure (roads, electricity, ports, water and sanitation, accessible land for affordable housing, environmental management)’ (UN Millennium Project Report, 2005).

Locally, the thirty-three percent growth in GDP per capita under GEAR is placed in perspective by Laubscher (2013). During the same period, the GDP per capita of emerging markets and developing countries increased by a hundred and fifteen percent. Brazil, India, Indonesia and Turkey, for example, all outperformed South Africa. However, considering Easterly’s (2006) definition of takeoffs, whereby per capita growth that lies in the interval (-0.5%, 0.5%) to be ‘zero growth’ and stable positive per capita growth to be any subsequent growth that stays above 1.5 percent per year, South Africa had reached a point that surpassed the classical notion of takeoff. Furthermore, Kraay and McKenzie (2014) view poverty traps as rare and account for countries being persistently poor due to substandard fundamentals. However, South Africa’s inability to grow its economy at a pace that reduces its triple threats signals a fundamental problem of coordination failure that requires appropriate government policy and aid (investment) to be overhauled (Dorward et al., 2009). Accordingly, Altman (2019) describes South Africa as being in a “slow growth start-stop trap”.

A more selective approach to the big push thesis, which entertains multiple issues, is the diagnostic approach to development planning. Rodrik (2004; 2005) argues that following a “one size fits all” or

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presumptuous approach that attempts to accommodate all aspects of a particular theory is problematic as different countries, regions and even firms have different binding constraints on achieving economic development. To this end, Ricardo Hausmann, Dani Rodrik and Andres Velasco in 2005 proposed a Growth Diagnostic framework for determining a country’s most binding constraints on economic growth (Hausmann et al., 2006). The theory maintains that diagnosing the critical binding constraint is most relevant and, if correctly targeted, will bring significant development to an economy for a moderate investment (Dihn et al., 2010). Strategies such as the Washington Consensus or the United Nations Millennium Project Goals (MDGs) are viewed as overambitious and inefficient methods for developing economies such as South Africa, as these strategies attempt to remedy too wide a range of areas such as trade, fiscal, legal, regulatory, health and education (Rodrik, 2006b; 2008; 2010).

2.3 Breaking out of a Slow-growth Trap: The National Development Plan

Multiple developmental challenges have been referenced in post-apartheid South Africa, all of which are common to developing economies with problems of feeding, shelter, education, medication, accessing safe drinking water and sanitation services, and a reliable supply of electricity (Theron, 2014). The drafting and adoption of the NDP represented the country’s response to these problems and represents a comprehensive plan to break out of a ‘slow-growth trap’. In Figure 2.4 the NDP proposes an approach to change based on creating a virtuous cycle of development. It illustrates how leadership, coupled with effective government and active citizenry, can help drive development in a socially cohesive environment rather than perpetuate a vicious cycle of underdevelopment. The outcomes associated with a virtuous cycle are positive ones, and would include increased opportunity, growth, poverty reduction and rising living standards. In an opposing scenario, an economy in a vicious cycle of development would experience negative outcomes such as increasing poverty.

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Figure 2.4: An Approach to Change

Source: National Development Plan, 2012: 26

To investigate if the NDP has moved South Africa towards a virtuous cycle of development, this study uses a framework of analysis that synthesises the ideas in development economics, that were discussed in the previous section, into three “grand ideas”. The first “grand idea” of development is that development is reliant on growth that requires structural transformation from low-value added, low productivity and rural-based activities to more productive, higher valued activities in service and manufacturing located in cities. The second “grand idea” is that market failures exist and that the state has an important coordinating and regulatory role to play in development. The last “grand idea” idea is that development is a multi-dimensional concept that requires more than GDP growth and the eradication of income poverty (Naude, 2013). This synthesis of ideas provides a broad framework for an investigation into the merits of the NDP.

Providing context, the NDP envisages developing a capable state tasked with a vast range of goals to achieve by 2030: poverty is to be eradicated; inequality

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reduced; employment must increase from thirteen million in 2010 to twenty four million through improved economic policy coordination and implementation; per capita income should be boosted from R50 000 in 2010 to R120 000; and a million jobs must be created in the agricultural sector, with land reform being an important component (National Development Plan, 2012). Implemented to its fullest extent, and if the policies of NDP were discharged by a well-functioning developmental state, South Africa would have a thriving education and health system, abundant infrastructure across geographical divides and a far more egalitarian and content society. However, to achieve this the NDP is constructed around the need for sustained high levels of economic growth: 5.4 percent per annum under the best-case scenario and 3.3 percent per annum at worst (Berkowitz, 2017).

To date, topline evidence suggests that rising levels of economic underperformance threaten democratic gains that the country has made. Under the NDP the South African economy has been characterized by stagnation and lethargy. South Africa has fallen from 44th (2007) to 67th (2018) on the Global Competitiveness Index and its ranking between 2008 and 2018 fell from 35th to 82nd in the World Bank’s Ease of Doing Business report. Performance on the developmental issues of poverty, unemployment and inequality have also been poor. The Poverty Trends Report in South Africa for 2015 accounted for 30.4 million people (55.5 percent of the population) living in poverty and, concerningly, this had escalated from the 53.2 percent or 27.3 million people reported in 2011. Furthermore, sub-par performance is predicted by the World Bank, which in its 12th economic update for South Africa on 22nd January 2019 predicted a modest growth of 1.4 percent for 2019, far below the expectation of emerging markets at 4.2 percent and the sub-Sahara African average of 3.7 percent (Niselow, 2019). This growth rate is far below the 5.4 percent targeted by the NDP, making the achievement of the balance of the NDPs milestones problematic.

Insofar as addressing structural economic reform, it is evident that core policies under the NDP most closely resemble the neoliberal market-oriented policies promoted under GEAR (Karriem & Hoskins, 2016). The NDP remains

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committed to using low deficit to GDP ratios and a commitment to low and stable inflation as signals to entice investment. In the 2019 Budget Review, concerns over investment reaching a thirteen-year low of 17.7 percent of GDP are noted in the review and emphasis is placed on renewing business confidence through policy certainty. Furthermore, the NDP commits the country to transparent public finances accompanied by expenditure controls, and a central bank that functions independently to protect the value of the currency in the interests of balanced and sustainable growth. However, there are rising levels of frustration and impatience due to an underperforming economy and criticism is levelled at structural economic transformation policy following neoliberal market-orientated policies (Rumney, 2019).

Fundamental to the NDP is the delivery of GDP growth that ensures all citizens benefit and the belief that markets do not deliver on all issues. The idea of a “developmental state” follows in the wake of success stories in development economics, like that of China (Section 2.2.5). This approach-maintained protectionism and subsidisation of state-owned firms in old capital-intensive industries whilst liberalising market entry for the previously repressed labour- intensive industries (Rodrik, 2006). Similarly, Japan and the four Asian tigers – South Korea, Taiwan, Singapore and Hong Kong – all grew rapidly by following an export-orientated developmental strategy. Firstly, developing labour intensive, small scale industries and then gradually evolving larger, more capital-intensive industries with proactive government support (Li & Zhang 2008; Shepard, 2017). A core feature of China and the Asian tigers is the concept of a ‘developmental state’, which resonated with the left of centre ANC leadership and the balance of the Tripartite Alliance in South Africa (COSATU, 2005; Edigheji, 2010). The requirement to drive economic development by a ‘developmental and capable state’ unsurprisingly became central to the NDP. The economy was not going to be left to the market alone to self-correct.

Moreover, central to the NDP’s approach (Figure 2.4) is strong leadership and effective government. The NDP maintains that there is a need for capacity building in the public sector to deliver on social programmes and to create more jobs. Crucially, the NDP emphasizes the need for a ‘developmental and capable

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state’, which incorporates well-functioning state-owned companies, and there is a general belief that state interventions are needed to correct market failures (Karriem & Hoskins, 2016). Implementation of policy is therefore important. Rodrik (2005) suggests that implementation of a policy or plan is as important as the composition of the policy. For members of the Tripartite Alliance the root cause of the NDP’s poor performance can be traced to a decision taken at the ANC 2009 national policy conference, where it was decided that a part-time, semi-external National Planning Commission (NPC) be commissioned for the following reasons:

 A semi-external NPC of outside experts, would transcend the silo- tendencies within competing national line departments and ministries;  The ‘plan’ should be a society-wide plan and not just a government plan; and  By drawing on academic experts and even non-ANC thinking, the plan would enjoy broad support – a ‘shared South African road-map’.

This explanation highlights that whilst consulting experts is advantageous, the ‘outsourced’ NPC, unlike other planning equivalents around the world such as the Indian Planning Commission, did not have a strong organic link into government (SACP, 2013) and this weakened shared purpose when it comes to implementing the NDP. This is evident as early as 2012 where ANC leadership failed to unanimously endorse the NDP in all its detail. At the ANC’s 53rd Mangaung National Conference it was resolved that “we embraced Vision 2030 and the National Development Plan as a platform for united action by all South Africans …………..having considered the National Development Plan [we] agree that it forms an important basis for the development of a long term plan to build a national democratic society that is non-racial, non-sexist, democratic, united and prosperous and seeks to advance the National Democratic Revolution” (ANC, 2013 Conference Declaration) “The ANC must take the lead in mobilizing and uniting all South Africans around a vision of economic transformation that puts South Africa first. The National Development Plan is a living and dynamic document and articulates a vision

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which is broadly in line with our objective to create a national democratic society, and should be used as a common basis to unite South Africans in action around a common vision and programme of change” (Resolution on Economic Transformation).

Andrews, Prichett and Woolcock (2017) provide arguments that shared purpose is the foundation of continual improvement and resistance to reversals. A lack of shared purpose is displayed by the ANC-led government in their repeated use of the word “vision” to describe the NDP - implying that the NDP has a broad vision rather than a plan of action. Rather, the NDP is a “living and dynamic document” that is not cast in stone, even to the extent that it “broadly” speaks to ANC policy and does not encompass all policy. As a result, the resolution commits the ANC to “continue to engage with the plan”, allowing room for divergence from the NDP. From the alliance’s perspective, the NDP has diagnostic weaknesses and “fudges” ideological debates making it difficult to fully support all aspects of the plan (SACP, 2013).

On the positive side, the alliance partners perceive the adoption of long-term planning to achieve discipline across the state and state entities as a strength of the NDP. The ‘developmental state’ models adopted principally by East Asian countries to rapidly transform from poverty and economic ‘backwardness’ to modernised, technologically advanced economies provide sound reason to pursue this strategy. The original framework of the developmental state, one that ‘sets specific development goals and then single-mindedly mobilises society to achieve industrial modernisation’, was provided by Johnson in his analysis of Japan’s post-war modernisation (Karriem & Hoskin, 2016) Notably, it is this form of planning, and not the old-style Soviet Gosplan “central planning” that replaced the market mechanism, that is favoured by the alliance partners (Evans, 2014).

Therefore, the diagnosis is that the “developmental and capable state” in South Africa is characterised by unproductive ways of doing things and suggests this may be the reason why the NDP is floundering. Karriem and Hoskins (2016) cite some core aspects for a successful developmental state: political will; a

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long-term vision and determination of the country’s political elite to drive a development project; a meritocratic bureaucracy that places attainment of development goals and services to the country above personal and political interest; and the establishment of a central planning unit that drives economic and social transformation. An example of a highly successful developmental state is South Korea, and its growth is largely attributed to the ‘brightness of the state bureaucrats’, who were appointed after rigorous recruitment processes (Amsden, 1991). Competent, well-trained and accountable bureaucrats ensure the autonomy of the developmental state and are less likely to be beholden to unethical practices and interest groups. Similarly, Hattori and Sato (1997) illustrate the extent to which South Korea and Taiwan applied discipline and guidance by the developmental state over private firms. This work demonstrates how the East Asian model evolved in a historical, political, and geo-political context in which there was greater acceptance of strong, undemocratic states. Moreover, Ianoni (2013) advocates that in a strong bureaucracy there must be ‘coherence and co-ordination’ within and between state departments or agencies so that different parts of the state are responsive to leadership and implementation of policy.

In South Africa, the “developmental and capable state” has been unable to coordinate policy and address economic growth. The NPC is a temporary commission and, unlike most successful development states that have strong central planning departments, does not have powers to intervene in departments to ensure that their plan is implemented. To exacerbate matters, ‘several commissions are probing widespread corruption in the private and public sector’. Under these conditions, “It will take several years to undo the damage done through domestic policy missteps and the mismanagement and undermining of key institutions and state enterprises. The new administration [under President Ramaposa] needs to ignite confidence through clear and well- articulated policy in order to boost private investment and consumer spending” (Kemp, 2018). Arguably, the antithesis of what Karriem and Hoskins (2016) advise when building a developmental state has played out since the introduction of the NDP: There has been a lack of political will and determination of the country’s political elite to drive a development project, cadre deployment

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has weakened the competency of the bureaucracy, which has not placed attainment of development goals and services to the country above personal and political interest, and the establishment of a central planning unit that drives economic and social transformation has not been instituted and empowered.

Furthermore, the sluggish development of the economy under the NDP as a consequence of a “lack of implementation” alone, does not negate the necessity for a rigorous, evidenced-based assessment of post-apartheid policy. It fails to acknowledge that problems of implementation are often a product of poor policy in the first place (SACP, 2013). The argument that South Africa needs to improve policy execution and be less concerned about precisely what the policies are, can only be partly correct. Rather, empirical evidence on the relationship between policy initiatives and economic development is necessary before reaching conclusions on development policy and the implementation thereof in any given context. Moreover, evidence-based policy is particularly important in a country where politics and economic development policy are as intertwined as they are in South Africa. Opposing ideological positions in the economy mean that consensus on policy is not always possible and this makes implementation particularly challenging, as policy favoured by one ideology is often rejected by the opposing ideology. “We may all want a tougher, more decisive and more daring national leader. Ramaphosa has, at times, seemed to fiddle while Rome burns but he knows he cannot do anything if he does not survive politically. That’s just obvious” (Bruce, 2020).

2.4 Implications for South Africa’s Contemporary Economic Development Policy

In this chapter (Section 2.2), it was shown that ideas in Economics have shaped divergent views in the South African context and, that these range from David Ricardo’s laissez-faire market-oriented economics to the socialist doctrines of Karl Marx. Politics and economics are argued to be intertwined, and there exists support for both neoliberal and socialist policy within the ANC-led government and the Tripartite Alliance. Against this background, in Figure 2.5, South Africa’s

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key economic development policies under the ANC-led government are displayed on a timeline – all in the pursuit of “a better life for all” (Section 2.2.4).

Figure 2.5: South Africa’s key economic development policies and their underlying ideological influences (1994-2020)

Source: Own construction

The underlying socio-economic ideology informing national economic development policy over time is tracked in Figure 2.5. In response to Apartheid and following the 1994 elections, the timeline begins with interventionist and redistributive policy under the RDP. The backlog of inferior distribution to the majority called for policy to redress past imbalances by redistribution, which would in turn generate growth (Section 2.2.4). However, South Africa’s re- introduction into world markets and the prevalence of neoliberal thinking globally, moved economic development away from interventionist towards market-oriented policy. During this period GEAR, and the relatively similar ASGISA, produced strong GDP growth (Laubscher, 2013; Section 2.2.4). Despite the strong growth, however, inequality persisted, and this was unacceptable to many within in the ruling alliance. This would ultimately have political consequences in the form of a change in the political leadership (Section 2.2.4). The NGP followed and was expanded into the NDP, which re-

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introduced interventionist policy. The state not willing to leave the market to solve the country’s triple threats of unemployment, poverty, and inequality.

Insight from economic development theory in Section 2.3 illustrate that the state has a key role to play. Japan and the four Asian tigers – South Korea, Taiwan, Singapore and Hong Kong – have all experienced rapid economic growth following developmental state models rather than the Washington Consensus. These countries have pursued an export-oriented development strategy, firstly developing labour -intensive, small scale industries and then gradually evolving larger, more capital-intensive industries with proactive government support (Rodrik, 2006; Paulson, 2015). Against this background and with the persistence of the triple threats, the NDP introduced the concept of a “developmental and capable state” (National Development Plan, 2012). In Figure 2.5, the influences on national economic development policy over time represent a response to South Africa’s discriminatory past. Interventionist policy by a “developmental and capable” state is introduced rather than the market-oriented policy approach espoused by Adam Smith and David Ricardo (Section 2.2.2).

The implication of this diagnosis is that South Africa’s national economic development policy and the NDP reverts to an interventionist position insofar as solving socio-economic problems is concerned, preferring not to entrust these aspects to the market alone. In South Africa, appropriate economic development policy is required to address the inequality, unemployment and poverty concerns of the majority and ensure “a better life for all”. And achieving GDP growth without redistribution has proven to be unacceptable. Contemporary economic development policy in South Africa, therefore, necessitates that the state achieves economic growth in a market-oriented global economic context by balancing their approach with the NDP’s “developmental” agenda and implementing this agenda with a “capable” bureaucracy. This strategy, therefore, relies on selecting the right policies in the first place and then relying on the competence of bureaucrats to execute them effectively.

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2.5 Summary

Remedies for progress, accumulation of wealth, control over resources, industrialisation, economic growth, political and social modernisation, human prosperity and enlargement of people’s choices, globalisation by deregulation and liberalisation, and structural reforms to enhance wellbeing of people have evolved in economic theory over time. For fast growth, Asian countries have illustrated that enabling policy is critical, along with how well a country capitalises on its endowments, both physical and human.

The prevailing macroeconomic policy in South Africa, the NDP, has retained some aspects of GEAR, notably remaining committed to using low deficit to GDP ratios, as well as persisting with low and stable inflation to entice investment, whilst deepening the states responsibility in addressing poverty and inequality. The NDP is built around the country attaining high levels of GDP growth and the reduction of inequality through interventionist policies delivered by a ‘developmental and capable state’. The plan therefore incorporates policies that support a structured market-oriented approach to development, incorporates multi-dimensional measures of development such as poverty reduction, and promotes state involvement to address coordination failure in the market.

Topline evidence is that the plan is floundering on its development goals and unemployment, inequality and poverty persists. Overreliance on growth targets coupled with implementation problems has rendered the plan unrealistic. Rather, there has been a rapid decline in South Africa’s economic health and the ability for the fiscus to fund aspects of the plan related to well-being. Of particular concern is the high debt to GDP ratio, which has reached levels where more than half of the country’s income is spent on debt from past expenditure, thereby reducing spend on current developmental issues. This signifies coordination failure on behalf of the ‘developmental and capable state’ and evidence suggests that this is the antithesis of what it takes for a bureaucracy to be successful.

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For South Africa to break out of a ‘slow-growth trap’ it is necessary to adopt an achievable complement of programmes that, if tactically implemented, will enable participation and development of all citizens. The NDP is required to balance GDP growth with a “developmental” agenda and needs to implement by means of a “capable” bureaucracy. Given these factors and the objectives of this study, empirical research to understand the relationship between enterprise development and economic development theory will be the subject of the following chapters before reaching conclusions on enterprise development policy and the implementation thereof.

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Chapter 3 Literature Review on Small Enterprise Development, Entrepreneurship and Economic Development

3.1 Introduction

The influence of economic development theory on shaping macroeconomic development policy in South Africa has been dealt with in Chapter two. Given that this study investigates the relationship between small enterprise development as a means to alleviate poverty and economic development, this chapter is therefore concerned with the theoretical insights from the intersection of enterprise development and developmental theory as well as an investigation of empirical evidence on that relationship. Insights on how to improve enterprise development policy and the implementation thereof will conclude this chapter, as these are key in answering the research questions.

3.2 Entrepreneurship and Economic Development

3.2.1 Background, relevance and definition

The NDP envisages that around ninety percent of all new jobs by 2030 will be created by small business in South Africa. It estimates that one million new jobs will be created in the rural economy by 2030 and that two-thirds of these jobs will be farming jobs on commercial and smallholder farms, with the remaining third being upstream and downstream jobs. Of the farming jobs, the NDP envisages fifty percent of these coming from small-scale farmers. Another 105 000 jobs could be added if ‘better use’ is made of land redistributed mostly to small- scale farmers (National Development Plan, 2012). Achieving these ambitious targets in the overall and rural economy would require a GDP growth rate in excess of five percent per annum over the twenty-year period, and small business is viewed as one of the key contributing factors in achieving that growth.

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As enterprise development is reliant on the efforts of businessmen or entrepreneurs, it follows that entrepreneurship is considered a key component and catalyst of structural change in the South African economy. On one level, entrepreneurship is presented in economic theory as an occupational choice between self-employment and wage- employment (Nel et al., 2003; Longenecker et al., 2006). The narrative is that, if profits and the non-monetary benefits of self-employment exceed wage and other benefits, then a person will become an entrepreneur based on better opportunity. Further to this notion, Schumpeter (1950; 1961) provided the classical definition of the entrepreneur as the coordinator of production and agent of change (‘creative destruction’) and introduced the notion that entrepreneurs drive innovation within economies. The ‘Schumpeter’ entrepreneur is blessed with being an innovator and this behavioural trait determines a person’s career choice. However, in developing economies with low levels of industrialisation and high unemployment, self-employment is often a necessity and not a choice. Although entrepreneurship is synonymous with self-employment, the motivation and skill levels of entrepreneurs are distinctly different between opportunity, behavioural and necessity entrepreneurs.

Gries and Naude (2010) provide a synthesis definition of entrepreneurship that combines the behavioural or “Schumpeterian”, occupational, and necessity views of scholars. This definition represents an evolution on scholarly thinking on entrepreneurship, and defines entrepreneurship as “the resources, process and state of being through and in which individuals utilise positive opportunities in the market by creating and growing new business firms”. As a resource, entrepreneurship is attributed institutional value in Economics, as process it provides for the science of management studies on the start- up and growth of firms, and as a state-of-being entrepreneurship is allowed greater value than making a profit. The view of entrepreneurship being restricted to innovation and business creation, is therefore expanded towards one that sees entrepreneurship as a broader social

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phenomenon. Entrepreneurship is not only concerned with business success and profitability, but also with subjective welfare and non- economic wellbeing.

Under this wider definition of entrepreneurship, the following sub- sections consider the contribution that entrepreneurship can make to support the three “big ideas” in development economics.

3.2.2 Structural economic transformation and entrepreneurship

The dominant development model followed by leading nations in the United States, Europe and China, is one of ‘economic growth’ as measured by gross domestic product (GDP). One of the most influential contributions to this development model have been endogenous growth models inspired by Solow (1956) to explain the structural transformation of developing economies. Initially, thinking was that capital in developed countries was subject to diminishing returns and extra investment resulted in less and less output. Poor countries with little capital invested could make high returns on their investments and could use new capital with new technologies to provide very rapid growth, making it possible for all countries to become rich over time. In the long-run, structural transformation depends on the ability of an economy to adopt capital accumulation (’the Solow economy’) in order to maintain a growth path driven by knowledge accumulation (the ‘innovation-driven’ economy). (Peretto, 1999).

In developing countries, the role of entrepreneurs in agriculture and its adoption of technological changes is particularly important. Despite agriculture’s share of GDP in low-income countries in 2006 being only twenty six percent, data available for 1995 show that sixty nine percent of the labour force in these countries were engaged in agriculture (Clunies-Ross et al., 2009). In Figure 3.1, employment in agriculture as a percentage of total employment in South Africa was reported at 5.092 percent in 2019, and this has declined year on year from 5.6 percent in

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2015 (World Bank, 2020). As such loss of jobs in this sector is being experienced, and this mainly of unskilled workers.

Figure 3.1: Employment in Agriculture: Percentage of total employment in South Africa

Source: Trading Economics, 2020

Despite challenges and the trend of agriculture’s contribution to GDP declining in much of the world, the fact remains that this sector still dominates employment in many poor economies. The sector can and does contribute significantly to the overall growth of a developing country’s economy, and its expansion should receive special attention for reducing poverty (Mellor, 2008). The World Development Report 2008 for example considered agriculture as a ‘vital development tool for achieving the Millennium Development Goal that calls for halving by 2015 the share of people suffering from extreme poverty and hunger’.

For traditional development economists such as Rostow, transitioning from an agriculture-based economy to an industrialised, specifically manufacturing, economy was the cause of development. Structurally, the shift of resources into industry (comprising manufacturing, mining and utilities) became synonymous with fast economic growth. From the starting point of a largely traditional economy, the expansion of manufacturing still appears to play a key role in starting and continuing economic growth. All countries currently experiencing affluence have

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had to pass through a period of structural industrialisation (Bagchi, 1987). Like Britain and Japan in the two previous centuries, countries in East and South-East Asia used manufacturing to raise labour product and wage levels and this in turn tended to raise labour productivity levels in agriculture (Lall, 1996).

Accordingly, the case for industrialisation should not exclude agriculture (Clunies-Ross et al., 2009). In developing countries agriculture is often the main source of foreign exchange and the sector provides a main source of employment and household livelihood, thus contributing significantly to GDP as well as playing the essential role of feeding all or the majority of the country’s people. For entrepreneurs in developing economies, processing and value-adding to the primary agricultural product or agro-processing present further opportunities.

For the entrepreneur, innovation is critical in order to maintain a competitive advantage in bringing to the market new ideas in products and services (Alston & Veneer, 2000; Evenson, 2001; Thirtle & Piess, 2003). This involves a high level of creative thinking. The entrepreneur needs to develop an understanding of the creative process; overcome barriers to new ideas; enlarge parameters of vision; learn to build ideas as well as criticise them; increase tolerance for uncertainty; listen, look and read with a creative attitude; make time to think; and become more confident as a creative person (Kim & Mauborgne, 1998; Adair, 2009).

For developing countries, even those with limited manufacturing, the development of competence in deploying and then advancing technology by innovation will be important (including agriculture in agrarian economies and rural areas). For the entrepreneur requirements include: support in the provision of formal technical education; encouragement and facilitation of linkages with suitable foreign firms exporting technology, with whom partnerships can later be forged; access to industry-specific and even firm-specific training; and then state

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facilitation and funding of research and development to localise solutions (Sapsford et al., 1992; Huq, 2000).

In early development theories the role of the entrepreneur was not considered significant or critical at early stages of development when growth was largely driven by capital accumulation. In this view it becomes more relevant at later stages where development is driven by knowledge and competition (Acs & Naude, 2013). In the structural change model, development is facilitated by high ability entrepreneurs driving firms to adopt more complex production methods and producing more complex and specialised intermediate inputs. As a result, the technological intensity of a country’s economic structure increases and, when symbiotically linked to a growing industrial sector, a significant number of sustainable and decent jobs can be supported.

It follows that the structural change model of development acknowledges that the transformation from a low-income, traditional economy to a modern economy involves significant changes to production methods - a process to which entrepreneurs contribute directly, including providing innovative inputs, permitting specialisation and raising productivity and employment. In structural change, the role of the entrepreneur is central for the “rapid” expansion of an economy. This is facilitated if entrepreneurial ability is high, and without entrepreneurial ability the returns to physical and human capital is low (Naude', 2013).

3.2.3 Multi-dimensional development and entrepreneurship

The second “grand idea” deviates from the restrictive view of development that characterises development economics literature. Most empirical studies on development consider GDP, productivity and employment growth as proxies for development – and not aspects of multi-dimensional development (Acs et al., 2008). The notion that the welfare of a country’s people moves in tandem with its GDP has made GDP a chief statistic in development economics, but this notion has been

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challenged. Richard Easterlin in 1974 conducted surveys on nineteen countries over three decades to find that despite large differences in national income reported happiness across different countries did not vary greatly. A relationship does exist between GDP and happiness and well-being but it is far from perfect, suggesting that policies based on ‘happiness indicators’ rather than GDP alone have the propensity to produce improved policymaking.

Contemporary economists have introduced broader measures of well- being and these may or may not be supportive of economic growth. The Human Development Index (Figure 2.3), for example, combines income with life expectancy and education, and these are not consumption items that strengthen GDP (Kishtainy et al., 2012). In India, the Ministry of Housing and Urban Affairs has developed the Ease of Living Index to measure the quality of life of its citizens, believing that this more holistic measure will provide improved insights into the state of development of the Indian economy (Kapoor & Debroy, 2019).

There are two separate issues to consider. In one sense, economic growth is indicated by a country’s total national income and development means the increase in its national income per head of population. In the other sense, economic growth can be denoted by an increase in national income per head of population (considering only the computable material aspects of economic advancement), whilst development is broader and less simple to measure. For the latter, the capabilities of people, in the Amartya Sen sense, are considered alongside per capita material advancement (Kuklys, 2005; Clunies-Ross et al., 2009).

In a multi-dimensional developmental model it is evident that development implies a dynamic evolution, indicating a transition from a lesser state of existence to one of a higher quality and, if small enterprises are to contribute, entrepreneurs need to be successful in creating meaningful employment that pays well (Fioramonti, 2017). The opening statement of the NDP suggests a higher quality existence: “We

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feel loved, respected and cared for at home, in community and the public institutions we have created. We feel understood. We feel needed. We feel trustful …..We learn together. We talk to each other. We share our work…..The welfare of each of us is the welfare of all … As it gives life to us, we honor the life in it” (National Development Plan, 2012: 20). In the case where entrepreneurs can operate profitable businesses, they would have the ability to deliver on both monetary and emotional well- being aspects for both themselves and employees. In addition, the high ability entrepreneur would contribute to consumption and to economic growth (as measured by GDP).

Whilst scholars place value on high ability entrepreneurs to effect structural changes in an economy, the state would be negligent by leaving behind large numbers of less-well-equipped entrepreneurs and perpetuating their exclusion from the economy. Whilst this seems to be an illogical position to take, neglect of state support for micro entities has been experienced as a consequence of members of the alliance taking issue with neoliberal tendencies found in Chapter 3 “Economy and Employment” of the NDP:

 The NDP is criticised in its aim of creating mostly low-quality, ‘precarious’ jobs outside the core productive sectors as the plan relies on SMEs and service sector jobs.  There is concern that of the eleven million jobs to be created, nearly two thirds are to come from services, domestic work and the informal sector. It is felt that in these low paid jobs, worker rights will be eroded.  The plan is seen as being weak on re-industrialisation, envisaging a reduction of the manufacturing sector from twelve percent of GDP in 2010 to 9.6 percent in 2030 and this means losing meaningful well- paid jobs. (SACP, 2013).

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Taking the position that being paid a ‘living wage’ as a product of industrial output is all important and that small business offers only “precarious’ jobs, is contrary to the notion of human development -or human flourishing- as put forward by Sen (2000), Gries and Naude' (2011) and Fioramonti (2017). The argument that poverty is about limitations in “capabilities and functioning’s” – things people can succeed in doing or being – and not the goods and services they have access to, is refuted. Good, enjoyable and fulfilling lives acclaimed by the self- employed and the ‘higher levels of job satisfaction’ of entrepreneurs over that of employees (Benz and Frey, 2004; Blanchflower, 2004; Andersson, 2008) are not taken into consideration.

Furthermore, entrepreneurial activity and policy in South Africa is stunted by a culture of dependency of the poor and undereducated on government support which has created a sense of entitlement and dependency (Herrington, 2011). The following statement from the Municipal Manager of Dundee provides affirmation of this view: “People need to be sensitised, they need to stand up and fend for themselves. In most cases they have been provided with resources and infrastructure, all that remains is for them to commit themselves to a certain way of life and have enough foresight to see that this is the real way forward into the future. Entrepreneurship has not been pushed or developed in South Africa, and we do not have the culture in the country to drive this ethic. The people of this country want to work and come home at the end of the day with a salary. The children of today need to be trained in entrepreneurship, as we cannot rely on the government to provide us with jobs and money. Self-employment is the future” (Nel et al., 2003). For these entrepreneurs, it will be important that they are capable of operating profitable businesses that provide adequate monetary and emotional well-being relief for both themselves and their family members.

As with all economic policy there are choices to be made by developing countries, and one of these is between growth and equity. The challenge

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is to find ways of improving the trade-off - finding ways to achieve a more efficient compromise between two partly competing objectives. Living wages may start low in self-employment initiatives, but through hard work and scientific management a self-employed individual has greater opportunity for growth, and this is what development policy should aspire to bring about (Clunies-Ross et al., 2009). Recognizing potential and reducing the rivalry between options by finding ways to make micro enterprises successful is a cornerstone challenge for policy makers in developing economies (Varshney, 2004).

A further trade-off in developing economies is between growth and sustainability. Even if entrepreneurship enables people to meet their own needs and improve living standards through self-employment, this development needs to be sustainable (Wackernagel et al., 2002; Meagher & Lindell, 2013). Potential threats are seen in a revival of Malthusian concerns over the possible inadequacy of food resources in the face of population growth and the sheer size of the resource mobilisation to make a significant difference in living standards across the world. Particularly important in this respect is the degrading of land (through erosion, degradation of soil quality and desertification), air (through pollution by emissions from power stations, vehicles and factories), water (through industrial, agricultural and domestic effluents) and biodiversity (through destruction of species and genetic diversity) (Clunies-Ross et al., 2009). The phenomenon of global warming caused by emission of greenhouse gases is a stand-out indicator that economic growth needs to be tempered and managed to maintain a tolerable future (Stern, 2007). It is vital that entrepreneurs are party to finding ways of sharing necessary sacrifices and adopting methods that offer the most efficient trade-offs between economic growth, peoples well-being and protection of the environment.

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3.2.4 Market failures, the state and entrepreneurship

The third “grand idea” in development economics concerns itself with market and state failures. For investors in an economy, profitable returns from investments made encourage ongoing investments which promotes economic growth. To promote economic growth, government policies can aid or stifle markets and investor confidence. In post-apartheid South Africa policy was developed at a time when a set of principles for market-oriented reform (the ‘Washington Consensus’) sought to reduce the role of the state and liberalise markets. Globalisation had taken route whereby: the closer integration of the countries and peoples of the world ….. brought about by the enormous reduction of costs of transport and communication, and the breaking down of artificial barriers to the flow of goods, services, capital, knowledge and (to a lesser extent) people across borders (Stiglitz, 2002). A combination of technological advancements (including the Internet) and widespread political support created economic globalisation with four key dimensions: international trade, international finance, migration of labour, and knowledge. This held out hope for dramatic improvements to the living standards of the developing world.

Since the 1990s governance or the quality of government has become explicitly recognised as a highly important element in economic growth and in the enhancement of all the aspects of welfare that are covered by ‘development’. Corruption and the abuse of public office for personal ends, covering a wide range of activities, all depart from the rule of impartiality in government. Across countries, the prevalence of corruption has a strong negative relationship to income per head and the rate of economic growth. It is highly plausible that corruption hinders economic growth, and statistical testing suggests a partial but significant connection (Tanzi, 1998). The corrupt state typically has strong mechanisms enabling it to perpetuate corruption and removing this has enormous challenges. All available resources would need to be mobilised including opposition parties, external governments, civil

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society, business, and the free press. Within government, wholehearted support is required from the heads of state, police, judiciary, and prosecuting authorities (Johnson & Sharma, 2004).

Without removing corruption and state failure, attracting foreign direct investment and internal investors will be met with little success and this will lead to market failure. Foreign direct investment includes private commercial investment in a country by an individual, company or other entity resident in another country, either by starting a productive business or buying one (or shares in one) that already exists – provided, of course, that the intention of the investor is to play an active role in managing that investment (Loungani & Razin, 2001). Similarly, inward investment by resident businesspeople in their own economy, either starting or expanding existing companies, also stimulates growth and development. Furthermore, tax collection from expanding companies adds to the fiscus and enables the government to fund developmental programmes such as controlling the HIV pandemic.

The how of state support for entrepreneurship (the issues that challenge both the Small Enterprise Development Agency (SEDA) and the Small Enterprise Finance Agency (SEFA) is an essential but vexing issue in development economics (Naude', 2013). In South Africa, the below-par performance of the small enterprise sector suggests ‘market failure’ and questions the appropriateness of development policies and programmes targeting entrepreneurs. Internationally, the most prevalent form of assistance to entrepreneurs is business training and business development services (such as business plan development and coaching provided by SEDA), but there is little evidence that these programmes are effective (OECD, 2017).

Locally, Herington et al. (2017) claim that entrepreneurial programmes in South Africa are too dispersed, not delivered competently and not effective. Traditional classroom-based training methods, on which many SEDA programmes are based, are found to fall short when it comes to

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transferring learning into practice (Erasmus & Van Dyk, 2003; Broad, 2005). Furthermore, in South Africa the highly unequal distribution of wealth makes available formal capital less accessible (Maluleke, 2016) and, equally, the effectiveness of SEFA in broadening the bank and non- banking finance options for SME’s is under question.

3.3 Framework for Small Enterprise Development in South Africa

3.3.1 National economic policy supporting enterprise development

In order to address the research questions of this study, it is important to understand the landscape and broad policy framework shown in Figure 3.2, that supports small enterprise development in South Africa.

Figure 3.2: South Africa’s broad policy framework informing small enterprise development

Source: Own construction

Under South Africa’s Constitution, the direction for small enterprise development was articulated in the 1995 White Paper on National

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Strategy for the Development and Promotion of Small Business in South Africa (Parliament, 20 March 1995). The White Paper presented six issues that motivated new policy, regulations and supporting programmes by government: i) Facilitating greater equalisation of income, wealth and economic opportunities through broadening the footprint of the sector; ii) Creating long-term jobs through the sector as an employer at multiple levels; iii) Stimulating economic growth through contribution of the sector and widening its footprint; iv) Strengthening the cohesion between small business enterprises through various structures and support mechanisms; v) Levelling the playing fields between big and small business through access to market opportunities, technology transfer and innovation commercialisation; and vi) Enhancing the capacity of small business to comply with the demands facing South Africa’s modernising economy and the challenges of increasing international competition.

The concept paper has influenced the broad policy direction in a number of policy and strategy initiatives that have been introduced by the Government since 1994. These initiatives are summarised in Table 3.1 below:

Table 3.1: Informing policy and strategy initiatives from government since 1994

Informing Policy/ Key Consideration Strategy The National The primary role of the NIPF is to set out governments Industrial Policy approach to the industrial development of the SA Framework (2007) economy; introducing value-add to commodity and and the iterative non-tradable services and promoting historically Industrial Policy disadvantaged persons in this process. Action Plan (IPAD)

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Informing Policy/ Key Consideration Strategy The New Growth A broad framework addressing unemployment levels; Plan (2008) includes job creation by developing small business through partnerships among key societal players, business and government. The National Envisages an economy that provides full employment Development Plan, by 2030 servicing the needs of all South Africans. Vision 2030 (2012) Small business development has a direct role in Chapters 3 and 6 of the NDP which, respectively, deal with the economy and employment, and inclusive rural development and growth. The Medium-Term The MTSF is a 5-year building block towards Strategic Framework achieving the realization of the NDP, 2030 Vision. The (2014-2019, and SBD Portfolio features in: future) MTSF Outcome 4: Decent Employment through Inclusive Economic Growth. 4.2.2. Measure and reduce delays and unnecessary red tape around authorizations and related issues that hinder or might foster investment and employment (in the SMME and co-operative space). 4.3.1 Township and rural economies supported and report on the impact in terms of the numbers of businesses supported, value of the grant approved and geographical location of the supported business. 4.3.3 Programmes to ensure increased access to employment and entrepreneurship for black women and youth in the context of stronger support for emerging and smaller enterprises overall. 4.3.4 Provide coaching, incubation, intensive support and financing to sustain existing small business and co-operatives, as well as expand the sector. MTSF Outcome 7: Vibrant, equitable, sustainable rural communities: 7.6.1 Promote sustainable rural enterprises and industries in areas with economic development potential. The Integrated Introduced a continuum of support needed to start Strategy on and grow an enterprise. Three strategic areas Promotion of formed its focus: Entrepreneurship 1) Increasing supply of financial and non-financial and Small support services. Enterprises (ISPESE 2) Creating demand for small business products -2005) and services – namely public procurement strategy and B-BBEE codes of practice as levers for increased demand. 3) Reduce small enterprise regulatory constraints.

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Informing Policy/ Key Consideration Strategy The Integrated Introduced co-operative development and support Strategy on the programmes under 4 strategic pillars: Development and 1) Increase supply of non-financial support to co- Promotion of Co- operatives. operatives (ISDPC - 2) Create demand for co-operative products and 2012) services. 3) To improve sustainability of co-operatives. 4) To increase the supply of financial support to co- operatives. The National Recognizes the informal sector and need for policy Informal Business and programmes to support the enterprising poor in Upliftment Strategy the informal business sector and facilitate their (NIBUS) and participation in the mainstream economy. Implementation Framework (2014 & 2015)

Source: Department of Small Business Development, Strategic Plan, 2015- 2019: 23

The body of policy pertaining to small enterprise development shown in Table 3.1 is extensive. In Figure 3.3 a timeline is presented to illustrate the development of small enterprise development strategy and key government institutions in conjunction with South Africa’s national economic development plans. This timeline is an extension of Figure 2.5, where ANC-led economic development policy from the RDP to NDP was purposed to create “a better life for all”.

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Figure 3.3: National economic development plans, small enterprise development strategy and support institutions timeline.

Source: Own construction

In Figure 3.3 South Africa’s three bespoke enterprise development strategies are traced against national development policy. The three strategies are shown to be rooted in the 1995 White Paper on a National Strategy for the Development and Promotion of Small Business in South Africa (Section 3.3.1). The White Paper proposes a coordinated and consolidated approach to small enterprise development, which is in line with the interventionist and redistributive thinking under the RDP at the time (Figure 2.5).

However, under GEAR and ASGISA the government pursued neoliberal market-oriented economic policies (Figure 2.5) and this translated into government’s supportive rather than interventionist approach to small enterprise development. Initially, the Department of Trade and Industry set up Ntiska as a provider of non-financial services and Khula to manage intermediaries providing funding for small, medium and micro enterprises. The Integrated Strategy for the Promotion of Entrepreneurship and Small Enterprise (ISPESE) was also established in this period (Figure 3.3), but this strategy represented a decentralized

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and passive approach (Department of Planning, Monitoring and Evaluation, 2018). As a result, Ntiska and Khula were replaced by SEDA and SEFA (Section 3.3.3).

The frustration of persistent inequality, poverty and unemployment and inability of neoliberal economic policy to curtail these threats was discussed in Section 2.4. In this analysis, the NDP was argued to have reverted to interventionist policies regarding the socio-economic wellbeing of its citizens rather than leaving aspects such as inequality to the markets to correct. Therefore, in Figure 3.3, the NDP reverts to the coordinated approach favoured by the 1995 White Paper (Section 3.3.1). Following this approach, the introduction of the Integrated Strategy for the Development and Promotion of Cooperatives in 2012 and the National Informal Business Upliftment Strategy (NIBUS) in 2014, indicates expanded interest of the state to promote informal enterprises and co-operatives (Figure 3.3).

In addition to the increased levels of support to small business development from the state (Figure 3.3), an indication of how the ANC- led government wishes to proceed with enterprise development policy is garnered from the ANC 2019 Election Manifesto. The manifesto is consistent with past policy in that it endorses “an inclusive economy” in which the majority of South Africans can meaningfully participate and receive benefit. The specific policy content regarding small enterprise development is noted as follows:

 Opening up markets for new emerging enterprises by ending monopolies that stifle competition;  Expanding digital skills training to more women, rural people and youth;  Supporting technological and digital start-ups;  Concentrating on developing SMME’s, cooperatives and township and village enterprises: “Our manifesto has a specific focus on

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economies of townships and villages. We will encourage the growth of enterprises in these areas through the dedicated fund that supports the development of industrial parks, business centres and incubation centres”.  Increasing the use of government’s “massive procurement spend” to support transformation and job creation, including the 30% procurement spend to small business and cooperatives;  Enforcing measures to prevent illegal trading and selling of counterfeit and unsafe products; and  Preventing displacement of local enterprises by big retail stores to ensure that small producers have a place in their retail value chains. (Mgadi, 2019).

The policy content of this manifesto confirms that developing small business enterprises in both rural and township areas remains critical to the government. The manifesto has moved with the times and introduced a focus on digital skills training and support for digital start-ups, but there remains consensus across all ANC-led policy-making bodies that small enterprise development is a desirable strategy (Figure 3.3) and that this requires significant policy support.

Thus the construction of Figure 3.3 illustrates that there has been a constant and significant emphasis on policy initiatives that support the development and role of small business in the South African economy since 1994. Under the NDP, and in line with the original White Paper of 1995, levels of state support and intervention to promote small business in the economy have and are to remain a priority. In chapters five, six and seven the study investigates if these good intentions materialise in actual support for the promotion of rural enterprises.

3.3.2 Laws and regulations promoted by government

Informed by international laws, the Constitution and ANC-led national policy, the South African Government has introduced several laws and

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regulations that promote small enterprise development. The laws pertaining to small enterprise development are covered in Table 3.2 below:

Table 3.2: Laws and Regulations Supporting Enterprise Development in South Africa

Name of Act Consideration National Small Enterprise To provide for the establishment of a National Act, 1996 (No. 102 of Small Business Advisory Council and the 1996), as amended Small Enterprise Development Agency; guidelines for organs of state to promote small business; and to provide definitions of small, medium and micro enterprises. Public Finance To regulate financial management in Management Act, 1999 government to ensure resources are managed (No.1 of 1999), as efficiently, effectively, economically and amended ethically. Preferential Procurement To align governments procurement with aims Policy Framework Act, of Broad-Based Black Economic 2000 (No.5 of 2000), as Empowerment Act, 2003 and associated amended Codes of Good Practice. Co-operatives Provides for the formation and registration of Development Act, 2005 co-operatives and related matters. (No 14 of 2005), as amended Broad-Based Black Establishes legislative framework for promotion Economic Empowerment of black economic empowerment, and the Act, 2003 (No. 53 of issue of Codes of Good Practice by the 2003), as amended Minister. Business Act, 1991 (No.71 Regulates the licensing and carrying on of of 1991), as amended business and shop hours. Companies Act, 2008 Regulates the incorporation, registration, (No.71 of 2008), as organisation and management of companies; amended includes fiduciary duties and responsibilities of directors Co-operative Banks Act, Provides an appropriate regulatory framework 1998 (No.40 of 2007), as to protect members of co-operative banks. amended Skills Development Act, Provides framework for the development of 1998 (No.97 of 1998), as skills in the South African workforce and aims amended to improve competitiveness of employers and to promote self-employment. Industrial Development To advance money or acquire and interest in a Corporation Act, 1940 company or person engaged in economic (No.22 of 1940), as activity in certain sectors. amended

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Name of Act Consideration National Credit Act, 2005 Aims to facilitate credit for all, while introducing (No.34 of 2005), as measures to prevent over-indebtedness or the amended extension of credit to the venerable. Consumer Protection Act, Aims to protect the consumer against unfair 2008 (No.68 of 2008), as business practices; recourse against amended companies supplying these. Financial Intelligence Legislation to combat money laundering in Centre Act, 2001 (No. 38 South Africa. of 2001), as amended Financial Advisory and Regulates the activities of financial service Intermediary Services Act, providers requiring them to be licensed and 2002 (No.37 of 2002), as conduct their business professionally and amended ethically. Protection of Personal Promotes the protection of personal Information Act, 2013 information by public and private parties. (No.4 of 2013), as amended Competition Amendment Regulates collusive behaviour of Act, 2019 conglomerates and promotes the entry of small business in all sectors of the economy.

Source: Adapted from the Department of Small Business Development, Strategic Plan, 2015-2019: 20

Of particular significance to the rural economy, and emanating from this legislation, are four key legislative driven programmes designed to promote small enterprise development: i) Thirty percent of public procurement set aside for purchasing from SMMEs:

In order to stimulate the sector and increase demand for small enterprise and cooperative goods and services, the government announced in 2015 a set-aside programme in support of small enterprises. Through this programme, all spheres of government and state-owned enterprises are required to set aside at least thirty percent of appropriate categories of state procurement for purchasing from small businesses (Zulu, 2015). This includes municipalities, who are required to develop and implement Integrated Development Plans (IDPs) for achieving developmental goals aimed at the betterment and improvement of the lives of the inhabitants

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of the municipality. The introduction of the District-Centred Development Model in 2020 will also require development goals for the forty-four Districts and eight Metros in South Africa (Cooperative Governance and Traditional Affairs, 2019; Sicetsha, 2019). Whilst preferential procurement regulations have been developed and implemented to facilitate the implementation of the set-aside programmes in terms of the current Public Finance Management Act (PFMA), it is evident that procurement will be informed by IDPs as it is this process that provides a strategic framework on management, budgeting, delivery and implementation to transform local government into vehicles for development. It is IDPs that address poverty alleviation and the creation of livelihood opportunities at local government level (Sebei, 2013). However, to benefit from this initiative, small enterprises would need to be structured in a manner that is acceptable to government (often requiring a high level of formalization) and be able to deliver reliably on appropriate services or products. ii) Revisions to the Broad-Based Black Economic Empowerment (B-BBEE) Act and its Codes of Good Practice:

The B-BBEE Act intends among other things to: increase the number of black people that manage, own and control enterprises and productive assets; facilitate ownership and management of enterprises and productive assets by communities, workers, cooperatives and other collective enterprises; prioritise human resource and skills development; promote preferential procurement, which involves the purchase of goods and services from enterprises that are owned or managed by black people; and invest in enterprises that are owned or managed by black people. The revised BBBEE codes act as an incentive to private companies to actively develop SMMEs within their value chains as suppliers by allocating a portion of their income to Enterprise / Supplier Development Programmes. The government hopes that large and medium firms will assist in the development and support of black-owned small businesses as suppliers and in doing so be able to score BBBEE points (Rautenbach, 2017).

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iii) Establishing a Comprehensive Rural Development Programme:

The Department of Rural Development and Land Reform (DRDLR) was established in 2012 and its first order of business was to obtain Cabinet approval for the Comprehensive Rural Development Programme (CRDP), which later incorporated a Framework for Rural Development (FRD). Central to the CRDP and FRD is land reform and its four pillars: restitution of land rights; redistribution of land; land tenure reform; and development of the land. Under the apartheid state, large-scale commercial farmers were systematically privileged because they were “white”. Conversely, small scale “black” farmers experienced forced removals, restricted access to land, overpopulation in the rural areas allocated to them, were denied access to markets and provided with very limited support (Hall, 2007; Seekings & Nattrass, 2016). Despite plans in 1994 to transfer 25 million hectares, or about 30 percent of the country’s medium-to high-quality farmland, to 600 000 households by 1999 by either land restitution (returning land to former owners) or through state- subsidised purchase on a “willing buyer, willing seller” basis, only 55 000 households had received less than 1 million hectares of land by 1999. The deadline for achieving this target has been shifted to 2025 (Seekings & Nattrass, 2016). The current situation is recorded in the DRDLRs 2017 Land Audit, which reveals that Whites own 26 663 144 ha or seventy two percent of the total 37 031 283 ha farms and agricultural holdings of individual landowners, followed by Coloureds at 5 371 383 ha or fifteen percent, Indians at 2 031 790 ha or five percent, Africans at 1 314 873 ha or four percent, other at 1 271 562 ha or three percent, and co-owners at 425 537 ha or one percent (Department of Rural Development and Land Reform, 2017).

The work the DRDLR is doing on land reform is critical for non-farm rural enterprise development in rural economies. The current situation whereby large landowners/farmers dominate agricultural production, limits non-farm activities in small rural towns and settlements because

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this class of farmer has the means to commute to the larger centres to satisfy their commercial, financial, retail, service and other requirements. Should small farmers gain access to greater agricultural resource and assistance, they would look to local services that could be supplied from smaller economic nodes. Agricultural reform (including land reform) presents significant opportunity to stimulate non-farm enterprise development in smaller rural towns and settlements.

iv) Creation of Public and Private Programmes:

Funds set aside by public and private programmes are increasingly being established in South Africa for small business development. At national level, the South African Small and Micro Enterprise (SME) Fund (public and private) is expected to provide high-potential entrepreneurs and enterprises with access to finance at developmental rates as well as access to proprietary networks of accredited funders, mentors and professional services firms. The aim is to create a substantial fund that focuses on the early-start-up phases of business development. The Fund, agreed to by fifty Chief Executive Officers, will fund the total amount in proportion to the market capitalization of their companies – this equates to contributions of up to R100 million for the larger firms. The initial investment is R1.5bn, with the aim that over time the public sector will also contribute matching funds (Bisseker, 2020).

3.3.3 Policy, regulations and programmes supported by the DSBD

In the context of the abovementioned legislative framework, the government has established the Department of Small Business Development (DSBD) in 2014. This initiative was largely informed by an uncoordinated and underfunded lack of specialised and focused support that is perceived to result in the high failure rate of small enterprises and cooperatives along with poor sector performance relative to peers in other developing countries (OECD, 2017). Moreover, two public entities were “carved out” and the Small Enterprise Development Agency

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(SEFA) and Small Enterprise Finance Agency (SEFA), from the Departments of Trade and Industry and Economic Development respectively, were consolidated to form the SBD Portfolio (DSBD, SEDA and SEFA) (Department of Small Business Development, 2015). The founding legislation for the SBD Portfolio is captured in Table 3.3 below.

Table 3.3: Small Business Development Intermediaries Founding Legislation and Primary Outputs

Name of Institution Founding Legislation Primary Outputs Small Enterprise National Small Provides non-financial Development Agency Enterprise Act, 1996, support services for (SEDA) (No. 102 of 1996), as small enterprises amended Small Enterprise Section (3) of the Supports development Finance Agency Industrial Development of sustainable SMMEs (SEFA) Corporation Act, No 22 through the provision of of 1940, as amended finance

Source: Department of Small Business Development, Strategic Plan, 2015- 2019: 20

The vison of the SBD Portfolio is presented as a collective one that creates: “A vibrant culture of entrepreneurship and enterprise growth, where small businesses and co-operatives act as drivers of job creation and inclusive economic benefit” (Department of Small Business Development, Strategic Plan, 2015-2019). Executing on this vision is, however, not a simple task given the complex structure of government and the number of enterprise support initiatives found in the South African landscape (further reference and provider details are explored in chapter five). The complexities are illustrated in Figure 3.4, where the DSBD is placed at the centre of institutional support, but with executive influence limited to its SEDA and SEFA operations. Institutions managed outside the national sphere of government have reporting lines elsewhere are not accountable to the DSBD. This is equally true of other government agencies and private business support agencies.

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Figure 3.4: Institutional support for small enterprise development in South Africa

Source: Adapted from the Department of Planning, Monitoring and Evaluation, 2018

It is worthy to note in Figure 3.4, that developmental agencies providing institutional support for small business in South Africa extends well beyond national government initiatives such as SEDA/SEFA, the ISPESE, ISDPC, NIBUS, and these need to be considered in addressing the research questions. Provincial governments have Provincial Growth and Development Strategies (PGDS) and employ and utilise more business advisors, consultants, mentors and coaches than SEDA and SEFA (SEED, 2019). Furthermore, at local government level most metropolitan municipalities have dedicated small business development programmes - for example, the City of Tshwane and the City of Ekurhuleni SMME Development programmes. Municipalities have Integrated Development Plans (IDP) and local economic development (LED) departments. Additionally, corporate support exists in the form of Corporate Social Investment, which encompasses projects that are external to the normal business activities of a company and not strictly

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for the purposes of increasing company profit (for example, Anglo American’s Zimele Development Programme and Sasol’s Enterprise and Supplier Development Programme). The NGO sector reliant on donors, also plays a role and includes examples such as the German based GIZ, SEED, USAID and EU (SEED, 2019).

In Section 2.3, the importance that the NDP attaches to the role of small business in job creation was highlighted, and this means that the state has a vested interest in the success of enterprise development and the optimal co-ordination of efforts across all service providers, whether private or public. In similar situations such as health provision and the provision of suitable medicines, regulatory authorities are commonly used to enforce standards and or to protect consumers. Pertaining to small business development, SEDA in 2012 conceptualised a national Business Development Service Provider - Quality Assurance and Support Initiative - which represented a means to regulate service providers supporting small business. This initiative never received funding and was not implemented (Department of Small Business Development, 2018).

However, the DSBD has more recently released a draft policy framework for Business Development Services (Department of Small Business Development, 2018). This initiative recognises the wide range of actors within the business development ecosystem and prefers not to prescribe curricula or methodologies as research is regularly introducing new methodologies or variations on existing methodologies. There is, however, the intention to introduce a monitoring, evaluation and learning (MEL) tool, which will become a critical instrument for better coordination of service providers and ensure their compliance with the policy framework (Department of Small Business Development, 2018). The DSBD has, for example, been tasked by the Presidency to take a lead role in advancing the NDP MTSF Outcome 7: Vibrant, equitable, sustainable rural communities and MTSF Outcome 4: Decent employment through inclusive growth (Table 3.1). The overall task

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incorporates the monitoring of the public sector procurement strategy and B-BBEE codes of good practice as a lever for increased demand for SMME and co-operative products and services. Under the institutional structure depicted in Figure 3.4, the DSBD is required to be assertive in departments and institutions where it has no executive authority, and successful implementation of this MEL tool will assist government with institutionalising policy reforms. At present, there are no reliable measurements and evaluations of small development programmes and standards of business support services across service providers.

Whilst coordination of the small enterprise sector is a challenging task, this is made more difficult as the DSBD is poorly funded. The 2019 finances of the National Treasury amount to R1.83 trillion of which R202 billion is allocated to economic development. Collectively, the budget allocation for the SBD Portfolio is small as compared to budgets allocated to areas such as basic education at R250 billion or child support grants at R65 billion. However, outside of the SBD Portfolio, National Treasury (2019) has allocated a larger R15.5 billion over the Mid Term Expenditure Framework 2018/19 to a number of government departments for the direct support of SMMEs and cooperatives (Department of Small Business Development, Presentation to Parliament, 2019). However, the allocation of only R2. 57 billion to the DSBD to promote small enterprises illustrates that the Directorate is a minor portfolio, and this inhibits the envisaged aspirations for small business by the NDP as the generator of ninety percent of all employment by 2030.

3.4 Implications for Enterprise Development Policy

The South African small enterprise development initiative is subject to informing policy (Table 3.1), as anchored by the White Paper of 1995 which is aligned to the country’s constitution (Figure 3.2). Laws and regulations (Table 3.2) have followed and supporting institutions such as SEFA and SEDA have been established (Figure 3.3). These inputs are supported by an array of institutions

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both private and public (Figure 3.4) aimed at implementing policy and executing support programmes that promote small enterprise development in South Africa.

In Section 2.3 the NDP was positioned as a national economic development policy to create “a better life for all” and this has been a consistent intent of national economic development policy since the ANC-led government came into power (Figure 2.5). Moreover, the NDP and current economic development plan, incorporates three “grand ideas” in economic development (Section 2.3). The NDP envisages: i) structural change taking place in the South African economy with ninety percent of employment being created by small business by 2030 (Section 3.2.2) ; ii) small business generating substantial employment (Table 3.1; MTSF Outcome 4) which translates into strong GDP growth that reduces inequality, poverty and unemployment (Section 3.2.3); and iii) persistent problems relating to the triple threats not being left to the market alone - by adopting a strong ‘developmental and capable state’ approach that does not abdicate responsibility for inclusive growth to the market (Section 3.2.4).

To implement government policy pertaining to small enterprise development, it has become evident over time that sub-sectors exist within small enterprise development. In fact, three separate small enterprise development strategies (Figure 3.3) have emerged for high ability entrepreneurs, co-operative entities and the enterprising poor. In Figure 3.5 all the elements discussed above, are aggregated into a single framework for enterprise development in South Africa:

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Figure 3.5: Small enterprise development framework in South Africa

Source: Adapted from the Department of Planning, Monitoring and Evaluation, 2018

The framework (Figure 3.5) follows the developmental approach of the NDP (Figure 2.4), with small enterprise development inputs and activities aimed at generating a virtuous cycle of development (Section 2.3). Hence, the notion conveyed in the framework (Figure 3.5) is that appropriate inputs and well- executed activities supporting small enterprise development strategies and the NDP will create greater demand for small business services and more capable entrepreneurs supplying these services. The outcome of all this will be an increased number of small businesses in the mainstream economy. This diagnosis has implications for policymakers if the envisaged NDP targets are to be realised and an impact on poverty alleviation achieved: i) the ideas and inputs supporting small enterprise strategy need to be appropriate; and ii) activities in support of small business development must be well coordinated and executed. Accordingly, the framework (Figure 3.5) guides the study in addressing the prescribed research questions.

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3.5 Constraints to Enterprise Development in South Africa

In Section 2.2.5, contemporary theory maintains economic development should be stimulated by ‘virtuous cycles’ that would promote growth by having self- reinforcing income-raising systems which work through ‘circular and cumulative causation’ (Myrdal, 1957). In Figure 2.4, the NDP’s approach is positioned to generate a virtuous cycle of development, however distortions, whether government-imposed or inherent to certain markets, are seen to retard an economy’s resources and reduce economic activity by society and individuals (Hausmann et al., 2006).

In South Africa persisting inequality, unemployment and poverty signifying the presence of distortions and an economy in a “slow-growth trap” (Altman, 2019). The goal of policy is to provide an environment that permits or possibly manages the overcoming of constraints that confront development (Swanepoel & De Beer, 2015). In Section 3.4 it was established that it is critical for policymakers to reduce distortions or constraints in the framework for small enterprise development (Figure 3.5).

To this end, policy, regulations and programmes within the small enterprise development framework (Figure 3.5) that enable enterprise development should be identified, supported and retained along with the removal of aspects that constrain development. Additionally, the task of formulating and executing an optimal development strategy is ongoing. It is a process that requires decision-making to be based on empirical evidence, allowing the state to have appropriate and accurate information on the how of supporting entrepreneurs when assisting them to overcome developmental constraints (Swanepoel & De Beer, 2015). The identification of constraints pertaining to the framework (Figure 3.5) is critical to address the research questions and evidence from the literature. This is examined in the following sub-section.

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3.5.1 Macro-level Evidence

The basis for the NPC’s vision that small business will account for ninety percent of new jobs created by 2030 is founded on global trends. For example, the Organisation for Economic Co-operation and Development Countries (OECD), illustrates that over ninety-five percent of businesses in member country economies is accounted for by small enterprises, employing between sixty percent to seventy percent of the working population and contributing up to sixty percent of GDP in these economies. Members of the OEDC incorporate the world’s most advanced economies and, based on their contribution to GDP, this suggests that high ability entrepreneurs advance economic development and GDP growth in OEDC economies. Incentives for investment, including good infrastructure, clear policy on ownership and a favourable tax regime, can assist the high ability entrepreneur. Furthermore, industrialisation and beneficiation of the country’s natural resources would represent strategies to stimulate the economy, creating opportunity for capable and innovative entrepreneurs to symbiotically build sustainable enterprises (Von Broembsen, 2012).

In South Africa entrepreneurs are faced with developing enterprises in an economy under pressure (Section 2.3). The primary cause of South Africa’s deteriorating economy is that the economy is hardly growing, which calls for expenditure cuts in areas that the government would prefer to be spending on. The Minister of Finance’s Minister’s 2020 Budget (2020), made adjustments to spending on education (-R7.1bn), health (-R3.9bn), social development (-R2.3bn), housing (-R14.6bn) and public transport (-R13.2BN). In addition, R160bn is to be stripped from the public-sector wage bill (Bruce, 2020). Additionally, state capture, corruption and an accountability deficit have resulted in lack of business confidence and investment and even the most upstanding taxpayers in South Africa are looking for ways to avoid paying their taxes. The SARS Commissioner estimates that “significantly upward of R100bn” is being lost to criminal and illicit economic activities (Marrian, 2020).

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Against this background, the Global Entrepreneurship Monitor report for 2016/2017 (South Africa) places small enterprise contribution to GDP at thirty-six percent, which is almost half that of the OECD countries (Marais, 2018). Kew, et al., (2013) record that South Africa’s Total Early- Stage Entrepreneurial (TEA) activity is measured as one of the lowest in the world and show that this has decreased from 9.1 percent in 2011 to 7.3 percent in 2012. TEA is significantly below the 14.3 percent average of efficiency-driven countries (Fatoki, 2014). The sub-standard contribution of small enterprises to the South African economy is viewed as being ‘out of sync’ with the sectors growth trends as compared to other OECD countries and arguably falls short of global trends regarding the contribution of small business to economic growth.

Conversely, The Global Entrepreneurship Monitor Survey (GEM) (2013), finds that sub-Saharan Africa is the region with by far the highest number of people involved in Total Early-Stage Entrepreneurial (TEA) activity, with Zambia and Nigeria leading the world rankings (Herrington & Kew, 2014). This signifies a higher rate of TEA in low-income countries than in middle-income countries, which is somewhat paradoxical given that entrepreneurs are generally viewed in the literature as being significant contributors to economic growth (Wennekers et al., 2005). Providing insight and a possible explanation for this paradox, Ha-Joon Chang, a specialist in development economics and Reader in the Political Economy of Development at the University of Cambridge, claims that people in developing countries are more entrepreneurial than people in rich countries. According to Chang, most people in rich countries have standard jobs in large organisations as opposed to the trend in poor countries, where people are forced to find multiple ways to make money just to survive. For Chang, it is not the lack of entrepreneurial intent at the personal level that makes poor countries poor, rather it is the absence of technologies and the development of social organisations, especially modern firms (Chang, 2006; 2010).

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In a paper titled “Youth Unemployment: No Country for Young People” Altbeker and Bernstein (2017), disappointed by continuous failure in the small enterprise and co-operative sector, question the effectiveness of enterprise development as an approach to reducing joblessness and poverty in South Africa. Their argument centres around a general absence of know-how amongst entrepreneurs in running a business which, they believe, can only be acquired by immersive experience. Reference is made to research indicating that successful entrepreneurs normally have worked in an industry or business for some years before venturing out on their own and that they have an education level higher than matric.

Reaching a similar conclusion but from a different angle, Philip (2012; 2018b), having led the National Development Agency for the National Union of Mineworkers for close to a decade, finds that conditions external to small enterprises themselves cause failure – the structure of the South African economy and its propensity to support business concentrated on the ‘core economy’ rather than nurture the small-scale entrepreneur needs redress. Furthermore, Philip (2018) argues that the majority of South African’s have limited income that is stretched by spending on mass-produced, low-priced staple food items sourced from vertically integrated and branded companies. In other developing countries much of the households spend is produced by small business and sold in markets, whereas in South Africa any small business competing in the low-cost staple food space will be doing so with “giants of the core economy” in respect of price, packaging, brand recognition and consumer habits that are strongly influenced by brands. For higher-value items such as clothing and furniture, payment terms become the way to compete. Large companies afford credit to customers, forcing the small businesses to do the same. Central to this argument is inequality, as rural enterprises do not have the capital or skill to compete with larger and more experienced competitors. The market, being a harsh and unrelenting arena, does not easily provide the space for new entrants

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and these entities invariably fail, limiting the impact of enterprise development on the economy (Philip, 2018).

Furthermore, scholars find that whilst high ability entrepreneurs with business acumen and innovative abilities are able to stimulate economic growth and consumption, entrepreneurs in developing countries are less innovative and tend to be more ‘necessity’ driven (Acs et al., 2008; Gollin, 2008). In South Africa, the absence of skill and knowledge usually gained through entrepreneurial endeavour, arguably emanates from the legacy of apartheid education and exclusion from the formal economy. Most enterprises are started by unemployed people with low skill levels and no prior business experience let alone business management experience. Financial literacy and even basic numeracy skills are often low, the products of a substandard South African education system (Philip, 2003; 2009). Not only does the legacy of apartheid effect potential and current entrepreneurs, but also the people tasked with supporting them. This is particularly evident in the weak capacity of local government to undertake and energise programmes for local economic development. Local government remains entrenched in a service- oriented role and mostly lacks the expertise to drive development. Few local municipalities have detailed local economic development plans that are being implemented successfully (Rogerson, 2001).

The analysis therefore uncovers two sets of results: Firstly, there is a lack of clear empirical evidence of whether entrepreneurship in developing economies drives economic growth, productivity, or employment. Secondly, there is no clear relationship between entrepreneurship and South Africa’s historical economic development as measured by GDP per capita. The data from Herrington and Kew (2014) suggests that stimulation of TEA (mostly destined to be micro informal firms) will not necessarily lead to economic growth and that resources allocated to this as part of a development strategy may need to be done for reasons other than GDP growth. The data provided in Figure 2.3 by the World Bank (2019) also suggest that with one of the lowest levels of

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entrepreneurship in the world South Africa has not previously relied on small businesses and entrepreneurs for growth. The high expectations placed on entrepreneurship by the NDP (Section 3.2.1) represents a strategy that is not based on South Africa’s historical strengths and there is a lack of clear empirical evidence that small enterprise development can drive economic growth.

3.5.2 Micro-level evidence

Most micro-level studies focus on the how of entrepreneurship, and not on its impact on economic development. The sub-sections that follow consider activities pertaining to implementation of support initiatives as a component of the framework for small enterprise development (Figure 3.5).

i) Evidence on the impact of entrepreneurship

Du Toit (2005) considered ‘the chronic poor’ and attempted to understand what kept people in “chronic poverty” or poverty of long duration - the poverty of those who are poor for most of their lives and ‘transmit their poverty’ to subsequent generations. It is argued that people remain chronically poor if their underlying situation – the way they are structurally inserted in society – is not addressed and this means that they are unlikely to get out of poverty in the long run. The view is that poor people can overcome the status of “structural poverty” if adequate investments are made to address the underlying factors. To the extent that this can be achieved, subsequent generations are enabled to get out (or stay out) of poverty. One method of investment is starting a small business, which becomes the vehicle for the poor to work themselves out of poverty (Sacks, 2001). The merits of this argument are challenged by the low success rates of start-up businesses and persistent underperformance of entrepreneurs in South Africa.

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Against this background, Cichello and Rogan (2017; 2018) provide an assessment on the merits of establishing a small enterprise or ‘firm’ in South Africa. Specifically, insight into the impact of self- employment on reducing poverty, as opposed to other income sources, underpins the view that entrepreneurship and small enterprise development matters at the micro level of the household and should be pursued as a development strategy. The NIDS (National Income Dynamics Study), which is a national household panel survey conducted by Southern Africa Labour and Development Research Unit at the University of Cape Town and that collects data every two years (2008, 2010, 2012, 2014), is used to investigate the contribution of the small enterprise sector (small enterprises being considered as entities not registered to pay VAT) to poverty reduction in South Africa.

The Foster-Greer-Thorbecke class of poverty measures for this purpose and the headcount ratio (Po) is used to indicate if a household has ‘crossed the poverty line’. South Africa’s three official poverty lines for measurement thresholds: R307, R424 and R594 monthly household per capita income in March 2010 prices are referenced. From this data, the food poverty rate estimates for South Africa are estimated (Table 3.4).

Table 3.4: Poverty rate estimates for South Africa

Poverty line R307 R424 R594

Po 28.7 40.6 52.1

Source: Cichello and Rogan, 2018: 235

The poverty rates estimate the extent of poverty that still needs to be overcome and implicitly show the level of poverty that has been overcome. The value of 28.7 for the food poverty line (Po= R307) indicates that 71.3 percent of the population is “out” of poverty. This

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trend is supported by recent research by the Southern Africa Labour and Development Research Unit at the University of Cape Town using evidence from expenditure and asset indices, which finds that “the reduction in poverty between 2008/09 and 2014/15 is undoubtedly real. Over this period, the asset holdings amongst the majority increased noticeably” (Nthatisi & Wittenberg, 2019).

As households normally have multiple income sources, this income source needs to be isolated in order to understand the impact of revenue earned from small enterprises and address the research questions of this study. To achieve this, Cichello and Rogan (2018) use the Shapley Decomposition Method to estimate how each type of income in the household contributes to the reduction in aggregate poverty rates. This method compares what the aggregate poverty measure values would have been without each of the income sources (see Table 3.5).

Table 3.5: Percentage share and contribution to poverty reduction of income sources for the poverty headcount ratio (Po) 2008 at the R307 poverty line

Income R307 poverty Income source share Relative Absolute

Informal self-employed 3.1 -3.6 -2.5 Informal wage 2.4 -4.4 -3.1 employment Casual employment 2.2 -3.8 -2.7 Domestic work 1.0 -2.6 -1.8 Formal-sector employment 56.7 -37.7 -26.9 Social grant income 6.6 -20.7 -14.7 Investment income 7.0 -2.8 -2.0 Remittance income 4.8 -5.6 -4.0 Imputed rental income 15.6 -18 -12.9 Total 100 100 -71.3

Source: Cichello and Rogan, 2018: 237

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The results, using the decomposition method applied to the data from the NIDS, indicate the “unparalleled importance” of income from formal jobs on poverty alleviation. This supports the view of Altbeker and Burnstein (better jobs in industry) and Philip (better jobs through public programmes) and suggests that high-ability entrepreneurs providing formal employment would be preferable to informal self- employment. Formal-sector employment is shown to account for 56.5 percent of the total per capita income received by households in comparison to 3.1 percent received from informal self- employment.

However, whilst formal-sector employment is the largest single income source contributing to poverty reduction, this source accounts for a more modest 37.7 percent of poverty reduction. In contrast, it is argued that social grants account for 20.7 percent of the overall poverty reduction, despite contributing just 6.6 percent of all (per capita) income received by South African households. Social grants are responsible for pushing households above the poverty line and are well targeted to impact on poverty reduction, whilst formal-sector earnings are received by households that already exceed the poverty line (or, only a small part of the income is poverty reducing).

In Table 3.6, the data in Table 3.3 is refined by calculating each income source’s relative share (as estimated from the Shapley Decomposition) of poverty headcount reduction divided by its overall share of household income:

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Table 3.6: Poverty-effectiveness ratios for the decomposition of the poverty headcount (Po), 2008

Poverty-effectiveness ratios Income source Income R307 R424 R594 share (%) Informal self-employed 3 1.14 1.13 1.16 Informal wage employment 2 1.86 1.90 1.81 Casual employment 2 1.74 1.72 1.48 Domestic work 1 2.59 2.41 2.13 Formal-sector employment 57 0.66 0.77 0.88 Social grant income 7 3.12 2.24 1.49 Investment income 7 0.40 0.47 0.53 Remittance income 5 1.18 1.14 1.02 Imputed rental income 16 1.15 1.14 1.12

Source: Cichello and Rogan, 2018: 238

The key finding of this analysis pertaining to the framework (Figure 3.5) and to the research questions, is that the poverty-reducing effectiveness of categories in the informal employment categories (or micro enterprises) is relatively high and this supports the envisaged poverty alleviation goal of the NDP (Section 3.2.1). Whilst the data used in this analysis date back to 2008, this recent analysis provides fresh insights and ratios to understand how income sources impact on poverty alleviation. The ratios for regular informal wage jobs are just below two in all cases and the ratios for informal-self- employment are 1.14, 1.13 and 1.16. All are substantially higher than the poverty-effectiveness ratios from the formal sector (0.66, 0.77 and 0.88). The relative contribution to poverty reduction from income received by households from self-employment and jobs created by micro businesses is therefore greater as compared to formal employment from larger firms. This finding does need to be moderated as: a) The informal-self-employment sector total income share of 3.1 percent and informal wage employment share of 2.4 percent, are cumulatively too small to have a huge impact on

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eliminating national poverty; b) Social grant income is well targeted and a “lynchpin” in aggregate poverty reduction; c) Although not well targeted, formal sector income is the dominant portion of overall income at 56.7 percent and is the most vital component of poverty reduction overall.

Therefore, there is empirical evidence that small enterprise development matters for the marginalised insofar as it is well targeted in addressing the poverty and wellbeing aspects of poor households. Alcock (2016; 2018) and Neves and Du Toit (2018) describe buoyant markets involving informal farmers and traders in rural towns in KwaZulu-Natal which suggests that if entrepreneurs can organise themselves, market opportunities exist in the rural economy. Collectively, the evidence supports the inclusion of the NIBUS as a small enterprise development strategy in the development framework (Figure 3.5). Through its multi-dimensional lens of development, self-employment is well directed at alleviating poverty. ii) Evidence on how to improve entrepreneurship

The literature on small business development in South Africa is extensive. Literature investigating constraints to small enterprise development contributions emanate from policymakers, academics, industry, and journalists. This literature presents a reasonable degree of consensus on the list of constraints facing entrepreneurs and enterprise development in South Africa. The OECD Economic Survey (2017), GEM Report (2017) and Department of Small Business Strategic Plan (2017) highlight similar constraining factors for enterprise development, which include:

- Red Tape: One reason for start-up activity being low is a burdensome regulatory environment (OECD, 2017). South Africa ranks 74th in the World Banks Ease of Doing Business, meaning

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regulation is disproportionately costlier for small and young firms, discouraging them from formalizing. Delays in registration, often associated with value-added tax, can mean that starting a business takes up to six months (GEM, 2017). Addressing regulatory concerns through one-stop shops -the use of technology and automation to reduce the administrative burden - could boost confidence, start-up rates and growth in the sector (Department of Small Business Development, 2015).

- Labour Market Rigidity: Reducing onerous labour legislation, intensified by the introduction of a national minimum wage (R20 per hour to take effect in 2018) to reduce poverty amongst workers and make growth more inclusive, would help accelerate start-up firms (OECD, 2017; Rautenbach, 2017). More flexibility for small enterprises should be considered. For example, permission should be granted for them to, end employment due to unsatisfactory performance at the end of a probation period lasting up to twelve months without any further justification and the without employees’ having recourse to the Commission for Conciliation, Mediation and Arbitration.

- Education Limitations: Entrepreneurs draw on a range of knowledge, skills and attitudes to remain in business. This competency set includes learned knowledge (such as accounting) and other capabilities that are best acquired through experience. An immense challenge in South Africa are the levels of unequal school education, and the low average age and high drop-out rate of learners (Bisseker, 2017; Anter, 2019; 2020). It is critical for entrepreneurship, that basic skills such as literacy, numeracy and problem-solving skills be improved. Along with these aspects, entrepreneurship should be incorporated into the education system (OECD, 2017) in order to provide the youth with some exposure to the business environment and to enable better career decision-making.

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- Effectiveness of Non-Financial Assistance: There is plenty of international evidence of sophisticated, high-level assistance to entrepreneurship programmes in the form of business training and business development services (such as business plan development and coaching), but very little evidence that these programmes are effective (Kongolo, 2010; OECD, 2017). Herrington et al., (2017) claims that entrepreneurial programmes in South Africa are too dispersed, are not delivered competently and are not effective.

- Difficulties in Access to Finance: In South Africa formal lending is dominated by banks, who’s lending to small and medium sized enterprises is low at twenty-six percent of business lending (Mthimkhulu & Aziakpono, 2015; OECD, 2017). Start-ups and small business often face financing constraints due to their lack of credit history and lack of collateral. In South Africa the highly unequal distribution of wealth makes informal capital – the usual form of capital– less accessible (Maluleke, 2016). Bank and non- banking finance options for SMMEs need review to allow new and informal entrepreneurs opportunity to build credit histories and improve their financial inclusion.

In the first quantitative research on the nature and subtleties of the small-microbusiness sector in South Africa, Fourie (2018) uses enterprise survey data to consider the employment performance, potential and constraints of small enterprises. Fourie uses Statistics SAs ‘neglected’ Survey of Employers and the Self-Employed (SESE), a survey of owners of non-VAT-registered enterprises (currently any firm with an annual turnover of >R1 million is not required to be VAT registered) that provides information on the nature of micro enterprises and their owners. Based on SESE data, the propensity to employ by business owners who keep accounts (or business expenditure separate) is two to three times as high as the

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propensity of owners who run their businesses without accounts. This is shown in Figure 3.6:

Percentage of owners that have employees 40

30

20

10

0 2001 2005 2009 2013

Owners without accounts Owners with accounts

Figure 3.6: Propensity to employ, by accounting status

Source: Fourie, 2018: 127

Further evidence is produced, using the same data, that firms employ more people when they are located near or in formal business centres rather than being home-based (Figure 3.7). This suggests that across many settings access to infrastructure, business facilities and markets is vitally important and, if met, will improve business establishment and growth.

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Location

Residential Commercial Transport station Street/Open space Market No fixed location Customer's premises Other location

0 5 10 15 20 25 30 35 40 45 50

Percentage

Figure 3.7: Propensity to employ, by specific location, 2013

Source: Fourie, 2018: 127

The SESE data (Fourie, 2018) suggests that policymakers need to recognise the importance of location to supply the critical services and assist operators in understanding how to separate business from household. The data confirms that for microenterprises location matters – enterprises located in non-residential, commercial locations were associated with about fifty-five percent higher profits than firms in residential locations. For example, being located at or near a transport station or pay point would be an advantage. It is also evident that keeping some type of business accounts (with transactions recorded separate from the household) corresponds with business success and is very significant. Small businesses that keep accounts have about seventy percent higher net profits than those that do not. However, the tendency amongst existing informal business owners in Western Cape township economies, as described by Hornack and Leidman (2017), was to incorporate earnings from business activity into the broader household income, making it difficult to assess actual performance and thereby identify the means to improve the firm’s performance. The capacity to

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understand how to separate the business from the household, locate the business properly and maintain transactional records is fundamental to the success of the micro business.

However, the support micro businesses receive from local government is often problematic. Nicolson (2017) reports on a crisis in local government: only seven percent of municipalities have been classified by the Minister of Cooperative Governance and Traditional Affairs as being well-functioning and only thirty-three of two hundred and fifty-seven municipalities receiving a clean audit from the Auditor General. Non-compliance with regulations was at its highest since 2012/3 and irregular expenditure was over R28-billion. Many of the problems experienced at local government can be attributed to management’s incompetence.

191 198 173 173 164 155 137 107 111 82

34 2 32 27

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Figure 3.8: Major service delivery protests, by year (2004–30 September 2018)

Source: Municipal IQ: Municipal Hotspots Monitor, 2018

The importance of implementation of good policy was referenced in Section 2.3, and with service delivery protests depicted in Figure 3.8 being a good indicator of local governments coordination capabilities, the support for entrepreneurs in providing for their

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infrastructure requirements is problematic across South African municipalities and metros. Local Economic Development (LED) is widely practiced in the countries of the North at both the local government and community levels. In South Africa, LED programmes including the establishment of LED units in municipalities to support implementation of Integrated Development Plans (IDP) as required by the Local Government: Municipal Systems Act, 2000 as amended (Malefane & Mashakoe, 2008) are common practice (Nel, 2001). The most recent thinking on economic development was endorsed by the Presidents Coordination Council (PCC) in 2019: The District-Centred Model for Development that seeks to “synchronise planning by all spheres of government and involve citizens and civil society (including business) in the development of South Africa’s 44 municipal districts and 8 Metros”. It envisages localised development, as pursued through a single, integrated plan per district – one district, one plan – that will prioritise and plot for developmental issues most relevant to communities and civil society by district as guided by “Vision 2030” (Cooperative Governance and Traditional Affairs, 2019).

By adopting the District-Centred Development Model, the incumbent ANC leadership have recognised that there is a “lack of coherence in planning and implementation and [this] has made monitoring and oversight of governments programme difficult” – describing a classic case of coordination failure (Cooperative Governance and Traditional Affairs, 2019). This localised approach to development, looks to prioritise or sequencing the most critical areas that need reform in that location, an approach found to be successful in East Africa (Wanjala & Muradian, 2013). Furthermore, “the district-driven model is directed at turning plans into action, and ensuring proper project management and tracking”, issues that escape implementation of the NDP as implemented to date (Sicetsha, 2019) .

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Central to local economic development at municipal and District level, are Local Economic Development (LED) Officers. They provide support to small enterprises and cooperatives by seeking funding and business opportunities including private public partnerships. They also ensure that national, provincial and district programmes are accomplished in municipalities. The minimum requirements to be employed as a LED Officer are Grade 12 with a National Diploma in Development Studies, Small Business Development or equivalent (Dipaleseng Municipality, 2019). Adherence to this standard would be important but seemingly is not always upheld as captured by Nicolson (2017) when quoting the Minister of Cooperative Governance and Traditional Affairs, Dr Zweli Mkhize: “Incorrect qualifications, inappropriate or bloated staff establishments; unacceptably higher vacancy rates and inordinately long delays in filling budgeted vacant posts, continue to plague local government”.

Policy in developing economies should also focus on reducing the failure of informal firms, mostly started by “necessity” entrepreneurs. It is the position of the ILO that poverty is both a product and a cause of informality. One of the authors of the ILO (2018b) report, Florence Bonnet stresses: “There is an urgent need to tackle informality. For hundreds of millions of workers, informality means a lack of social protection, rights at work and decent working conditions, and for enterprises it means low productivity and a lack of access to finance”. Informal work is often tantamount to bonded labour, where ‘informal’ means avoiding regulations aimed at protecting both South African and migrant workers (Du Toit, 2020). However, over the last two decades, understanding the informal economy has become increasingly important in development economics as the majority of small enterprises in most developing countries remain informal despite reforms aimed at making it easier and cheaper for them to transition into the formal economy (Bruhn & McKenzie, 2014; Grabrucker et al., 2018).

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In South Africa, Alcock (2016; 2018) uses various examples to demonstrate ‘the multitude of entrepreneurs, community leaders, responsive proactive citizens’ responsible for significant economic activity in both the ‘kasi’ (township) and ‘emalalini’ (rural village) - what he refers to as ‘invisible economies’. Fourie (2018c) backs up this anecdotal evidence with hard data from Statistics SA’s Survey of Employers and the Self-Employed (SESE) to account for 2.5 million workers and business owners, or one in every six working South Africans, being employed in small enterprises that are not registered for VAT or are ‘informal’. The latest Statistics SA survey shows three-million people were working in the informal sector, just under twenty percent of total employment (Rogan and Skinner, 2019). As a growing sector of the South African economy, entrepreneurs in this sector are significant in number and require policy support as part of the broader solution to development (Meagher & Lindell, 2013; Rogerson, 2016).

In this respect, scholars suggest that there is no single overarching policy intervention to address concerns associated with the informal economy and its formalisation, recommending rather that this should be done incrementally (Chen, 2012; Liebbrandt & Green, 2017; Cousins, 2018). Policymakers should consider the optimal advantages and sequence of formalisation from the perspective of the informal worker as this will help the unemployed. Skinner (2016) cites Brazil as having been successful in registering informal businesses in exchange for access to the social security system and other benefits, including access to the banking system. In this example, the exchange to formalise and address issues such as working conditions is feasible if the rewards outweigh the compliance requirements.

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iii) Evidence on how to develop entrepreneurs

The key role of the individual, particularly recognising entrepreneurship as a production factor of the ‘firm’, was introduced by Joseph Schumpeter in 1911 then translated from German into English in 1934, advancing a school of thought which advocates the importance of individuals in business success (Chang, 2010). This notion has been popularised in business management literature, where the entrepreneur is presented as flamboyant with innate talent and foresight (Beatty, 1998; Makura, 2017). Gagne’ (2013) is a supporter of innate talent or giftedness and represents a school of thought that the human endeavour, in this case entrepreneurship, is a genetic gift that can be improved on with experience but exists inherently within certain people such as Richard Branson or Patrice Motsepe.

Gagne’ (2013) claims that most researchers in psychology and education “without hesitation” acknowledge the existence of natural abilities – physical or psychological that (a) are strongly influenced by genetic endowment and (b) impact on the growth of competencies in particular fields of human activity. However, despite great optimism around the turn of the century, particularly when the Human Genome Project was nearing completion, genetic researchers are still not able to link specific genes or combinations of genes to complex human psychological characteristics (like intelligence, personality, and mental health) or even to physical characteristics (like height, for instance). And for the purposes of this study, therefore, it is important to understand that science has been unable to match performance to innate ability (Ericsson, 2013). This is not to say that genetic factors are irrelevant to performance, far from it, but it does serve to reassert the argument for the significance of environmental factors on performance.

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Accordingly, Gladwell (2008) motivates for “immersion” of the individual in the activity when acquiring a skill set and has popularized a ’10 000 Hour Rule’ – the ‘rule’ that it takes 10 000 hours to become expert in any given domain. Gladwell’s rule suggests the basis for an approach to this complex problem. The rule emanates from the work of Anders Ericsson (2006) and supports the hypothesis that there is no short-cut to the acquisition of a complex set of skills, such as those required to manage and grow a small business. Whilst the 10 000 rule is not one that should be cast in stone, Ericsson and Pool (2015) clarify that it is hard-work and deliberate practice over a significant period of time that is required for the individual to be successful rather than pegging a time-based rule to gaining expertise.

The foundation of Ericsson’s theory is that ‘deliberate practice’ leads to performance improvement and success. There is a qualitative difference between the course of improvement of expert and difficult competencies and of everyday activities. The goal for everyday activities is to reach as rapidly as possible a satisfactory level that is stable and “autonomous.” After individuals pass through the “cognitive” and “associative” phases, they can generate their performance virtually automatically with a minimal amount of effort (see the gray/white plateau at the bottom of the graph in Figure 3.9). In contrast, expert performers counteract automaticity by developing increasingly complex mental representations to attain higher levels of control of their performance and will therefore remain within the “cognitive” and “associative” phases. The more sophisticated and efficient our mental representations, the better our performance will be, and this takes time and practice (Ericsson, 2006).

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Figure 3.9: Experience and levels of performance

Source: Ericsson, 2006: 90

For Ericsson, practice is critical and is in-turn considered in three distinct forms:

Naïve practice – simply doing an activity; an example in the context of a small enterprise would be a small-scale farmer operating in a traditional manner and not introducing new technologies and methods. This level of practice develops a level of understanding but will not produce expert performance and improved yields for the enterprise.

Purposeful practice - doing an activity that is outside your comfort zone, with a specific goal in mind; an example in the context of the small enterprise is being exposed to new technologies and introducing these into your own operations. This level of practice will develop a higher level of skill and performance but is not sufficient to achieve expert performance.

Deliberate practice - doing an activity that is outside your comfort zone, with a specific goal in mind, informed by expertise; an example in the context of the small enterprise is introducing new technology

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and being assisted by an industry expert to maximize the use of this technology in order to attain vastly improved yields and performance.

Furthermore, Ericsson and Pool (2015) explain that there is a growing body of knowledge that both the structure and the functioning of the brain changes in response to mental training. Heckman (2007) collaborates in work that dispels the notion that once a person reaches adulthood, the wiring of his/her brain is fixed. Rather, the brain has a high degree of variability and adaptability, reinforcing a belief that education disadvantages can be overcome post schooling. Research suggests that long-term training results in parts of the brain being activated and that this is particular to the skill being developed (Syed, 2010). Early advantages may be achieved by access to education and learning skills, but through practice and coaching the human brain allows the adult to learn new skills. Williams et al., (2017) build on Ericsson’s work and cite studies conducted by Maguire (2011) to demonstrated that brain changes occurred (recording reduction of grey matter in their posterior hippocampi), in London taxi drivers who retired and stopped using their navigational memory every day. This disappearance of grey matter developed by taxi drivers to navigate the complex network of streets in London, is similar to an athlete who loses muscle mass when training stops.

Entrepreneurs developing a small enterprise, require a complex and extensive set of skills and range of knowledge. Apart from technical abilities in the business operations (e.g. plant growing), a business owner will need to execute on activities such as finance, tax, administration, marketing, selling, logistics, project and people management. In addition to operating a small business, the individual will also need to be entrepreneurial in finding markets and using scarce resources. This makes the findings made by Ericsson (2006), Ericsson and Pool (2015) and expanded upon by Syed

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(2010) and Williams et al. (2017), noteworthy in the context of rural enterprise development in South Africa.

The would-be rural entrepreneur in South Africa is likely to be poor, service a poor community with little disposable income, and have little or no work experience (Philip, 2003; Chimucheka & Mandipaka, 2015; Altbeker & Bernstein, 2017). These constraints are viewed as “all-but-insurmountable”, meaning that the odds of success when starting businesses under these conditions are lamentably low. Under these circumstances, entrepreneurship and small enterprise development are discounted as a solution in favour of the development of economic nodes in larger towns that have more potential to create jobs at scale. However, this does not have to be the case if policy and programmes are able to support entrepreneurs using deliberate practice principles. Therefore, to advance the goals of the NDP, the ability of entrepreneurs to take advantage of inputs and activities (Figure 3.5) is required and this is positioned as achievable for the enterprising poor.

3.6 Summary

In South Africa, poverty and politics is intertwined. Under the ANC-led government, there is political will to promote economic policy which delivers inclusive growth. Aligned to this is the appetite to develop and support policy that stimulates the development of small enterprises and co-operatives as a key priority for creating jobs and redressing poverty and inequality. To this end, the NDP articulates a vision of an economy that is inclusive, equitable and fast growing, with small, micro and medium enterprises contributing ninety percent of all new jobs by 2030.

For policymakers, the underperformance of entrepreneurs in South Africa as compared to its peers in sub-Sahara Africa and other developing economies is concerning, calling for further analysis of the relationship between enterprise development and economic development. Given the “grand ideas” in

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development economics, the main policy considerations for enhancing the developmental impact of entrepreneurship would include improving the supply and competence of entrepreneurs, improving innovative entrepreneurship, and reducing the failure of ‘necessity’ entrepreneurs (those who have little or no choice but to be self-employed) mostly operating in the informal economy.

Evidence in the literature reinforces the importance of supporting innovative entrepreneurs. Innovation is much prized in any economy as it stimulates new and ongoing economic growth. However, ‘necessity’ entrepreneurs that most often operate in the informal sector of the economy contribute less significantly to GDP growth, even though they provide well-directed relief for households in terms of poverty alleviation and contribute to the overall wellbeing of people. This investigation provides insight for policymakers but with specific emphasis on rural economies. Further empirical research is, therefore, introduced in the following chapters to improve insights and tender suggestions on improving rural enterprise development policy in South Africa.

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Chapter 4 Research Design and Methodology

4.1 Introduction

The importance of generating empirical evidence to inform policymakers in the pursuit of workable solutions in development was dealt with in Chapters two and three. In this chapter, the methodology and design of research to generate fresh empirical evidence on enterprise development as a developmental strategy in South Africa’s rural economy is reviewed, along with the factors that determined the research paradigm and approach. Furthermore, the data collection strategy and data collection instruments that were used in this research will be discussed. The chapter will be concluded with an overview of how the data was analysed and interpreted to realise reliable findings to address the research objectives and questions.

4.2 Research Methodology

4.2.1 Research paradigm

The starting point in the research design for this study involved deciding on a research paradigm. A paradigm is ‘a cluster of beliefs and dictates which for scientists in a particular discipline influence what should be studied, how research should be done, [and] how results should be interpreted’ (Bryman, 2012: 630). According to Saunders et al., (2003) research can follow either a positivist, interpretivist or realist paradigm, with the selection of a paradigms being dependent on the research questions being asked and overall purpose of the study.

A positivist favours using theory to derive hypotheses that are tested using deductive processes. The positivist believes that there are universal truths in the world and that research should discover the laws of the universe relating to these universal truths (Horn, 2012). An interpretivist favours developing theory and inductive processes,

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believing that the social world is too complex to rely on theorising by definite laws and relies rather on understanding the subjective reality of each research participant or situation (Saunders et al., 2003). Relativists believe that reality exists independently of human thoughts and beliefs, but also believe that the value of interpretations vary in accordance to immediate situations and are relative to their credibility and utility (Stake, 1995).

The research questions of this study require the study to investigate the relationship between small enterprise development as a means to poverty alleviation in rural economies and economic development in South Africa. The study ultimately intends to produce fresh insights for enterprise development policy to improve its impact on job creation and poverty reduction. The literature review in the preceding chapters uncovered certain aspects in Development Economics that influenced the overall research philosophy and approach: i) Economic development theory does not uncover a ‘silver-bullet’ to economic growth that developing countries can imitate. Traditional theories were biased towards the experiences of western countries and contemporary thinking slanted towards neoliberal thinking about the powers of the free market. Developing countries in Asia following alternative paths, often based on weighty state involvement, have challenged the neoliberal strategies and the policies suggested by the Washington Consensus. Rather, economic theory provides lessons on what may or may not work based on global occurrences, and these lessons should be applied to each country in its unique context (Gelb et al., 2007). ii) Development economists such as Hausmann, Rodrik and Velasco believe that the traditional approach in development economics was presumptive (citing the Washington Consensus), rather than diagnostic. For example, the ‘big push’ thesis dictates simultaneous implementation of many interventions regardless of a developing

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country’s competence or financial standing to execute on multiple policy initiatives. Lessons from India (Section 2.2.2), suggest that in environments where economic development ideologies compete, a prioritised and incremental approach to policy making can be effective (Varshney 2004; 2007). iii) Politics and development are intertwined, and in South Africa with its large inequality problem caused by its political past this is particularly evident. Alternate economic theories have been adopted by competing political camps in South Africa and divergent ideologies exist within government itself, rendering policymaking extremely difficult. The problems caused by slow economic growth compound the issues, as a fiscus under pressure is unable to fund all aspirations. iv) The South African government is following an incremental approach to development and this is reflected in its policy formation and priorities. For example, the unreliable electricity supply from Eskom is viewed as a critical drag on growth, causing serious business interruption and adding significantly to the cost of doing business. This in turn, discourages investors both within and outside the South African economy, further disadvantaging economic growth and development. Large budget allocation and structural changes to the energy supply sector - allowing private participants to support the countries energy requirements - demonstrate an important policy prioritisation.

Influenced by these observations of development economics and the prevailing South African context, it was decided to follow an agnostic rather than presumptive approach to answering the research questions. Instead of starting with strong notions on the nature of the problems, a diagnostic methodology offers a relatively agnostic stance on what works and what does not. It emphasises experimentation as a strategy to discover what works, with measurement and evaluation being an important component to learn what works and what fails (Rodrick, 2005).

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By adopting an agnostic approach, the research acknowledged both the importance of experimentation of relatively narrow reforms pertaining to enterprise development in rural settings and the importance of broader influencing factors found in development economic theory such as globalisation, corruption, politics and environmental sustainability. To accommodate this balance, a realist paradigm was assumed. This position is consistent with most business management research, which is often a mixture between positivist and interpretivist paradigms (Saunders et al., 2003).

4.2.2 Research approach

All research studies make use of theory to explain aspects of the natural world, which can be generated through deductive or inductive processes (Bryman et al., 2014). The use of theory influences research design and is predisposed by the researcher’s outlook or paradigm. A positivist would prefer using a deductive process dominated by quantitative methods making use of mainly numerical values (Horn, 2012). Quantitative researchers address research objectives through empirical measures, involving numerical values and analytical approaches, whereas qualitative researchers address research methods using methods that do not depend on numerical values.

Stake (1995) draws a distinction between quantitative and qualitative enquiry, not in terms of the data type but rather in the difference in searching for causes versus searching for happenings. Quantitative research generally involves the collection of primary data from large numbers of individuals units, frequently with the intention of projecting the results to the wider part of the population that should be concerned with the research problem. The collection of numbers and their classification, together with other facts and opinions, provide the data (Codwell & Herbst, 2004). The purpose of conducting qualitative research is to gain insight into the perceptions, feelings, and attitudes of

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respondents to, for example, a challenge they may face in accessing finance. Quantitative researchers would seek to understand complex interrelationships from existing data, whilst qualitative researchers collect data in the search for how participants experience, understand and explain the issues under investigation.

In this study, as mentioned, a realist paradigm is adopted, which calls for investigation of both narrow reforms pertaining to enterprise development in rural settings and broader influencing factors found in development economics. Furthermore, the research philosophy follows an agnostic stance, whereby the starting point in answering the research questions is not presumed (for example, that poor small enterprise performance is due to lack of available finance). It follows, that an inductive approach was necessary to collect information to investigate and answer the research questions.

In selecting possible research approaches, Rodrik’s (2008) suggestion to perform diagnostic research using an inductive approach was considered and adopted, and this included both quantitative and qualitative strategies. For example, quantitative methods such as cross- section and panel regressions that draw inferences by looking for patterns of correlations across regions, are advantageous in that there is broad coverage as well as control over some background conditions. Alternatively, interviews and other qualitative approaches, including structured case-studies, have the advantage of being carried out in a more open-minded manner, allowing for the discovery of new information. Further considerations are that qualitative approaches are deemed to be stronger on internal validity but can be contested on external validity grounds while, by contrast, standard econometric and quantitative approaches are weaker on internal validity but have fewer problems of external validity. Considering these factors, a combination of research approaches and data sourcing was adopted in the study to strengthen internal and external validity.

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Data and information for the study was sourced from both primary and secondary sources. Primary sources are the original written materials of the authors based on first-hand experiences and observations, whilst secondary sources are derived from the original material of others (Bailey, 1994). This study, investigating rural enterprise development as a means to poverty alleviation, based its analysis on the following sources: i) Secondary information on the broader factors that influence economic growth and development anchored the analysis. Theories in development economics were investigated and these were related to macro-economic policy in South Africa. This study included the referencing of academic journals, working papers, published books and lectures, and involved international and national data searches by the Library of the Nelson Mandela University to include: EBSCO, Business Source premier, Google searches, Dialog, and Dissertation Abstract databases. ii) Secondary information on the factors that influence enterprise development in developing economies, rural economies and in South Africa were investigated in a similar fashion. Attention was placed on gathering evidence from quantitative data, which cut across settings in South Africa. For example, the survey data from Statistics South Africa, including the SESE (Survey of Employers and the Self- Employed) is cited in the secondary research and provides statistical data that is nationally representative. iii) Secondary data was gathered on South African policies supporting enterprise development. The intention was to identify policy, regulations, and programmes that enable enterprise development, and then retain and support those that promoted development while jettisoning those that constrained it (Swanepoel and De Beer, 2015). iv) Empirical research was conducted on a narrow population in a rural setting to establish in-depth understanding of enterprise development

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in such settings. Evidence was gathered using qualitative techniques, such as individual and group interviews, placing people and their views at the centre of the investigation. Randomised field trails, as a methodology to understand specific constraints, was considered as an alternative to this case-study approach (Muller et al., 2019). However, randomised field trials would have required the researcher to work with but not assist certain entrepreneurs in a control group and this presented serious ethical dilemmas (the research taking place amidst people in poverty). Accordingly, a case-study approach was preferred as this would allow lengthy engagement with people in a rural setting, offering opportunity for multiple interactions to execute on the research techniques identified for this study. Ethically, this method was deemed to be sound as no exclusion and possible harm could be inflicted on any person or entity within the community. Furthermore, this approach was selected on the basis that it would allow the researcher time to absorb the goings-on in this community, gather data in an informed manner on the constraint’s encountered by entrepreneurs, and thereby obtain valuable input for answering the research questions.

4.2.3 Population and sampling framework

A population may be defined as the set of individuals, items or data from which a sample is taken (Horn, 2012). Once a population has been specified, the variables or set of variables that characterise this population are determined. Dowdy and Wearden (1991) caution that, once the population and related variables are specified, researchers should be careful to restrict conclusions to this population and variables. The definition of “small enterprise” in the National Small Enterprise Act incorporates a wide range of small businesses and it is entrepreneurs establishing small enterprises in rural economies that formed the population for this study.

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Bryman et al. (2014) distinguishes between sampling techniques to arrive at a subset of the whole population using either probability or non- probability techniques. Probability sampling is a technique in which the subjects of a population have a mathematically equal opportunity of being selected as the representative sample. Non-probability sampling is when it is not known which individuals from the population will be selected as a sample. Non-probability sampling was used in empirical research in the study, whilst research using random sampling was referenced in the secondary research.

In this study, empirical data was collected from participants using a non- probability purposive sampling technique. The research paradigm and diagnostic approach adopted to address the research questions necessitates both the investigation of development economics theory and an intensive investigation of the narrow and complex nature of developing enterprises in rural settings. As case-study research is concerned with the complexity and nature of the case in question, this approach was deemed appropriate. The people who participated in the empirical research, attending interviews and focus group sessions, did so by virtue of being in the setting and were not randomly selected using statistical methods, thereby constituting a non-probability sample. In this regard, the case associates the study with a location and a community, which allows for intensive examination of the setting (Bryman, 2012). Furthermore, the case is an example of a non-probability purpose sample as it represents a rural economy that has systemic problems including lack of infrastructure, financial capital, skills and potential markets.

The study recognises that case-study research is not sampling research (Stake, 1995). In its design, it explicitly acknowledges that case-study findings generally have restricted applicability outside of that particular case. The case-study was specifically selected to obtain an in-depth understanding of issues impacting on rural enterprise development, providing gravitas to findings in the literature and theory. As such the

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study did not seek to generalise findings from a typical case ‘to capture the circumstances and conditions of an everyday or commonplace situation’ (Yin, 2014: 48). The real business of a case study is particularisation, not generalisation, and the first emphasis of this component of the study is to understand the case itself (Stake 1995).

4.2.4 Primary data collection process

The means of collecting data for the documentary and secondary research were discussed in the research approach. This section details how primary data was collected in the empirical research component of the study.

The first step in data collection in this setting involved the selection of a suitable rural settlement with systemic problems including lack of infrastructure, financial capital, skills and potential markets. The town of Geluksburg in KwaZulu Natal, identified as having systemic issues, was selected for the intensive investigation of constraints to rural enterprise development. Preceding any research activity and the selection of participants, a formal meeting with the Geluksburg Community Forum was arranged. Using the Written Information Sheet, Appendix four and five (isiZulu version), the Forum was engaged and asked to facilitate communication to interested persons in the Geluksburg town and surrounds. Interested persons were invited to a meeting with the researcher and were required to meet the following criteria for the targeted participant group of the study:

 Located and living in the Geluksburg town large and surrounds;  Motivated to become self-employed by starting an own or collective business enterprise; and  Able to conduct business-to-business communication with a minimum NQF three/four qualification in English and basic numeracy competence. This is required as participants in this study will

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interface on a business-to-business basis with institutions such as SEDA/SEFA, local municipalities, SARS, CIPC and banks.

The meeting with the researcher took place at the Geluksburg Community Education Centre. This centre is in the heart of Geluksburg and was accessible by foot for most participants. Participants located in the Geluksburg surrounds and more than two kilometres away from the venue, were transported by a local NGO bus at no cost to them. The Geluksburg Community Education Centre has the facilities to conduct workshops, group and individual interviews, and was the ideal venue to conduct all research activities. Using the Information and Informed Consent Form, Appendix three, the reason for this research was communicated and offers made to persons wishing to participate on a voluntary basis.

The participants that choose to partake in the study formed the cohort of participants. This cohort’s participation commenced with completion of the pre-interview worksheet and each participant subsequently attended a minimum of three structured interviews regarding their own business idea and model. No restriction was made on the number of participants and, from the interested group, nineteen participants committed to the study, representing twelve different business types.

The case-study research primarily made use of interviews to gather data. Instruments to facilitate an in-depth (structured) interview and an (unstructured) focus group interview were designed for the study and are detailed in this section. Other data collection techniques, such as self- completion questionnaires and surveys, were not considered suitable for a research population that conducts business with poor financial records, is inexperienced in formal communication, and lacks access to Internet facilities. Appendix One: In-depth (Structured) Interview - Establishing a Business Enterprise

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This data collection instrument was designed to address the secondary objective: To identify the binding constraints that inhibit the development of small rural enterprises in South Africa. The design required participants to attend a series of study circles on developing a small enterprise. These interactions allowed the participants to compile Appendix seven: Study Circle Worksheet in preparation for the structured interviews that were guided by Appendix one: In-depth Interview - Establishing a Business Enterprise. In this way, the participants explored and gave opinions on the following aspects: i) own skills and ability, and matching these to a business idea in the setting; ii) capital requirements to develop the rural enterprise; and iii) the overall business model, value proposition, and enterprise profitability forecast.

The data collection process allowed the participants to accumulate information over time as they researched and developed their respective business ideas and models. The process took eight months to complete and participants attended between three and five interviews over this period. Participants gathered information on various aspects of their own businesses from the field and debated these in the study circle workshops before compiling the information on their business ideas using the guiding worksheet. This document informed discussions in the in-depth interviews, allowing the researcher to probe and investigate the participants’ ideas and views in detail. The researcher recorded responses on the interview forms, and these represented the data record for this intervention (supported by the participants self-compiled worksheet).

Appendix two: Focus Group Interview - Institutional Assistance

This data collection instrument was designed to address the secondary objective: To investigate policy design improvements to overcome the constraints to small rural enterprise development. The data collection instrument designed for the focus group interview was used and this is presented as Appendix two: Focus Group Interview - Institutional

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Assistance, which explores group opinion on: i) pre-investment assistance from SEDA; ii) investment assistance from SEFA; and iii) post-investment assistance from SEDA.

The focus group interview was completed eighteen months after the first briefings with participants. This allowed participants initiating small enterprises to explore and experience access to institutional assistance. The focus group interview was facilitated by the researcher and was supported by an interpreter, as requested by the participants. The interview was guided by the interview instrument, recorded with an audio recorder, and ultimately transcribed into a written record to form part of the data set.

During the collection of data from participants in the case-study, the following complications were encountered and mitigation actions taken, where necessary:

 Ninety-nine percent of the respondents in Geluksburg have isiZulu as their home language (Department of Statistics, 2011) and it was anticipated that some would have limited grasp of English and business concepts presented in this language. With English being the business language and a requirement for transactions with the DSBD intermediaries, this study did require English competence by participants despite this situation.

 Literacy was anticipated to be an issue for participants as 29.4 percent of the Geluksburg population over the age of twenty have no schooling. Furthermore, 23.9 percent in this age group have a matric and only 8.3 percent any higher education (Department of Statistics, 2011). The literacy and numeracy requirements in the business-to- business relationship with DSBD intermediaries excluded persons falling outside of these thresholds.

 Business acumen in the community was generally low as there was little evidence of business activity outside of spaza shops and “white-

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owned” lodges in Geluksburg. This meant the introduction of scaffolding in the form of study circles (discussed below) and an interpreter to facilitate explanation of business concepts when the participants requested this.

 Internet capabilities and access for respondents is typically weak, which ruled out the use of Internet-based instruments.

In developmental projects in East Africa, Ndulu and Mutua (2007) found that adults participating in economic development display the following characteristics:

 Expect respect and appreciation of what they are and what they know;  Like progressing at their own pace and at a convenient time and place;  Learn well if they are given the freedom to choose what to learn, where and when to learn;  Learn well when they are given the opportunity to share their knowledge and experiences;  Are practical-minded and would like to practice what they learn; and  Prefer exchange visits to learn from their peers.

Based on these findings, Ndulu and Mutua (2007) developed a study circle methodology to overcome literacy issues, lack of experience and other adult learning challenges. A study circle is a group of people with a common goal to learn together and from experts introduced into the circle. They meet to share ideas that provide them with the opportunity to learn new things, improve skills and increase their personal development. The group meets on a regular basis and members participate voluntarily in a democratic environment. The group holds between five to ten meetings to study or debate a selected topic for about two hours. The discussions are led by a study circle leader who can set goals, help others achieve their goals and has good organisational skills (Ndulu & Mutua, 2007). In this study, the study circle technique was used

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to assist participants to complete worksheets, to improve conceptualisation of their respective business ideas and models, and thereby assist them to prepare content for further exploration in the in- depth interviews with the researcher.

4.2.5 Data analysis

Interpretation is a major part of all research (Stake, 1995). A reliable method to obtain creditable findings from multiple data sources was required in this study, which had gathered a large data corpus emanating from divergent research strategies. Whilst Figure 3.5 unfolds an integrated view of components needed for small enterprise development in South Africa, Section 2.3 identifies the constraints to development based on topline evidence. In this regard, Hausmann, Rodrik and Velasco (2006) developed the Growth Diagnostic taxonomy (Figure 4.1) as an analytical instrument to determine the key problems restricting economic growth in an economy. To achieve the objectives of this research and pinpoint the constraints in the small enterprise development framework (Figure 3.5), the diagnostic methodology provided by Hausmann et al. (2006) was selected to arrange and then guide analysis of the data.

This diagnosis (Hausmann et al., 2006) starts with the assumption that a low level of private investment and entrepreneurship is a key factor of low economic performance for developing countries (Sydykova & Rodriguez, 2018). Thereafter, the Growth Diagnostic taxonomy (Figure 4.1) was used to systematically address the research questions by filtering evidence with the intention of identifying binding constraint(s) to development. Using this taxonomy, the relevance of each potential constraint on rural enterprise development and economic growth was analysed in a context-dependent manner. The notion was that some constraints will have a greater impact than others and that the binding constraint will have the largest effect on development – this approach advocates realising the biggest ‘bang for development buck’ by following

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a streamlined or prioritised approach rather than addressing a ‘laundry list’ of problems simultaneously (Hausmann et al., 2006b; Rodrik, 2006b). This diagnostic process therefore aims to, firstly, identify the binding constraint and then, secondly, design policies to eliminate it (Mthimkhulu & Aziakpono, 2015).

Whilst guided by the Growth Diagnostic taxonomy (Figure 4.1), Felipe and Usui (2008), and Sydykova and Rodriguez (2018) advise that the methodology should not be prescriptive and caution against adopting a position that singles out one ‘impediment in a bewildering array of many’. Accordingly, this study adopted the approach that the methodology provides the opportunity for a holistic analysis of constraints as they apply to rural enterprise development and that, in the ‘sifting’ process, no constraints should be hurriedly discarded. This approach ensured that interpretation of the results was not solely focused on the binding impediments of enterprise development alone but considered broader challenges in economic development as well.

Figure 4.1: The Hausmann-Rodrik-Velasco Growth Diagnostic Taxonomy

Source: Hausmann et al., (2006) Therefore, the data was arranged to enable analysis in the three broad stages of the Growth Diagnostic taxonomy (Figure 4.1). To ‘sift through

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evidence’ and enable interpretation that avoided false assumptions when reaching findings and conclusions at each stage of the decision tree, the technique of triangulation was adopted. Turner and Turner (2009) identify four basic types of triangulation: data triangulation involving time, space and persons; investigator triangulation involving multiple researchers; theory triangulation involving more than one theoretical scheme; and methodological triangulation using more than one method to gather data, such as interviews, observations and documents. The three distinct data sets described in this chapter, each with their own method of collection, allowed for methodological triangulation in this study.

The purpose of using triangulation in research is to strengthen credibility and validity of findings. Triangulation implies that the results of an investigation employing a method associated with one research approach, are cross-checked against the results using a method associated with the other research approach. (Bryman et al., 2014). Moving down the decision tree (Figure 4.1), the strength of evidence was cross-checked and overlapping data findings from the various sources provided the opportunity for reaching conclusions. Equally, however, findings that did not corroborate made reaching conclusions problematic from a triangulation point of view.

4.2.6 Trustworthiness of findings

The view that emersion in a rural setting over a long time period (eighteen to twenty-four months) would be necessary to fully understand and root out the most binding constraints on rural enterprise development has been discussed. To understand the constraints from people living in poverty meant adopting a people-centric, qualitative research approach. In qualitative research, the thoroughness of findings is dependent on the researcher’s ability to show credibility, dependability, conformability and transferability (Kalu & Bwalya, 2017). With regards to

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the primary research component of this study, each of these aspects are discussed below:

Credibility refers to the declaration that the research findings are believable and truthful. Research findings need to be based on believable data that represent a plausible interpretation of the participants’ views (Babbie & Mouton, 2001). In pursuit of credible findings, multiple data items and extracts were collected over an eighteen-month period. This allowed data to be accumulated progressively, verified with local inhabitants, and compared to findings made by other researchers in similar settings. Data collected from participants was done using individual and group interview methods and, for both interview types, meticulous records of interactions with participants were kept. Additionally, follow-up interviews were conducted in person to clarify the interpretation and accuracy of data when necessary. When findings referred to statistical data, this data was generated from the setting and compared to existing data sets such as the Statistics South Africa census data 2011. Lastly, data extracted from documents used primary documents, such as the strategic planning documents of the SBD Portfolio, rather than commentary on these documents. Collectively, the researcher made use of these strategies to ensure that the data used in the study could inform creditable findings.

In order to ensure that the research findings are dependable, there needs to be evidence that if the study were to be replicated in a similar context with similar respondents the findings would be alike (Babbie & Mouton, 2001). In order to achieve dependability, structured instruments and frameworks evident in the literature were used for analysis. An external independent inquiry to audit, review and examine execution of the stated methodology was conducted. This audit confirmed that due process was followed and that claims made in the findings are supported by the data and based on the data collection instruments. In addition, an extensive description of the context in which the research took place is

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incorporated in Chapter five, which details the setting in which the researcher would expect findings to be similar.

Conformability refers to measures that allow interpretations of the data and findings to be devoid of the researcher’s values, gender, social class, and cultural influences (Greenaway, 2010). Conformability is concerned with the degree to which the findings of the research could be confirmed by other researchers and the moderation of the researchers own perspectives, beliefs, and pre-existing thoughts, ensuring that these do not influence the integrity of the research (Starks & Trinidad, 2007). Data from the individual and group interviews, capturing the views of participants, have been included as verbatim quotations to safeguard that findings were derived from the data and not from own predispositions. Extensive field notes, worksheets written by the participants, and a verbatim script of the group interview were all audited and form part of the documentation that support this study.

Lastly, the degree to which the research study findings in a study are applicable or useful to theory, practice and future research refers to the transferability of the research (Kalu & Bwalya, 2017). The researcher has made use of three separate data sets to provide detailed and balanced insight into rural enterprise development in a rural economy with systemic problems including a lack of infrastructure, financial capital, skills and potential markets.

4.2.7 Ethical considerations

The primary data collection process in the case-study component of this study meant interfacing with a population in a setting where people are predominantly living in conditions of poverty. As such the research design considered the Belmont Report (1979), which identifies ethical principles and guidelines for the protection of human subjects of research. The basic ethical principles that influence the research design were identified as:

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i) Respect for person: this incorporated the requirement to treat individuals as autonomous agents, giving weight to each person’s opinions, choices and considered judgements. Furthermore, respect for person demanded that subjects be able to enter the research voluntarily with adequate information. ii) Beneficence: an obligation existed to (1) do no harm and (2) maximise possible benefits and minimize possible harm. People participating in research were protected from harm and efforts were made to secure their wellbeing. iii) Justice: injustice occurs when some benefit to which a person is entitled is denied without good reason or when some burden is imposed unduly. The researcher endeavoured to treat people equally and fairly.

The Belmont Report (1979) provided the researcher with the necessary guidelines on how to conduct ethical research taking into consideration the requirements of informed consent, risk/ benefit assessment, and the selection of subjects of research. These guidelines were incorporated in the study as follows: i) Informed consent – the researcher was required to have respect for people in deciding what shall or shall not happen to them. To address all requirements of full disclosure, clear communication and voluntary participation, a consent form and process was administered. The participants received a descriptive of the study, detailing its purpose and the intended role of the participant – this is included as Appendix four and five (isiZulu version): Written Information Sheet. Prior to any research activity and interview (both in-depth and group), the participant was informed in a one-on-one sitting of all respect issues and signed an Information and Informed Consent Form included as Appendix three. In addition to these steps, and prior to any interview, the Researcher read out the contents of Appendix six: Oral

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Information Guideline to reaffirm the process as voluntary and to keep the results confidential. ii) Assessment of risks and benefits – risk refers to a possibility that harm may occur and benefit to something of positive value. A risk- benefit assessment was required to assess possible harms and anticipated benefits, including psychological, physical, legal, social and economic, to participants. With the focus of this study being on the effectiveness of institutional support, it is risk pertaining to the research activities of the study and not the practice of establishing rural enterprises that was assessed.

The study addressing the stated research questions investigated the effectiveness of policy and institutional support for enterprise development in rural areas with systemic problems. Participants were engaged through structured individual interviews and a focus group interview. All interactions with the participants were designed to be on a voluntary and anonymous basis. Measures were taken to ensure that the researcher did not encroach on the persons ideas, nor take any action on the persons behalf (like submit an application for funding). The researcher collected data on the participant’s business ideas and challenges confronting the business and participant only. Data findings elicited from participants were aggregated and did not refer to the participant nor the participant’s business. As such, the researcher limited any risk of harm to participants from this vulnerable group. iii) Recruitment and selection of subjects – fair procedures and the outcomes in the selection of research subjects for reasons of achieving justice. An injustice is experienced if some benefit to which a person is entitled is denied without good reason or when some unwarranted burden is imposed. Injustice was avoided as no participant was unduly benefited nor burdened.

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4.3 Summary

The research paradigm adopted by the researcher is that of realism, which allows for both the narrow exploration of rural enterprise development and the broader influence of economic development theory. A combination of evidence to strengthen internal and external validity of findings included policy documentation, literature (with cross-cutting quantitative data bases), qualitative evidence from observations, and in-depth and focus-group interview scripts.

As the primary data collection process in the case-study component of this study meant interfacing with a population in a setting where people are predominantly living in conditions of poverty, the research design referenced the Belmont Report (1979) to guide instrument design and the studies overall methodology. In doing so the research followed stringent ethical principles and guidelines for the protection of the human subjects of the research, whilst striving for a methodology that delivered credibility, dependability, conformability, and transferability of findings. To facilitate analysis using the technique of triangulation, the data corpus was arranged according to the Growth Diagnostic taxonomy, which will be discussed in the following chapter.

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Chapter 5 Research Findings

5.1 Introduction

The research approach and different means of collecting data has been dealt with in Chapter four. In this chapter, primary data is presented for analysis in two cohorts: a) Findings from documentation pertaining to inputs and activities of SEDA and SEFA; b) Empirical data from participants in a rural setting in South Africa. Furthermore, the empirical data is arranged in accordance to the Growth Diagnostic taxonomy detailed in Figure 4.1.

5.2 Findings from Documentation

5.2.1 Programmes Supported by SEDA

SEDA, as an intermediary of the DSBD, is mandated to provide non- financial business development support services and assistance to small enterprises nationally. Pre-financing assistance in the form of business registration, planning, and business training are afforded to small businesses and cooperatives expected to be financed through SEFA or its partners. Post-finance services are also available, particularly in the form of business mentoring, accessing markets, and improving standards of product and services (Maluleke, 2013).

SEDA’s target market includes small, medium, and micro enterprises, as well as co-operatives and potential entrepreneurs with a business idea. The definition of a small enterprise is provided by the National Small Business Act of 1996, nevertheless SEDA defines its clients differently and this is based on the number of employees as indicated in Table 5.1.

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Table 5.1: SEDA’s definition of small enterprises

SMALL ENTERPRISE DEFINED BY NUMBER OF EMPLOYEES Medium 51-200 Small 21-50 Very small 6-20 Micro 0-5

Source: SEDA 2014:11

Ostensibly, to maximize its impact SEDA has implemented two key strategies. Firstly, SEDA uses a ‘client-journey’ model aimed at working with a small enterprise over a long period of time rather than for short once-off interventions. Secondly, the entity has prioritised the ‘upper level’ of the small enterprise sector or businesses employing between twenty-one and two hundred people (arguing that this market segment has the greatest job creation potential). The strategy is to spend progressively more time with existing businesses, thereby providing more interventions per client and ultimately registering more success with these clients (Small Enterprise Development Agency, 2014). SEDA’s service delivery network consists of a network of some forty- three branches, nineteen mobile units, fifty electronic information kiosks, twelve enterprise development centres, forty-two incubation centres, and twenty-three access points where SEDA co-locates. The programmes offered by SEDA are described in Table 5.2 below:

Table 5.2: Programmes that are offered by SEDA

Programme: Description: Consideration: Entrepreneurial A five-day training course Uses traditional training Training Course covering marketing, business method and aimed at profiling, maintaining financial existing owners to “take records, and business their businesses to greater planning. heights”. Export Develop and generate SEDA screens applicants Development “export-ready” small to this programme using Programme enterprises that are globally an Export Readiness competitive. Assessment Tool which has a high benchmark regarding product requirements.

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Programme: Description: Consideration: Supplier Strengthen the performance Enterprise must be past Development of supplier firms to the start-up phase and Programme corporates, government and participation in the state-owned enterprises, to programme is determined make them “globally by the buyer. competitive”. SEDA Enterprise SEDA Business Talk: SEDA offers a diagnostic Development Training workshops (and of the business, which is Programme business registration) typically conducted by an SEDA Business Start: Information Officer from one of its branches. Business planning Thereafter, a consultant is Business consulting procured to supply training Facilitating access to finance or other services as Business support identified. Other interventions may be SEDA Business Build: informed as the “client- Capacity building systems journey approach” Mentorship unfolds- SEDA’s stated Tender advice preference in strategic plan is to focus on “upper Export readiness level” SMMEs. Franchising SEDA Business Grow: Business systems development Cooperative support Growth strategy

Empretec In partnership with the United Limited to thirty Nations Conference on Trade participants per workshop- and Development’s Division bespoke training course. of Investment and Enterprise: a six-day programme using a unique Harvard University methodology focusing on the behavioural approach to entrepreneurship. Women Enterprise A ten-month coaching The selection criteria also Coaching programme which aims to dictate that the enterprise Programme enhance management must be aligned to competencies of women government priority areas entrepreneurs that have gone (e.g. manufacturing, agro- past the start-up phase, been processing and ICT). in existence for a minimum of two years, employ a

minimum of five employees, and have a turnover greater than R1 million but less than R35 million.

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Programme: Description: Consideration: Basic Transfer basic business skills This programme includes Entrepreneurial to microbusiness owners improving the business Skills during weekly two-hour one- performance of informal Development on-one training/coaching businesses. sessions at the business premises over a period of approximately fifteen months. Entrepreneurship An entrepreneurial education The programme targets in Schools programme at select cinemas learners at schools. nationwide. Learners between Grade nine and twelve from identified schools are equipped with entrepreneurial skills. Gazelles A “flagship SME support In keeping with strategic Programme programme” providing a intention to support the range of growth-oriented “upper level” of SMEs. business support programmes, activities, and partnership opportunities to performing entrepreneurs. Enterprises must have

Source: Adapted from Small Enterprise Development Agency website http: //www.seda.org.za/Programmes – September 2019

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To benefit from these programmes, small enterprises would generally approach a SEDA outlet and apply for an assessment of the entity’s needs. The entrepreneur would need to know how to locate these outlets and services as little marketing is done by SEDA. Thereafter, a SEDA representative would structure and facilitate a combination of services delivered through a business partner (consultant/trainer). The programmes documented in Table 5.2 do, however, favour the ‘upper level’ of small enterprises and in the main promote services to formalised small-business entities. A notable exception is the Basic Entrepreneurial Skills Development (BESD) programme which is being piloted to transfer basic business skills to micro-business owners during weekly two-hour one-on-one training/coaching sessions at the business premises over a period of approximately fifteen months. However, little data exists on this programme as it is relatively new and being implemented in a selective and localised manner. The programme is not a mainstream offering afforded across SEDA branches and outlets.

Furthermore, it is unclear if the programmes offered by SEDA have any impact on small business performance. In the literature (Section 3.5.2 (iii)), Ericsson and Pool (2015) question the effectiveness of traditional classroom-based training, which is the preferred method utilised by SEDA. For its central offering, the impact assessment of SEDA’s Enterprise Development Programme is largely limited to determining if the programmes specific outcomes (in terms of course content) are met as well as collating customer satisfaction of the training experience (Maluleke, 2013). This falls well short of what impact assessments should entail, neglecting measurements of how skills have been transferred into the workplace and calculating the return on investment of training (Erasmus & Van Dyk, 2003; Broad, 2005). The absence of any meaningful impact assessment of SEDA programmes is possibly due to SEDA not having the expertise to conduct methodologically difficult evaluations (Maluleke, 2013).

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Based on these findings, SEDA does conduct rudimentary monitoring and evaluation of its own programmes. There is, however, a problem with their approach. In-house training programmes are conducted, yet about seventy percent of these courses are outsourced to external providers who prefer to report favourably on course evaluations to ensure they elicit more work from SEDA (Maluleke, 2013). SEDA could learn from the Ericsson’s “deliberate practice” theory (Figure 3.9), whereby scientific evidence shows that it is extended practice under expert guidance that produces learning and success. SEDA’s cornerstone programmes favour traditional training methods and the impact of these are not well measured. The pilot and introduction of the BESD programme, however, is viewed as a positive development as it incorporates workplace mentoring over an extended period of time and this aligns well with “deliberate practice” theory.

In response to South Africa’s low TEA rate (Section 3.5.1) and summation that South Africa is one of the least “entrepreneurially active” nation amongst its peers, government has instituted the National Skills Development Strategy (NSDS) to improve the labour forces level of skill through training programmes and qualifications (Pretorius & Wlodarczyk, 2007). Amongst the guiding principles of the NSDS is supporting employment creation and poverty reduction by developing small business and this is cited in Objective 4: Stimulating and supporting skills development in small business (Buys & Havenga, 2006). To this end, the NSDS promotes the South African Qualification Authority (SAQA) accredited National Diploma in New Venture Creation (NVC) Qualification in assisting with closing the gap. The NVC tuition content covers best practice in establishing a small enterprise and can be delivered as a full qualification or in skills programmes that cover select topics such as business planning.

The entrepreneurship development approach of the NVC Programme is built on the principles of outcomes-based education, which is suitable for the aim of tangibly establishing new ventures (Buys & Havenga, 2006).

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The programme imparts knowledge through formal teaching and the development of skills through experiential “deliberate practice” activities. Furthermore, as a SAQA accredited programme, Service Providers are required to deliver under a strict quality assurance system; - materials need to be approved, learners assessed against registered unit standards (formative and summative) and assessments moderated then verified independently. It is somewhat surprising, that the SEDA programmes operate outside of SAQA and do not utilise NVC skills programmes, particularly as this approach would require improved quality assurance and measurement of learning.

5.2.2 Programmes Supported by SEFA

The Small Enterprise Finance Agency (SEFA) is a wholly owned subsidiary of the Industrial Development Corporation Limited (IDC) and was founded on 1 April 2012 (in terms of Section 3 (d) of the Industrial Development Corporation Act, No. 22 of 1940 (IDC Act)) following a cabinet decision and the 2011 State of the Nation Address to merge three agencies - Khula, the South African Micro-Finance Apex Fund, and the IDC’s small business funding - into a single entity. The Department of Small Business Development is SEFA’s executive authority. SEFA’s mandate is to foster the establishment, survival, and growth of SMME’s and cooperatives, and thereby contribute towards poverty alleviation and job creation (Small Enterprise Finance Agency, 2019). SEFA delivers its products and services through direct and wholesale lending programmes that are described in Table 5.3 below.

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Table 5.3: Direct and Wholesale Products from SEFA

1 Direct Lending Products (R50 000 -R5 million) - Access finance - Bridging loans - Revolving loans - Term loans 2 Wholesale Lending Products (R500 – R5 million) - Credit guarantees - Equity - Revolving loans - Structures finance solutions - Term loans (Source: Adapted from Small Enterprise Financial Assistance, Corporate Plan, 2016/17-2020/21)

The distribution channels for wholesale lending include commercial banks, co-operative financial institutions, microfinance institutions, retail finance intermediates, and SEFA offices. SEFA is also responsible for the administration of the Co-operative Incentive Scheme (CIS), which makes available grants up to the value of R350 000 per co-operative, with a matching ten percent contribution from the benefiting entity. This scheme is designed to provide a kick-start to new and fledgling co- operatives by providing the means to acquire seed, fertiliser, machinery, tools, vehicles, and so on (Small Enterprise Finance Agency, 2019).

To be able to apply for the CIS grant or any of SEFA’s products, the small enterprise must be at an advanced stage of formalisation as the risk requirements are extensive. The applicant must be:

 a South African citizen or a permanent resident;

 a registered entity with a fixed physical address;

 within the required contractual capacity;

 registered within South Africa;

 compliant with accepted corporate governance practices appropriate to the client’s legal status;

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 able to produce a written proposal or business plan that meets the requirements of SEFA’s loan application criteria;

 able to demonstrate the character and ability to repay the loan;

 able to provide personal and/or credit references (if available);

 the majority shareholder and the owner manager of the business; where available, provide the relevant securities/ collateral; and

 able to produce a valid tax clearance certificate.

(Small Enterprise Finance Agency, 2019).

These stringent requirements for the small business are consistent with the requirements of its shareholder, the IDC, and how it manages its client base. The traditional business banking approach pertaining to the provision of financing, is restrictive in that collateral requirements often restrict access to aid by less sophisticated and less prepared small enterprises that fall under the developmental mandate of the SBD Portfolio. In Chapter 3 it was established that access to finance is often cited as the main barrier to enterprise development and growth, but that this aspect should not be isolated from other issues such as access to market and skills. Access to credit is not useful if an entrepreneur is unable to manage finances or use the credit productively to start a business. As such, SEFA is challenged with providing small enterprises with access to finance intertwined with skills and market access, which together would make a broader support environment for small businesses (IFC, 2019).

5.3 Empirical Findings in the Setting

5.3.1 Background to data collection

In line with the stated methodology (Section 4.2.4) and to provide insights relevant to the research questions, two clusters of participants were engaged in the setting. Firstly, participants identifying small enterprise opportunities in the setting completed a structured worksheet and attended a series of in-depth interviews (Appendix one). Secondly,

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participants that had recent experience in engaging government for support when establishing small enterprises attended a focus group interview (Appendix two).

5.3.2 Information on participants in the in-depth interviews

The demographics of the participants who availed themselves of the in- depth structured interviews conducted in numerous sittings in 2018/19 is described in this sub-section.

Figure 5.1: Demographics of participants in the structured interview: Age

The majority of the participants were youths who were without formal employment and sought an income stream from self-employment.

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Figure 5.2: Demographics of participants in the structured interview: Gender

Males excluded from formal employment and the social grant system formed the majority of the participants.

47%

37%

11% 5% Primary Some Secondary Some tertiary n=19 completed secondary completed completed

Figure 5.3: Demographics of participants in the structured interview: Education levels

School education levels were higher than expected, with 88.8 percent of participants having education levels of Grade 11 and above.

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84%

16%

Some work experience Supervisory experience n=19

Figure 5.4: Demographics of participants in the structured interview: Experience levels

Only sixteen percent of the participants had work experience in a supervisory or equivalent level, however all participants had some formal work experience.

5.3.3 Information on participants of the focus group interview

There were ten participants from the setting that had interfaced with institutions providing business development support. These participants represented four business types found in the setting (Figure 5.5).

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10% Sole Proprietor 20% Co-operative 50% NPO Small Scale Farming 20% n=10

Figure 5.5: Representation of firm type in the focus group interview

The participating enterprises cover a reasonably broad range of firm types, including an education NPO, a livestock farmer, and two cooperatives. Most of the enterprises were in their first year of operation and half of them were, understandably, sole proprietorships, the simplest form of business to start and operate. The largest employer was an NPO, which had over twenty employees at its height when it was funded by UNICEF. All the enterprises have interfaced with government for support and most have had some dealings with the SBD Portfolio. The range of participants within the focus group accounted for divergent views both across business types and with regards to their experience in engaging government support.

5.3.4 Characteristics of participant enterprises (structured interviews)

The characteristics of all participant business entities is described in this sub-section:

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22% 22%

16%

10% 10%

5% 5% 5% 5%

Clothing and apparel Construction Retail Petty trading Catering and functions Transport Livestock Crops Cleaning services

Figure 5.6: Characteristics of participant enterprises: Firm types

Construction and building services, small livestock farming, and catering for functions were identified as the top business opportunities by the participants.

n=19

Advice from expert 90%

Separate bank account 95%

Tools and equipment 53%

Business premises 90%

Finance >R25,000 89%

Figure 5.7: Characteristics of participant enterprises: Firm requirements

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The data in Figure 5.7 was collated from responses in the structured interviews (Appendix one and two), which took place over an eight- month period and incorporated a total of sixty-four interviews. Most of the participants were unemployed aspirant business owners, motivated to establish a revenue source to afford shelter, clothing, food and education for members of their households. The requirement to meet basic living needs is consistent with findings by researchers in numerous settings in rural South Africa including Theron (2014), Altbeker and Bernstein (2017), Alcock (2016; 2018) and Philip (2018b).

The firms employ on average 1.1 persons and eighty nine percent of the firms required seed capital of less than R25 000. Ninety percent of the firms required suitable business premises to trade from. Some had tools and equipment, but fifty three percent of the participants required additional material resources. Only one participant was receiving advice from an expert (or mentor) and only two of the participants had separate bank accounts for business and household.

5.3.5 Information on Geluksburg and its surrounds

The research was undertaken in the small Kwa-Zulu Natal town and surroundings of Geluksburg (Figure 5.8). ‘Geluk’ is an Afrikaans word that can be translated as luck, success or happiness, while ‘burg’ means place of protection. The town itself is located in the Drakensberg Mountain Range on the border of Kwa-Zulu Natal and the Free State Provinces. Geluksburg falls under the Okhahlamba Local Municipality and is accessed by a rough district loop road off the R616 which links the towns of Bergville and Ladysmith. Data was collated over an eighteen-month period by the researcher in consultation with local residents. This data is augmented by economic data from the Statistics South Africa census 2011.

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Figure 5.8: Map of Geluksburg and surrounds

The largely maize-cultivation and livestock town of Geluksburg is suitable for an in-depth case study for several reasons. Firstly, in line with the primary research question, the town has systemic problems including a lack of infrastructure, financial capital, skills and potential markets. The following observations of the town and its systemic problems were made by Burnett and Oosthuysen (2017):  There is a scarcity of material resources, food, and disposable income within the community;

 Families and households are fragmented as adults (mostly parents) live a highly mobile life in search of work;

 The educational assistance, care, and support of children is often inadequate as these duties are frequently, and of necessity, left to grandparents who are largely illiterate;

 There are few shops, limited infrastructure, and no critical public services such as a police station or health clinic;

 Unemployment is rife and both the opportunity to find permanent employment and an understanding of how to generate self- employment are lacking.

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Secondly, the area, is characteristic of the “typical South African pattern of agricultural dualism – small-scale African and large-scale, mostly white producers” (Neves & Du Toit, 2018). Thirdly, the community is isolated from a commercial centre and inhabitants are required to commute some thirty-five kilometres on a gravel district road to access service and retail facilities from the closest town, Bergville. The setting is, therefore, of limited applicability to an understanding of rural areas that have ready access to commercial businesses, normally located close to well serviced rural towns such as Ladysmith.

5.3.6 Information on population profile

The combined town and settlement census data record 2 073 residents. Persons between 0-14 years old constitute forty percent of the population; 6.1 percent are elderly (65+); and the balance, representing 53.9 percent, are of working age (15-64). The population lives in four hundred and seventy-two households, with the average household size being 4.39 persons (Department of Statistics, 2011).

5.3.7 Information on enterprise and economic activity in Geluksburg

The topography of the area allows for commercial agriculture, which is found on both sides of the R616 regional route. This strip of land is relatively flat and suitable for maize and potato cultivation (Sparg, 2015). On either side of this strip, steep slopes hamper plant agriculture – the escarpment climbing into the Free State on one side and the incision of the fast-flowing Tugela river on the other (including the notorious Spioenkop mountain). Commercial farms, some family-owned and others group-owned, dominate the strip and range in size from two hundred hectares to over six hundred hectares. One commercial farm known as Zuurplaat (approximately three hundred hectares in size) was donated to eleven local households (formally employees), but this farm is set on the slopes of the escarpment and is only suitable for livestock farming or forestry.

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The town of Geluksburg, having been developed in the Apartheid era, has a town centre, a residential area, and a separate settlement some five kilometres away, known as Greenpoint. The town and its surrounds provide no manufacturing or agro-processing for the primary agricultural products produced in the area. Enterprises in the town are unable to meet the needs of the formal farming sector, who travel to Bergville, Ladysmith or Pietermaritzburg to receive services. Some retail is available to the local community, dominated by a single grocery supplies store. The area also has a number of attractive and interesting features like waterfalls, mountains, dams, Zulu cultural villages, game reserves, and historical battle sites that could provide opportunities to enterprising local residents.

Most of Geluksburg’s enterprises are active in the agricultural sector, with town residents providing labour to the commercial farms in the area or practising small livestock farming themselves. In addition to agriculture, the town has a primary grocery store, which has been owned by an Asian family for at least two generations, and the adjacent settlement/township has a scattering of small spaza shops and taverns. These provide modest employment and services primarily for local residents, who have limited disposable incomes (Burnett & Oosthuysen, 2017). Other enterprises include groups of informal traders selling food. Banking facilities are not available, but there are two SASSA pay points in the area. The regular pension and grant payments from SASSA are an advantageous source of circulating cash for the local economy. Geluksburg’s public services are virtually non-existent: no post office or even agency operates; there is a Councillor’s office but no municipal offices; no clinic, as mentioned earlier; and no library. The most prominent building complex available to the Geluksburg community consists of a municipal community hall and an education centre supported by a local NPO.

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5.3.8 Information on employment in Geluksburg

Employment levels are low in the Okhahlamba Local Municipality. Only 10.3 percent of people aged fifteen to sixty-four are employed, the balance are either unemployed, discouraged work seekers, or not economically active (Department of Statistics, 2011). The data suggests that of the 2 073 residents, 1 120 (fifty-four percent) would be of working age with one hundred and eighty-four residents being employed in Geluksburg (Table 5.4). Low levels of employment are indicative of limited economic opportunity in the area and account for the presence of poverty in the setting (Burnett & Oosthuysen, 2017).

The researcher utilised three sources of data to account for existing employment in the Geluksburg economy. The data was collected over the course of the research using the action research method and the data was verified using residents who had first-hand knowledge e.g. tavern owners and small-scale farmers. Authenticity of the data was compared to a similar setting in Kwa-Zulu Natal from a study completed by Neves and du Toit (2018) and, lastly, data from the census 2011 was used. The analysis is presented in Table 5.4 and Appendix eight, providing an overview of employment in the setting.

Table 5.4: Formal and informal sector representation (%) across income category in the Geluksburg* economy (farm and non-farm economy combined) Income Formal Sector Informal Category Public Private Sector High earning (A) 2.5% (B) 3.7% (C) 2.5% Middle earning (D) 2.5% (E) 5.3% (F) 6.2% Low earning (G) 15.3% (H) 46% (I) 16% 75.3%

High-earning cells in Table 5.4 incorporate high-earning individuals earning more than R153 000 per annum, as shown in cells A, B and C.

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Cell A is dominated by educators. There are some fifty-seven educators that commute to the six schools in the area daily but do not use their income in this economy. Whilst they work in the area, they live, shop, and spend the bulk of their free time in neighbouring centres like Ladysmith and Bergville. They are paid by the Provincial Department of Education and are not considered to be active in this economy (ad hoc spend on lunch from vendors being the exception). Furthermore, census information would include these employees as employed at their place of residence, not Geluksburg. Cell B comprises professionals, semi- professional employees, and entrepreneurs. This group is dominated by the agricultural sector – farm managers, lodge owners, and the primary retailer in the area. Cell C incorporates successful informal businesses in the area like tavern owners and small and medium-sized livestock farmers.

The middle-earning employment bracket in Table 5.4 includes persons earning incomes from R76 800 to R153 000 per annum and is shown in cells D, E, and F. Cell D includes clerks at schools. Cell E includes mid- level semi-skilled private sector employees such as lodge receptionists and commercial farm machine operators. Cell F includes entrepreneurs who provide services mainly to local residents such as taxi owner operators, spaza shops, and taverns in the informal sector.

Low-earning employment in Table 5.4 includes persons earning under R76 800 per annum and are described in cells G, H and I. This income category represents seventy-seven percent of the employed population and this confirms that incomes in the area are low overall. Cell G incorporates unskilled persons working at schools, cleaners, security guards, and gardeners. Cell H includes domestic workers and gardeners employed in local towns, as well as farm labourers. Cell I incorporate shop assistants, herders, and taxi drivers in the informal sector.

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5.3.9 Potential small enterprises in the setting

Following the methodology stated in Section 4.2.6, and with the study’s focus on small enterprise development, the research included nineteen participants engaging with the start-up businesses in the setting. The business ideas and opportunities identified by the participants are recorded in Table 5.5 and these firms’ progression is tracked after eighteen months of the initial engagement with participants.

Table 5.5: Initiate small enterprise ideas of participants (in-depth interviews) – and status after eighteen months from first engagement with participant.

Business activity as Value proposition as Researcher’s described by described by observation of firm’s participants in the participants in the progress (post 4-5 Structured Interview Structured Interview interviews and after (SI) (SI) eighteen months of first engagement). Not yet active Hiring trailers for the Provide them [sic] with Trailer hire is important community (SI the good service. Give for the transport of food Participant 1). them the special [sic] commodities and once a month (SI livestock; the business Participant 1). was donated a trailer (local philanthropist), has a business plan but has not traded. Provide handyman To provide them [sic] Four participants with services in the with good work and building skills propose to community (SI saving time [sic]; not offer maintenance skills Participant 2, 3, 4 and take too much time to as sole proprietors and 5). finish the job (SI are currently employed Participant 2). on odd-jobs and have no firm or business. Cleaning service; Not provided. The participant targeting industrial envisages a Pty businesses, hotels, providing outsourced schools, and private cleaning services in the homes (SI Participant area – the business 13). remains unregistered and does not trade. A local tuck shop Good prices[sic] This participant is not yet supplying maize meal, without having to travel active and at the best cold drinks, bread, tea to town for my embarks on petty trading bags, potatoes, community (SI activities. cabbages, and tomatoes Participant 14).

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to the community (SI Participant 14). Small livestock Providing [sic] fresh Two participants have breeding, selling meat to the community developed business chickens and pigs (SI Participant 16). cases around live directly to the chicken sales and one community (SI around pigs. These Participant 16, 17, 18). business ideas have not been initiated in any form. Struggling to survive Hiring tents for Provide [a] great Tent hire is used in the weddings and party service to my community for numerous events in the community community (SI functions. The (SI Participant 19). Participant 19). participant has a suitable tent and business case and has hired out his tent for revenue. Sewing clothes for [Provide] Quality Two ladies were people, selling them, [products at] affordable supplied (local designing new fashion prices to people in my philanthropist) with a (SI Participant 8 and community (SI sewing machine and 10). Participant 10). stock of clothes to refurbish and sell. The firm has a business case, equipment, and stock. Sales are now being made and revenue generated. Plant cabbage and other Not provided. Transport to Bergville is vegetables for sale to R40 return and a bag of the community as there supplies is charged at is a shortage of R20. Reducing transport transport and the town is cost by supplying locally too far (SI Participant 11 grown product is and 12). attractive. Land has been secured by two participants (from a local philanthropist) with fencing and a borehole; the business is an initiate firm and has a business case. Cooking at events and Provide a good service Two participants have special occasions (SI at better prices[sic] (SI secured support from a Participant 6 and 9). Participant 6). local lodge whereby they have made available use of its kitchen and equipment. Some revenue has been generated on functions related to the lodge and at local sports events.

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Surviving Cattle breeding, selling I inject or give The presence of a formal cattle to butcheries and medicine to livestock linkage to the external the community for [sic] to treat the ill at market (breeders and functions (SI Participant that moment [sic] (SI butchers) via the local 15). Participant 15). livestock auction and access to suitable grazing make this business a viable proposition. Further opportunity exists for this participant in supplying a para-vet service to other small-scale livestock farmers for a fee.

Surviving with expected growth Retail SME selling To give good service One of the participants essential supplies to and to create was able to save enough households and friendship within start-up capital and is providing meals for ourselves [sic] (SI now a sustainable and learners and educators Participant 7). growing business at nearby schools. Sells achieving monthly electricity, maize meal, turnovers of

Common among the participants was the intention to establish a business that was community-facing (clients being the community itself) and of benefit to the wellbeing of community members. The inclination for individuals to help their community is noted by Alcock (2016; 2018) in Section 3.5.2 (ii), to the extent that in African communities’ entrepreneurs avoid taking other community members customers or competing against each other’s interest. For policymakers, this suggests that community- oriented offerings are important in rural villages with systemic problems.

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Struggling to survive 5% 5% Not yet active

42% Surviving

48% Surviving / Expected growth n=19

Figure 5.9: Firm status of participant firms after eighteen months

Herrington and Kew (2014) in the 2013 GEM Report provide a method for classifying firm status, which is utilised in Figure 5.5. In Section 1.1 it was identified that in South Africa some seventy percent of small businesses fail within the first three years of inception (Chimucheka & Mandipaka, 2015). Unfortunately, this trend was evident in the setting and despite training support (eighteen months in total) the majority of these aspirant businesses were still in an initiate phase (not yet active, struggling to survive). Only two achieved a trading record indicating that the new business was advancing towards sustainability (surviving; or surviving with expected growth). This is therefore consistent with the plight of small business in other settings in South Africa. Start-up businesses in this country have a low probability of success and this casts doubt on the potential impact of micro informal businesses on GDP growth (Liedholm et al., 1994; Herrington & Kew, 2014).

5.4 Arrangement of the Data

5.4.1 Overview of process

In line with the stated research methodology described in Section 4.2.7, the data collected in the case-study was arranged in accordance with the

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Growth Diagnostic taxonomy illustrated in Figure 4.1. This methodology helped minimally organise the data set, preparing the data for interpretation on various aspects of the research topic (Braun & Clarke, 2006). Having arranged the data in this manner, the next step was how to become familiar with the data. As the setting was being used to elicit issues pertinent to the participants, the initial review of data was particularly focused on commentary from the in-depth and group interviews (Appendix one and two). Data extracted from these interviews was ordered to incorporate vivid and compelling examples that would enable correlation with documentary and secondary evidence, ultimately enabling interpretation by triangulation. The balance of this section expands and documents primary data findings under each section of the Growth Diagnostic taxonomy (Figure 4.1).

5.4.2 Lack of access to finance

One of the components of the participants worksheet (Appendix seven) was to calculate the initial start-up capital requirement. In Figure 5.7 it is shown that 89.5 percent of the participants calculated that less than R25 000 was required to start the businesses they had conceptualised. To demonstrate this reality, one of the participants sent an apology via email for not being able to attend the focus group interview:

“I am [ ] from Geluksburg, I here [sic] about tomorrow’s meeting. I [would] like to pass my apology to you that [sic], I can’t be part of the meeting because [I am] busy doing my learners license………. I started [a]calf feeding business. [S]o far, I have three calves ……………………... Can you please find for me [sic] a female calf for the milk cow [sic]? …………. so that I can continue with my business”.

This participant is looking for an investment of between R7 500 and R8 500 to further his small-scale farming business. To date, the participant has managed through his own savings to build his stock to three calves and his current strategy is to seek investment from a ‘business angel’. For most participants sourcing capital from own funds,

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friends, family, ‘business angels’, or group saving ‘stokvels’ is a reality and this is consistent with micro entrepreneurs in townships, peri-urban, and rural settings (Maluleke, 2016; Alcock 2018). For example, a participant used his own savings earned from employment with a local NPO to start a retail shop. This participant has grown his business to a level where he is being offered assistance from a corporate supplier. When asked if he had used the R20 000 that he estimated as start-up capital in his worksheet, he responded:

“Yes, even the door [pointing to a steel door] you see cost R800 …………….. now Coke have provided a fridge at no cost as long as I stock their products and maintain my sale volumes”.

However, for 89.47 percent of the participants, there remains limited prospect of sourcing start-up capital and this is reflected in the limited business activity after eighteen months of engagement with participants (Figure 5.9). A typical response from the group is illustrated by a participant, who is waiting on financial assistance to source tools required to start a maintenance business:

“For me, the problem [is] to get money …………………. still waiting for some money so I can get some stuff [sic], some tools to carry on”.

In applying for funding, it would be common practice for a funder to assess the viability of the business before investing (Mullins, 2013). For this to take place, financial records and forecasting would be necessary and in most instances the firm or its owner would need to offer collateral to cover the investor’s risk. Such business sophistication was not naturally practised in the setting, as the following extract from a participant in livestock farming denotes:

“Most farmers do not use cattle like a business [sic], they sell [livestock] for emergencies and unforeseen events and expenses in the family”.

In this participant’s case, his grandfather had deceased leaving his grandmother as the head of the household, owning some forty head of

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cattle. Her main source of income was a state pension, but the cattle served as insurance for unforeseen expenses such as illness or ceremonies for the broader family. Despite her family being landowners and having access to extensive grazing on Zuurplaat Farm, there was no intent to treat the farm as an enterprise and separate this from the household. Setting up a farming business separate from the household economy is not normal practice, and not what any of these participants would have pursued in the past. This is of concern as in Section 3.5.2 (ii) SESE data illustrates that across small business types in the broader South African economy business owners that keep accounts (or business expenditure) separate have up to three times the propensity to employ as owners who run their businesses without accounts (Fourie, 2018).

In the setting, a number of participants identified that access to SEFA funding required formalisation of the business entity. In response, the participants organised themselves into two co-operatives to take advantage of the Co-operative Incentive Scheme (CIS) that was detailed in Section 5.2.2. A multipurpose co-operative was established to market the produce and services of the individual participant businesses and a maintenance co-operative was established to group the skills of the maintenance and building participants in order to offer a range of services to the local municipality and community at large (and access the thirty percent state spend on small businesses). In this way the informal businesses, as members of the co-operatives, could coexist with a formal entity (the registered co-operative) - a design that would allow access to funding and markets that require a level of formality.

The establishment of a co-operative follows a set procedure as is described in the Co-operatives Act of 2005. Applications to register a co- operative entity were completed and the co-operatives were formally registered within fifteen days. A far more challenging process followed, however, when the participants set about making application to the DSBD for CIS funding. This process is driven by an application form,

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guidelines, and a checklist all supplied by the DSBD (Section 5.2.2). Over a three-month period both co-operatives were unable to open bank accounts or obtain the three quotations for the stock and equipment they envisaged – key DBSD requirements. Geluksburg, as mentioned, is located some distance from the nearest banks and retailers, so meeting these requirements proved difficult. Despite not producing a bank account or the requisite quotations, perceptions amongst participants were somewhat different:

“No, we did quotations………, we are not happy because since from that day [of submission] there is nothing promising according to my understanding [sic]. They didn’t tell us anything since from that day [sic]”.

It is the view of this participant that the application and its quotations were adequately filled in and properly collated and that this application for funding should have been processed. However, no follow-up action had been taken by any of the co-operative members to ensure that they had met the DBSD information requirements and, in fact, it was subsequently discovered that the ‘incomplete’ application had not even met the initial requirements for processing the CIS application. Earlier in this chapter reference was made to the formal application process followed by SEFA, including stipulated documentation that any applicant would need to furnish to be considered for funding. In the setting, non- compliance by failing to provide banking details, a SARS compliance certificate, sufficient quotations, a detailed business plan, and a financial forecast culminated in application failure.

5.4.3 Lack of access to markets and market failure

For any business to exist, it needs to generate revenue from the sale of its services or products. Access to markets to achieve such sales and generate income is therefore a key requirement in enterprise development (Philip, 2018). The remote location of Geluksburg means that residents must travel a round trip at a cost of R60 to the closest town of Bergville for essential supplies. Entrepreneurs able to offer

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competitive services or products in Geluksburg itself would be welcomed by residents and, as such, the relative isolation of Geluksburg ironically offers them an attractive opportunity – a ‘captive’ market. When asked who his customers were, one participant responded:

“Local residence [sic] and at times persons in the area such as road construction people sent in from Bergville”.

The discussion of the value of social grant money to the community and its relevance to boosting the local market is also explained by this participant when asked when he was most busy:

“[The] last day of the month and first ten days of the month when people have money”.

Large sums of money flow into the local economy during SASSA paydays and, if properly organised, local entrepreneurs can sell their products and services to locals and render the expense of a trip to Bergville unnecessary. The SASSA pay points settle pensioners in cash, presenting an opportunity to circulate money in the local economy. Statistics South Africa’s 2011 census shows that 40.1 percent of the total population are younger than fourteen years old. Child grants are paid to parents and guardians of children eighteen years and younger, and a safe assumption is that over eight hundred child grants of R400 are received every month (using 2019 rates), which equates to a gross income of R3 883 300 per annum. Elderly grants are afforded to persons sixty years and older. Geluksburg’s elderly comprise of 6.1 percent of its population, which means that at least one hundred- and thirty-four- persons receive grants of R1 700 per month, a total of R2 733 600 per annum (using 2019 rates). At a conservative estimate, the total value of grant money coming into the Geluksburg economy would be R6 616 800 per annum. By contrast, the income earned from farm labour is far less. The seventy-five people employed as farm workers, each earning at the 2019 National Minimum Wage of R15 an hour (using 2019 rates), would collectively bring R2 433 726 per annum into this micro economy. As

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small enterprises are dependent on demand, the cash injection from social grants into rural villages is a vital stimulus and consideration for policymakers.

A second finding, unexpected in such a remote setting, was the existence of a mature value chain that links informal small-scale farming with formal markets. In Geluksburg, a livestock auction is conducted monthly in the town centre and draws farmers from the Geluksburg surrounds (commercial and small-scale) and neighbouring villages.

“Since I was a boy the auction has been there. The building was even used as the voting station in the 1994 elections. We have been using this auction all these years and understand how it works………your cows must be branded with your family initials. The ‘livestock policeman’ will always check on this. Another thing is that [sic] if the VET finds any disease, you will not sell your cattle”.

Local livestock farmers are able to present their cattle for disease inspection and, if cleared, they are weighed and put up for sale. The auctioneer sells to buyers that may be butchers, breeders, or families (normally for ceremonies such as weddings), and then pays the farmer immediately by cheque or transfers funds into the farmer’s bank account. An additional requirement, and safeguard, for the farmer is to have their cattle brand registered with the government in order to control cattle theft. Data from sales at the Geluksburg market is depicted in Table 5.6 below:

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Table 5.6: Geluksburg livestock auction sales and revenue

Auction dates Heads sold Ave Amount R’s Price R’s 31 March 2017 300 7 641 2 292 552 28 April 2017 90 7 874 708 674 31 May 2017 133 7 814 1 039 277 28 June 2017 164 9 732 1 596 162 26 July 2017 386 9 952 3 702 528 30 Aug 2017 185 9 392 1 737 667 30 Sept 2015 156 9 392* 1 465 152** 25 Oct 2017 273 8 557 2 336 293 30 Nov 2016 357 8 557* 3 054 849 20 Dec 2017 96 9 030 866 882 31 Jan 2018 199 9 166 1 824 047 28 Feb 2018 167 9 523 1 590 394 Total’s 2 506 8 172 20 480 911

Source: Anon. 2018. AAM Livestock Agents and Auctioneers.

Note: Auction dates are not in chronological order as not all months are recorded. The construct of the table is explained in the text below.

* is the average price of previous month to reflect 2017 pricing

** is the extrapolated monthly sales number at 2017 pricing

The data in Table 5.6 is an extrapolation from sales data published on the livestock auctioneer’s website. Data on each month’s sales are recorded and reflect the number, average price, weight, and grade of the cattle sold at each auction. The researcher being cognisant of the fact that sales in agriculture are often seasonal in nature, was able to access data for ten months in the period March 2017 to January 2018. Two of the months, September and November, reflected no records of sales on the auctioneer’s website but sales in previous years during these months were available. To extrapolate a full year’s sales, the average price for the previous months sales was used (as indicative of 2017 pricing) and the volumes achieved in that month were used for the 2017 calendar

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year. Using this method, Table 5.6 provides a reliable picture of monthly and annual livestock sales at the Geluksburg auction by volume, average price, and value. The sale of more than 2 500 head of cattle in this period had a value of R20 480 911 over a twelve-month period, making this activity a vital cog in the Geluksburg economy.

To understand the impact on the Geluksburg residents and the subjects of this research, data from Statistics South Africa was employed. In the Okhahlamba Municipality, thirty percent of the households are engaged in livestock production (Department of Statistics, 2011). Extrapolating this statistic to Geluksburg: of the four hundred and seventy-two households, one hundred and forty-two would be involved in livestock production. There is one large livestock producer (<100 cattle) and five small farmers (<30 head of cattle) and one hundred and thirty-six small- scale farmers (<5 head of cattle). This equates to in excess of nine hundred and thirty head of cattle outside of the formal commercial farmers. Using an achievable sixty percent rotation of stock, five hundred and fifty-eight cattle would be sold at the 2017-8 average price of R8 172 bringing R4 559 976 in revenue to these farmers per annum. This represents 22.26 percent of the total revenue that the auction generates at the Geluksburg site. This is significant in two ways: firstly, direct income is earned by the local small-scale farmers that have access to this formal market and, secondly, cash enters the community, which presents opportunity for local entrepreneurs.

Further evidence from the literature corroborates that this finding is not unique to the setting. Alcock (2016) demonstrates that small livestock, such as goats, pigs, and sheep are held in large numbers in rural communities. Poultry is also extensively supported. Livestock production serves multiple objectives such as ‘lobola’ or bride-wealth payments, ceremonial slaughter, cash sales, meat, and savings. Furthermore, Statistics South Africa’s 2015 General Household Survey data indicates that 1.11 million Black households were engaged in livestock production. Cousins (2018) estimates that one-third or 370 000 of these households

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would sell livestock in informal and formal markets and argues that if one in four of these households employs one paid worker, for example a herder, then 90 000 people would work for wages in the informal livestock sector in addition to the 370 000 that are self-employed (owners of the livestock). Livestock traders and butchers supporting this industry could account for an estimated 10 000 to 20 000 jobs, arguably making a total of around 460 000 individuals. In this context, the impact of the small-scale livestock farming market in the setting was far higher than initially anticipated and improving yields in this sector present further possibilities.

5.4.4 Government failure to support transforming business ideas into sustainable businesses

In the setting, it is evident that aspirant entrepreneurs are predominantly in an embryonic or initiate stage of entry and have difficulty transitioning from business ideas to business activity. This reality, clearly depicted in Figure 5.9, illustrates that after eighteen months 89.4 percent of all the participants with business ideas remained in an initiate stage, having made no progress post presentation with the business cases outlined in their respective worksheets and structured interviews. In Section 3.5.2 (ii) Fourie (2019) notes that enterprises exist across the spectrum from embryonic to mature – the progression of stages includes entry, survival, development, profitability, capital strength, and sophistication - and all have different aspirations, growth-orientations, and entrepreneurial aptitudes. The suggestion is that developmental support must cater for the entire spectrum, meaning that a broad range of appropriate and flexible support mechanisms must be available.

Furthermore, in Table 5.5 reference is made to support from the community. To varying degrees tools, equipment, stock, and facilities have been sourced from the community by participants to enable trading, and yet the ability to progress into a trading business continues to stagnate. This data illustrates that people in this setting may have

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business ideas, but that they find it difficult to initiate the business idea and equally difficult to generate revenue, even if they are assisted with basic start-up requirements. Only 10.5 percent of the participants have been able to generate revenue from their business idea or make improvements to their current firm’s offering. This finding is consistent with observation in Section 3.5.1 where the Global Entrepreneurship Monitor Survey (2013) finds South Africa’s early entrepreneurial activity is the lowest in sub-Saharan Africa (Herrington & Kew, 2014) and the finding that in South Africa over seventy percent of small businesses fail within the first three years of being in operation (Chimucheka & Mandipaka, 2015).

5.4.5 Inadequate access to infrastructure, land, transport, and utilities that support business

The description of Geluksburg in Section 5.3.5 confirms a lack of infrastructure, utilities, land, and other resources for facilitating entrepreneurial growth and enterprise establishment. An exceptional and compassionate event that resulted in the transfer of grazing land to eleven households in the setting, implicitly underscores this problem of scarcity and the need for assistance. The event was explained as follows:

“The farmer [Zuurplaat Farm], used to farm cattle and make charcoal on the farm. He had another farm in the Free State and when in Geluksburg, he lived in town [> 1km away]. Around 1997 he decided to give up this farm and moved to Durban. At that time [sic] he took the people farming, including my father, to land affairs and gave us the title deeds for the <300 000 ha farm. We formed a committee and decided on a constitution that is still in place. The farm was arranged into five grazing camps and the eleven households were allocated grazing. There are about three hundred head of cattle on the farm today, but the charcoal business was closed when (the farmer) left”.

For other participants requiring assistance, it is the local municipality that is the first point of call. This is demonstrated by the following participants

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need for assistance to expand his building and the frustration at not receiving suitable assistance:

“Also, the fact is like that [sic] we don’t get the funds from our municipality because of they [are] being fraudulent ……………. they found R13 000 on the mayor’s house. But we are struggling to get funds. No, I do try to meet the municipality. They keep on telling us that they don’t have money”.

Similarly, participants express disappointment at the lack of assistance from the local municipality when trying to secure the town hall for a market positioned to offer product to Geluksburg residence on SASSA paydays:

“[We] went to see the Municipal Manager the other day,………… yes to ask about the furniture and the electricity in this hall. [Because] it’s not there yet……. firstly, we go [sic] to the counsellor and the counsellor was like uh uh [sic], I am tired [sic] to give you an answer. So, he took us to the Municipal Manager, and we spoke to him and he promised that as soon as the construction company will come, [they will] come to put in the electricity in here [sic]. So, we don’t know when the company will come, they said they don’t have a clue, but they put it in [the] plan”.

In addition, the community also arranged meetings with the Local Economic Development Department of the Okhahlamba Local Municipality and an Information Officer from SEDA for assistance with developing start-up businesses. The participants experience with regard to these meetings for assistance is explained by the following participant:

“And I think we were four …………and we spoke to him and what he said to us, [is] that the municipality [in] Bergville can help us to take us to see the people to give us the workshops (sic) ………… the SEDA people. [W]e did tell him that we did invite them three times and they didn’t want to come here”.

A string of frustrating and unproductive meetings and arrangements for institutional support have not helped the participants progress their

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needs for infrastructure and related assistance. Frustration and mistrust persist, as demonstrated by the view of these participants:

“No, we don’t trust them anymore, because they have all of our numbers, they don’t even contact us. They are using the landline so they not paying for the data [sic] but they don’t think to call us”. and “But I am sorry to say that it’s also the [sic] empty promises, they keep on promising, promising, promising but nothing [happens]”.

The provision of infrastructure, transport, land, and other utilities for developing enterprises in this setting and across South Africa is a constitutional duty of municipalities and local government (Nicolson, 2017). In this particular context, frustration with local government support is evident. With local government acting as the conduit to the SDB Portfolio, similar experiences and frustrations are evident with institutional support from this avenue. This is significant evidence and support for the finding in Section 3.5.2 (ii) that location matters – enterprises located in non-residential, commercial locations were associated with about fifty-five percent higher profits than firms in residential locations (Fourie, 2018).

Given the importance of location, the participants sought to access local government support to secure more suitable locations from which their businesses could trade. Working through the Councillor, numerous representations have been made to the Municipal Manager, but to no avail. The failure of the local authorities to assist these small enterprises has culminated in anger and distrust, while there also appears to be no recourse for participants to the under-delivery of local government. In South Africa, the lack of service across municipalities signifies that this is not an isolated occurrence (Figure 3.8).

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5.4.6 Low levels of entrepreneurship and skills in business and financial management

It was established in Section 3.4, that poor entrepreneurship and financial management skills in South Africa is rooted in a legacy of poor education (OECD, 2017; Department of Small Business Development, 2018). In the setting, Figure 5.3 shows that a majority (54.5 percent) of the participants have a Grade twelve and a further nine percent have completed some tertiary study. The best performing participant has completed three years of post-school education at the University of the Free State. His account on how he achieved success is recorded as follows:

“When I was at school my Uncle had a tuck shop. For ten years, I worked in the store after school and all weekend. I never even played soccer with the other boys. Although my job was selling, I watched every movement my Uncle made, and learnt about all aspects of running a business like this [small retailer]”.

He proceeds to explain the assistance he still gets today:

“I consult with [experienced Asian retailer in Geluksburg] on business problems. He has also taught me to seal a 5-liter bucket and fill it with R5 coins when I have these spare [sic]. In December I opened a full bucket and had saved R7 000!”.

Insofar as keeping track of his business performance:

“I have a cash received journal and cash payment journal which is completed each evening. The business started six months ago and had a turnover of R350 a day and it is now between R1 500 and R2 000 a day [>60 000 per month]. The business produces an average of R200 profit daily. I draw a salary of R6 000 a month, which is sufficient to pay all my expenses. The other income I get is from small livestock sales. My business has a separate bank account, and I can track transactions”.

This explanation of the participant’s route to success illustrates the importance of years of practice coupled with expert assistance.

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Arguably, the most highly qualified participant with an N6 in Financial Management was ‘not in business’, whilst the second most qualified person (albeit in education – Geography) outperformed him and all the other participants. There was also no distinguishable difference between participants with a Grade twelve and those who did not complete secondary education. In the case of the most successful participant, he was afforded the exposure and opportunity to learn how to run a retail business over an extended period. This period was over ten years and, arguably, in excess of Gladwell’s 10 000-hour benchmark (Section 3.5.2 (iii)). He also had coaching from his Uncle, who by all accounts was a successful entrepreneur. Expert advice has remained important, and he regularly consults the most qualified retailer in his community for advice and guidance on various matters. Conversely, the most qualified participant had workplace exposure as a clerk in a government department, which has not had the same effect on preparing him for starting an enterprise.

Further evidence that exposure and experience may be more important than education attainment is reflected in Figure 5.4, which confirms that all the participants with supervisory work experience are in the growth phase, whilst the 84.3 percent in the initiate business phase have only some work experience. Examples of “some work experience” described by the participants include:

Builder in Ladysmith for eight years; Shop assistant at Mica for three years House cleaner; and car wash worker Worked as an office assistant for the Department of Education Sports coach for six years Cashier at Shell Select – Montrose Garage

In each of these cases, the participant would be expected to complete pre-determined and supervised tasks in the workplace. Exposure to the wide range of skills needed to operate a small enterprise was afforded to the participant making progress, but it is unlikely that exposure beyond

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performing a defined set of tasks was afforded to most of the other participants. From participant interview responses, it is evident that there was a definite lack of exposure to important aspects of running a business and that this may be more relevant than the quality and quantity of education received.

In Section 3.5.2 (iii) the argument is presented that through extensive practice over an extended period of time, and under expert supervision, entrepreneurs would able to gain skill and experience and become successful (Syed, 2010; Ericsson & Pool, 2015; Williams et al., 2017). This argument refutes the notion made by Philip (2018) in Section 3.5.1 that inexperienced entrepreneurs are unable to trade their way out of poverty and that this strategy keeps people in poverty rather than taking people out of poverty. In the setting, it was evident that inexperience in business was a major disadvantage and this would need to be compensated for by extensive support over an extended period if entrepreneurs were to progress with their business ideas and become successful.

5.5 Synopsis of initial analysis and some key insights from the setting

The initial analysis of individual and group interviews (Appendix one and two) provides insight into the needs and capabilities of entrepreneurs living in rural areas and is referenced against the small enterprise development framework (Figure 3.5). Demand for services from residents in the setting is restricted as they have very little disposable income (Table 5.4; Appendix eight) and, coupled with the lack of business experience and skills (Figure 5.4), the enterprising poor are best positioned to establish informal micro businesses rather than the more complicated and demanding formal small business entities or co- operatives.

The inclusion of the NIBUS strategy (Table 3.3) in the small business development framework (Figure 3.5) is therefore appropriate as this strategy is

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aimed at supporting the ‘enterprising poor’ in the informal business sector and facilitating their participation in the mainstream economy. However, the lack of institutional assistance from the local municipality, SEDA/SEFA, and broader business community have frustrated the community (Section 5.4.4). Furthermore, only one participant had access to an advisor/ mentor and participants were unable to separate business and household accounts or open separate bank accounts (Figure 5.7). Hence, evidence from the setting indicates that the enterprising poor have difficulty in starting informal micro businesses (Figure 5.9) despite there being national policy, programmes, and regulations promoting such development.

5.6 Summary

The primary data for this study was obtained from two sources. Firstly, documentation research provided evidence on programmes supported by the DBS Portfolio and this was extracted largely from government publications. The investigation shows that coordination of policy regarding small enterprise development is vested in a stand-alone ministry, the DSBD, which has two implementation intermediaries SEDA and SEFA. There are numerous other business advisory and support institutions (both private and public) and these all deliver services to small enterprises. The initial analysis of the programmes available to small enterprises from the SBD Portfolio highlights that many of the prevailing programmes are targeted at the ‘upper level’ of small business, which limits participation of less sophisticated micro enterprises. Furthermore, the lack of meaningful measurement and evaluation systems inhibits effective coordination of business support across public and private programmes.

Secondly, empirical data on constraints to rural enterprise development was sourced directly from people in the setting using observation and both structured and group interview techniques. Geluksburg was chosen to provide insight into the research questions as it is located in an area that experiences systemic problems such as a lack of infrastructure, financial capital, skills, and potential markets. The analysis indicates that participants were inexperienced in business and that the income of people in the setting was on aggregate low.

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Therefore, the NIBUS strategy is appropriate in that it is aimed at supporting the ‘enterprising poor’ in the informal business sector and facilitating their participation in the mainstream economy. Interviews with the participants reveal a number of constraints including poor institutional assistance from the local municipality, SEDA/SEFA, and broader business community. Hence, evidence from the setting indicates that the enterprising poor have difficulty in starting informal businesses despite the existence of supporting policy. The data gathered from participant interviews, as arranged, is further analysed in accordance with the Growth Diagnostic taxonomy (Figure 4.1) in the next chapter.

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Chapter 6 Analysis of Findings

6.1 Introduction

The arrangement of the data corpus for further investigation was discussed in Chapter five. In this chapter, analysis of the data guided by the Growth Diagnostic taxonomy (Figure 4.1) to determine constraints in the enterprise development framework in South Africa (Figure 3.5) is advanced. Multiple data sets are systematically analysed using the technique of triangulation, whereby the data is cross-checked to avoid logic leaps and the formation of false assumptions when reaching conclusions.

6.2 Analysis using the Growth Diagnostics Taxonomy

6.2.1 Context of the Analysis

In Section 2.3 contemporary theory maintains that economic development should be stimulated by ‘virtuous cycles’ that would promote growth by having self-reinforcing income-raising systems which work through ‘circular and cumulative causation’ (Myrdal, 1957). Distortions, whether government-imposed or inherent to certain markets, are seen to retard an economy’s growth and potential. For policymakers it is critical to reduce distortions that prevail in an economy in order to improve social welfare in that country (Kremer, 1993; Hausmann et al., 2006). In South Africa, persistent inequality, unemployment, and poverty signify distortions in the economy (Altman, 2019). A strategy for correcting distortions would be through a “developmental and capable state”, an approach clearly articulated in the county’s NDP (Section 2.3) and captured in Figure 3.5.

Reducing distortions and creating more equity and opportunity in an economy can be tackled in various ways. The “big push’ theory was discussed in Section 2.2.5 and this represents an attempt to eliminate all

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distortions simultaneously (Wanjala & Muradian, 2013). Furthermore, the evidence from the setting (Section 5.4) illustrates problems across the policy divide and provides argument that intervention in many areas is required if the enterprising poor are to become successful. But to implement wholesale reform, policymakers would need to have complete knowledge of all prevailing distortions as well as the capacity and means to remove them (Hausmann et al., 2006). For these reasons, in Section 2.3 the conclusion is reached that this strategy, though technically sound, would be near impossible to implement given South Africa’s fiscal and economic reality (Mathebule, 2019).

An alternative strategy was discussed in Section 2.2.2, which involves reforming as much as possible and pursuing whatever reforms are both practical and politically feasible (Varshney, 2004; 2007; Vora & Palshikar, 2004). This strategy is based on the notion that any reform that does not rile the masses is good and makes space for the state to enact reforms in areas that matter. However, the drawback is that any given reform cannot be guaranteed to promote welfare in the presence of numerous distortions. Welfare does not necessarily increase in tandem with the number of areas reformed, and some reforms may even have the adverse effect of creating secondary distortions (Hausmann et al., 2006).

A more sophisticated strategy to the ‘reform as much as possible’ (Varshney, 2004; 2007; Vora & Palshikar, 2004) is the Growth Diagnostic methodology introduced in Section 4.2.5. This approach advocates setting reform priorities based on the size of their direct effects. The principle is: adopt reforms that alleviate the most binding constraints and, hence, produce the ‘biggest bang for reform buck’ (Hausmann et al., 2006b). This approach is utilised by Babych and Fuenfzig (2012) in Georgia, Gabrisch (2015) in the Balkans, Lazarov and Petreski (2016) in Macedonia, and Sydykova and Rodreguez (2018) in the Kyrgyz Republic. Hence, the Growth Diagnostic taxonomy (Figure 4.1) is utilised

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to guide analysis of the data and to examine constraints to small enterprise development in South Africa (Figure 3.5).

6.2.2 First stage of analysis: Access to Finance

In the first stage of analysis, the potential binding constraint pertaining to lack of access to finance is considered. Here the problem could be: i) bad economic climate – inadequate access to sources of capital or problems with intent; or ii) bad local finance, due either to low availability of loanable funds traced to low domestic saving or to poor intermediation of an overregulated banking system unable to channel funds to economic activities (Hausmann et al., 2006).

i) Bad economic climate

Since 1994, the ANC-led government has introduced a number of economic development plans and these have all been designed to achieve ‘a better life for all’ (Figure 2.5). In Section 2.3 the NDP is presented as a national plan to break the country’s economy out of a ‘slow-growth’ trap. Despite the NDP and preceding national economic development policy, the economic performance of South Africa, besides the promising economic growth during the GEAR, has been sub-standard (Section 2.3; Laubscher, 2013). Furthermore, in Section 2.3, the NDP is seen as being weak on re- industrialisation - envisaging a reduction of the manufacturing sector from twelve percent of GDP in 2010 to 9.6 percent in 2030 will mean losing meaningful well-paid jobs (SACP, 2013).

One method to absorb the growing unemployment identified in the literature (Section 3.2) is to develop small enterprises, an approach supported by government and development organizations alike (National Development Plan, 2012; OECD, 2017, IFC, 2019). In Section 3.2, three “grand ideas” in economics were found to feature in the NDP and these were discussed in the context of enterprise

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development: i) structural change in an economy was deemed to be stimulated by high ability entrepreneurs; ii) multi-dimensional benefits are derived from entrepreneurship activity not limiting its contribution to GDP growth alone but also to the wellbeing of individuals; and iii) the state’s role in supporting entrepreneurs is central to their success and development should not be abdicated to the markets. These “grand ideas” were shown to have influenced national economic development policy, the NDP, and the three bespoke small enterprise development strategies (Figure 3.5).

In the setting, the analysis of economic activity in Section 5.3.8 provides insight into how people earn their income. Incomes are low on aggregate, with the majority earning between R9 600 to R76 800 per annum (Appendix eight). Moreover, analysis of data from Table 5.4 found that unemployment levels are unacceptably high with only one hundred and five people (six percent) having formal work and fifty-nine (2.8 percent) informal jobs. As a result, Geluksburg has low levels of disposable income and, in turn, limited demand, which hampers the development of rural enterprises. Internationally, developing countries support informal micro enterprises to addresses similar labour market problems: the ILO (2018b) reports that over sixty percent of the world’s population is employed in the informal economy. However, Kew et al., (2013) in Section 3.3.1, find that South Africa’s Total Early-Stage Entrepreneurial activity is one of the lowest in the world and this is widely acknowledged to be a legacy of the Apartheid regime, which made it illegal for blacks to operate small businesses in urban areas (Seekings & Nattrass, 2016).

With the introduction of the NIBUS in 2014 (Figure 3.3) a bespoke strategy for the development of the ‘enterprising poor’ has been introduced to implement national policy. As a result, inputs including legislation to institute small business support agencies (Table 3.3) and related activities like financing and training, are all available to

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the people of Geluksburg. Therefore, the NDP and the NIBUS represent the state’s attention to develop the economy and small informal business sector. Whilst the NDP is not explicit on developing the informal sector, the plan shows intent to promote and support small enterprise development. The envisaged goal of ninety percent of all employment being founded in small business by 2030, with one million more jobs being created in the rural areas, reflects this ambitious intent (Section 3.2.1).

Therefore, the stressed economic climate in South Africa represents a constraint to economic activity in general, but the intent of the NDP and the goals of the NIBUS (Table 3.1) are not viewed as binding constraints on the small business development framework (Figure 3.5). ii) Bad local finance

The massive impact of stagnating economic growth (Section 2.3) on government’s budget allocations limits funding of small enterprise development. The allocation of only R2. 57 billion to the DSBD to promote small enterprises illustrates that the Directorate is a minor portfolio and is ‘out of sync’ with the NDP and the envisaged role of small business as the generator of ninety percent of all employment by 2030. However, Section 3.3.2 and Section 3.3.3 made reference to a number of Public and Private Programmes and a large contingent of service providers eager to assist small businesses, illustrating the depth of business service and financial support that is available to small enterprises in South Africa.

Financing provided through SEFA was discussed in Section 5.2.2 and it highlighted the difficulties the enterprising poor have accessing loanable funds. Furthermore, in Section 5.4.2 the failure of co- operatives to access funding through the CIS was documented. Here, the issue was not the availability of financial support but rather

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the difficulty inexperienced entrepreneurs face when following a formalised business process. Rather than there being a shortage of available finance, the contention is that low levels of business experience and understanding preclude poor people in rural settings from making use of available finance (Desai, 2011; Chimucheka & Madipaka, 2015; Philip 2018, 2018b).

In Section 5.4.2 it is recorded that all the interviewed participants, without exception, cited access to finance as a constraint. However, 89.5 percent of the participants required less than R25 000 to start the businesses they conceptualized (Table 5.5). Capital requirements for the micro enterprises in the setting were needed for initial equipment (such as lawnmowers, sewing machines, photocopy machines) or stock (livestock, groceries, clothing). Furthermore, it was of concern that where capital was required in the form of stock, land, or equipment, these participants remained unable to initiate enterprises and realise revenue. This correlates with findings in the 2016/17 GEM report that suggests that whilst access to finance is required, it may not be the fundamental or only factor (Herrington et al., 2017).

Therefore, the analysis is that available credit is of little value if an entrepreneur is ill-equipped to access this credit, unable to manage finances, or incapable of using the credit productively to start a business. As such, small enterprises require access to finance intertwined with skills and market access, which together provide a broader platform for success (IFC, 2019). For the small enterprise development framework (Figure3.5) to deliver on the NDP goals, financing support is critical for the enterprising poor but this should be appropriate and integrated with non-financial support measures. The funding that is available is designed for high ability entrepreneurs, requires high levels of formalisation, and ignores the reality in marginalised areas where people typically start one-person informal firms.

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6.2.3 Second stage of analysis: Low Return to Economic Activity (no investment opportunities)

Classic economic theory (Section 2.2.2) suggests that both demand and supply constraints should be taken into account when considering small business development in rural economies. Using the taxonomy of the Growth Diagnostic framework, the analysis moves onto a second stage to consider whether a low return to economic activity is a potential constraint. Here the lack of investment in enterprises can be attributed to low economic (social) returns for the entrepreneur possibly caused by one or more of the following three factors: firstly, poor geography - physical barriers and distance to markets that may limit an economy’s ability to initiate and sustain economic development; secondly, low human capital - the skills and health of workers are complementary with other factors of production and can affect returns on economic activity; and lastly, bad infrastructure - basic physical structures such as roads, telecommunications, and clinics are needed to sustain a modern economy (Hausmann et al., 2006).

i) Poor geography

Economic development theories in the first half of the twentieth century and particularly in the two decades after the Second World War (Section 2.2.3) sought to find solutions for developing countries based on the experiences of the developed world. An example of this modernisation theory was Rostow’s Stages of Growth Theory (1960). According to his theory investment in less developed economies will lead to takeoff in per capita income and, ultimately, sustained growth (Davids et al., 2009). One of the many detrimental consequences of Apartheid is the creation of a “typical South African pattern of agricultural dualism – small-scale African and large-scale, mostly white producers” (Neves & Du Toit, 2018). And in many cases the small-scale farmers are restricted to land that is either infertile or situated in areas that are inaccessible for reasons of geography or due to a lack of infrastructure.

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Geluksburg can only be accessed by gravel roads (Figure 5.8) and its relative inaccessibility is, arguably, one of the principal reasons for its ongoing systemic problems, including a lack of infrastructure, financial capital, skills, and potential markets (Section 5.3.5). Significant investment is required for the takeoff that would link this small economic hub to the those of Bergville, Ladysmith and beyond. However, despite this geography, in Section 5.3.9 participants have put forward business ideas and selected business opportunities that would provide products and services to improve the wellbeing of their community (Table 5.5). The inclination for individuals to help their community is noted by Alcock (2018), to the extent that in African communities’ entrepreneurs avoid taking other community member’s customers or competing against each other’s interest.

Ironically, the spatial disadvantages experienced by businesses in rural areas can dilute the influence of the core economy and this provides a competitive advantage for ‘local production for local consumption’ (Philip 2018). Where people must travel to commercial centres, a competitive advantage may open for locally provided products and services – for reasons of convenience as well as travel costs (Section 5.4.3). Therefore, the analysis suggests that the relative isolation (geography) of the setting might afford opportunities to local entrepreneurs as these areas are ill-serviced by corporates and other established businesses. ii) Low human capital

The idea of adopting a “developmental and capable state” as the foundation of the NDP was shown in Section 2.3 to have been influenced by the success of China and the Asian tigers, who followed export-orientated and interventionist development strategies (Rodrik, 2008). In this context, Amsden (1991) argues that South Korea is an example of highly successful development that can be attributed to the “brightness of the state bureaucrats”.

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Karriem and Hoskins (2016) postulate that the antithesis of this has taken place in South Africa where cadre deployment has weakened the competency of the bureaucracy.

For the ‘Schumpeter’ entrepreneur blessed with being an innovator (Section 3.2.1), support from a “capable” state may not be essential. However, using the definition of Gries and Naude (2010), entrepreneurship is not limited to innovation and business creation, but expands to meet the wellbeing of individuals. In Section 3.5.2 (ii) Fourie (2018) accounts for their being over three million people employed in the informal sector, many of whom are self-employed. The NIBUS (Table 3.3) is a strategy specifically introduced (Figure 3.3) to support the “enterprising poor” and this would require capable inputs and actions from the state (Figure 3.5).

In the setting, the standard of education amongst participants (Figure 5.3) was higher than expected, with 54.5 percent having a Grade twelve and a further nine percent having accessed tertiary education. However, 84.3 percent of the participants had ‘some work experience’, meaning that they would have had jobs that required them to complete pre-determined and supervised tasks in a workplace (Figure 5.4). The lack of experience and practice in own business or leadership positions was extremely high, representing concerns over business skills and understanding in the setting. The enterprise analysis in Section 3.5.2 (ii), using the SESE and QLFS data by Fourie (2018), provides evidence that the separation of business from household - treating the informal business (such as small livestock farming) as a firm and keeping proper accounts - is identified as a key variable in the success of microenterprises. These tasks require business skill and understanding.

The worksheet (Appendix seven) completed by participants in preparation for the structured interviews (Appendix one and two) incorporated issues such as calculating the selling price of a product

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and a forecast over six months for the prospective business. The work produced and explanations provided on these worksheets demonstrated that the participants had extreme difficulty in these tasks regardless of their education level. Furthermore, the tendency amongst existing informal business owners in Western Cape township economies, described in Section 3.5.2 (ii) (Hornack & Liedman, 2017), to incorporate earnings from business activity into the broader household income demonstrates similar challenges. The capacity to understand how to separate the business from the household, locate the business properly, and maintain transactional records are fundamental to the success of the micro business (Hornack & Liedman, 2017; Fourie, 2018;) and these were absent in the setting (Section 5.4.6).

In recognition of low human capital competence, the state established SEDA in 2005 (Table 3.3) to provide small enterprises with advice and training support. An analysis of existing SEDA programmes (Table 5.2) shows that, whilst the traditional programmes offered by SEDA target “small enterprises”, they are not well targeted for the micro enterprises (often informal) that dominate rural settings. Rather, SEDA’s primary and historic focus was on “micro and very small segments of the SMME sector” (Section 5.2.1). Moreover, it was found that due to the large number of people wanting to start businesses large numbers have been assisted, but the impact in terms of employment, profitability and sustainability has been minimal (Small Enterprise Development Agency, 2014). This led to a broad policy decision taken by SEDA “to maximise impact”. Firstly, SEDA introduced a model that aims to engage small enterprises for long periods rather than once-off interventions – this client-journey model is based on research that correlates long-term support and impact to increased turnover and employment. Secondly, SEDA prioritised the “upper level” of the small enterprise sector, or organisations that employ between twenty-one and two

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hundred people, as the market segment with most job creation potential (Small Enterprise Development Agency, 2014).

The finding that SEDA’s strategic approach is to prioritise the “upper level” of the SMME market translates into activities that are out of reach for new entrants into the micro enterprise sector. In Section 3.5.2 (iii), Ericsson and Pool (2015), Syed (2010) and Williams et al. (2017) provide evidence that complex tasks (such as running a small enterprise) can be learnt and that this would be critical to people disadvantaged by a poor education system. Rather than entrepreneurs being blessed with innate talent (Gagne’, 2013), it is argued that universally the pathway to success can be achieved through “deliberate practice”. Preparing and improving performance and acquiring a complex set of skills should incorporate training under simulated conditions (or in the workplace) for an extended period under the guidance of an expert (Figure 3.9). In the setting, ninety percent of the participants had no access to advice from an expert (Figure 5.7). Being in business allows experience to be gained and it is no coincidence that the SESE findings of Fourie (2018) in Section 3.5.2 (ii) show that increasing firm age is associated with increased profit - ten-year-old firms are eighty percent more profitable on average than those less than a one year old. Older firms are operated by entrepreneurs that have had the opportunity to acquire and sharpen skills over time and this accounts for their success. Conversely, having people depend on remittances and social grants alone does not create the opportunity for individuals to practice and grow relevant skillsets to become self- employed.

Supporting this argument is evidence detailed in Section 5.4.6 from the setting, whereby the best performing start-up business was initiated by the most qualified participant (who had completed just under three years of tertiary study in education). Surprisingly, it was also found that one of the worst performing participants was also a

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participant with formal studies (N6 in financial management). Further enquiry into the best performer, however, revealed the significant difference that largely explained this anomaly. It unearthed a long history of involvement in retail, in a business owned and run by his uncle. He spent a great deal of time there, helped out from a young age, and was explicitly and willingly ‘mentored’ by his uncle. Well over the 10 000 hours of deliberate practice (the benchmark popularized by Gladwell, 2008 in Section 3.5.2) had been achieved in an appropriate workplace, suggesting that this experience may have been more important than his academic qualification. Conversely, the lack of experience in any form of supervisory work or self-employment (Figure 5.4) accounted for the lack of progression of viable business ideas amongst most of the other participants (Figure 5.9).

The state has demonstrated the intent to provide support programmes for small business under the NDP’s developmental mandate. However, for the enterprising poor the state remains incapable of providing appropriate and relevant support, which has a detrimental impact on the small enterprise development framework (Figure 3.5). This bottleneck represents a fundamental constraint and the argument is made in the literature that the workplace, albeit in one-person informal firms, provides a critical opportunity to practice and learn business skills and disciplines (Liebbrandt & Green, 2017; Maluleke, 2016). iii) Bad infrastructure

The long-term data presented in Section 2.2.1 (Figure 2.3) show that countries across the globe have advanced in terms of human development indices, suggesting that most countries in the world are becoming increasingly developed. There is an argument advanced by economists such as Solow (1987) that in time similar technologies will be available to all nations and that performance of the world

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economies will converge - as has happened with countries like the United States, Japan and South Korea (Figure 2.3; Mitra, 2010). However, to converge would require countries to have similar infrastructure to facilitate business and the economy.

In the literature Fourie (2018) provides evidence (Figure 3.7) that access to appropriate facilities and the location of informal businesses has a statistically positive correlation with enterprise success. Enterprises in commercial locations are associated with higher profits and the importance of access to suitable premises in appropriate locations for informal businesses is clear (Fourie, 2018b). For the enterprising poor in rural areas most opportunities present themselves in agriculture and agricultural support services (Section 3.3.1). It was noted that in South Africa the Rural Development Programme provides access to land but that the transfer of land ownership to black South Africans is slow (Section 3.3.2 (iii)).

The description of Geluksburg in Section 5.3.5 depicts a town with poor infrastructure and a lack of facilities and land to run a small business. With livestock farming being central (Section 5.4.3; Table 5.6) to the town’s economy, access to land and grazing is a key requirement for the enterprising poor. The fortuitous donation of the Zuurplaat Farm (Section 5.4.5) by a commercial farmer to families that worked on the farm has relieved some pressure on land ownership and grazing rights. Whilst the issue of land was not viewed a critical constraint by participants, those without access to Zuurplaat Farm are often in conflict with local farmers regarding grazing practices.

In addition to land, access to available facilities from which participants could conduct their small business ventures was a key concern (Section 5.4.5). The failure of the Municipal Manager to expedite and make available an equipped and electrified venue

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where participants could trade, represented a huge source of frustration and a hinderance to initiate and more established businesses. Requests by participants for a suitable commercial facility (existing community hall) - equipped with security and with proximity to markets and suppliers (the SASSA pay point is adjacent to this facility) - did not materialise despite various formal meetings and written correspondence.

The analysis indicates that access to infrastructure, safe trading environments, and land are considered binding constraints and, if measures to improve these are not taken, these constraints could seriously damage the future prosperity of the town and its surrounds. In particular, the failure of government to provide and improve access to infrastructure for the enterprising poor definitely has a detrimental impact on small enterprise development (Figure 3.5).

6.2.4 Third stage of analysis: Low Return to Economic Activity (low appropriability)

The final stage of analysis using the Growth Diagnostic taxonomy (Section 4.2.5) considers whether the problem may alternatively lie with low appropriability, due to either government or market failures. Government failures relate to inadequate property rights, government corruption, and high taxation. Market failures may take the form of coordination failure in local markets (Haussmann et al., 2006).

i) Government failures

The South African economy is stagnating. In Section 2.3 this is partly attributed to self-inflicted damage, whereby missteps in governance and the management of state-owned enterprises have deepened the country’s economic crisis and unemployment levels over the last decade (Kemp, 2018). Further to this, in Section 2.2 the Presidents “Thuma Mina” call was referenced along with the opinion that policy

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input was not South Africa’s concern, but rather implementation of policy was the problem. Moreover, Rodrik (2015) argues that implementation of policy is often more important than the composition of policy and will lead the achievement of desired outcomes.

In addition to governance missteps and corruption, the influence of different ideas in economics leading to divergent socio-political viewpoints in the South African political landscape was discussed in Section 2.2.2. Under the ANC-led government a number of positions have been taken with regards to national development strategy (Figure 2.5). The RDP began with interventionist policies but was replaced with GEAR and, as a consequence, until today the neoliberal market-orientated approach underlies national economic development policy (Laubscher, 2013). However, the NDP incorporated a developmental agenda based on what was found by the ANC, COSATU and the SACP to be a shortcoming of GEAR.

Ideological differences are a feature within the ANC-led government as they have an impact on the leadership of the NDP and its influence on poverty alleviation. In Section 2.2.2 COSATU, in its Peoples Budget 2011, is highly critical of national development policy and its neoliberal market-oriented approach. The ANC leadership in the 2012 National Conference were equally critical of the NDP, referring to its prescriptions as a guideline rather than a plan to implement the party’s policies. As a result, there exists a lack of shared purpose, which is a vital ingredient in building state capability (Andrews et al., 2017), and this needs to be recovered through relentless leadership of the NDP (Bruce, 2020).

The role of the DSBD in providing leadership is discussed in Section 3.3.3 and the institutions under its influence are described in Figure 3.4. The DSBD has executive authority over its SEDA and SEFA intermediaries but, in accordance with its MTSF Outcome 4 and 7

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responsibilities (Table 3.3), the Minister is accountable for the actions of government institutions and private sector service providers over which the DSBD has no authority. Furthermore, the absence of a MEL tool and reliable data in the sector complicates policymaking and coordination (Section 3.3.3).

In the setting, as illustrated in Section 5.4.4, when participants required institutional assistance they turned to the known and available, like the Councillor and LED Official in the local municipality. For funding, participants were referred to SEDA then SEFA, to whom they submitted their CIS applications (Section 5.4.2). The participants expressed high levels of frustration and despondency to the responses they received from all spheres of government. Their frustrations mirror the experiences of poor communities across South Africa – as shown by the spike in service delivery protests across settings from 2009 onwards (Figure 3.8).

Furthermore, the view is presented in Section 3.5.2 (i) that informal micro businesses are well targeted to alleviate poverty (Cichello & Rogan, 2018), yet the emphasis of government officials is to formalise businesses (Skinner, 2016). Whilst in some cases, such as applying for a tender, formalisation may be advantageous, in many cases, particularly for local community businesses, this is not a necessity. Rather, in Section 3.5.2 (ii) Chen (2012), Fourie (2018c), and Skinner and Rogan (2019) find consensus that for a business to achieve progress on the continuum from an embryonic to a functional growth stage, the conceptualisation, design, and implementation of support measures need to be differentiated, nuanced and “smart”.

Therefore, the collective coordination failures of all spheres of government to support the enterprising poor is of concern and this negates the presence of national policy that has the right intent within the small enterprise development framework (Figure 3.5).

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ii) Market failures

The discussion on classic economic theory in Section 2.2.2 traced the origins of free-market capitalism and the influence of Adam Smith’s “invisible hand of the market to bring order” (Stiglitz, 1991). The principal critic of free-market capitalism, Karl Marx, was also discussed along with views that there should be a revolutionary break from capitalism to a more equitable society such as socialism. Both ideologies were demonstrated to be at the centre of the economic debate in contemporary South Africa and have influenced the progression of national economic development policy (Figure 2.5).

In Section 2.3 market-oriented policies under the NDP were argued to most closely resemble the neoliberal macroeconomic policies promoted by GEAR (Karriem & Hoskins, 2016), whereby the NDP remains committed to using low deficit to GDP ratios and retain a low and stable inflation rate to entice investment. However, as GEAR and ASGISA were perceived to favour the owners of capital, a more interventionist role by the state was introduced into economic policy post the 2007 ANC National Conference (Section 2.2.4). Internationally, in Section 2.2.5, results from Asian countries pursuing economic development with significant state intervention in markets outstripped results of developing countries following the free-market system advocated by the “Washington Consensus”. As a result, the NDP is built around a “developmental and capable state” and, whilst its underlying macroeconomic policies are market- oriented, the state does not abdicate the alleviation of poverty and inequality to the markets alone.

In Section 2.4 it is observed that the “laissez-faire” market-oriented policies under GEAR resulted in uncoordinated, underfunded, and

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unspecialised support for small business, which was the perceived cause of the high failure rate of small businesses and cooperatives (OECD, 2017). In Section 3.5.1 Philip (2012; 2018) views the structural imbalance caused by opportunities afforded to large business during apartheid as a major disadvantage for small enterprises, who now compete in an unfair business environment. In areas where corporate retailers in the core economy operate, niches that the small-scale entrepreneur may wish to exploit are often prohibitively difficult to enter.

The DSBD was established in 2014 and was tasked with managing two support intermediaries (Table 3.1) as well as other government and private service providers in the sector (Figure 3.4). In Section 3.3.3 the DSBD is shown to have been given the responsibility to coordinate two programmes created in response to market failure and to track the record of poor performance by small business in South Africa. The thirty percent set aside programme makes provision for procurement from small business, while the B-BBEE legislation and codes of good practice are designed to improve participation of black-owned businesses in the economy. Both these programmes are designed to achieve structural reform in the economy by promoting the demand for products and services from small enterprises belonging to previously disadvantaged persons. Similarly, the Competitions Amendment Act of 2018 adds to the supporting legislation (Table 3.2) for interventionist measures to protect small business from unfair competition and large business interests.

In the setting, the participants efforts to set up two formal cooperatives, as described in Section 5.4.2, represented the only examples of attempts to take advantage of policies to correct market failure. Setting up cooperatives that complied with the Cooperatives Act proved to be extremely complicated and difficult, requiring extensive compliance obligations, and this initiative failed the

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enterprising poor in Geluksburg. However, in Section 5.4.3 participants in the setting describe a monthly livestock auction that provided small-scale entrepreneurs with a reliable linkage into formal markets (Table 5.6). This market accounted for a significant cash injection into this small community, even exceeding social grants and formal employment. Similarly, in Section 3.5.2, Alcock (2016; 2018) and Neves and du Toit (2018) describe buoyant markets involving informal farmers and traders in nearby towns in KwaZulu-Natal, which suggests that if entrepreneurs are able to organise themselves opportunities do exist in the rural economy. Another critical source of income in the Geluksburg economy, and one directly attributable to interventionist developmental policy, was shown in Section 5.4.3 to be SASSA grants, which brings cash to community members and this creates demand for small business in the setting.

The analysis suggests that significant interventionist inputs have been provided by the state to ensure that the small enterprise development framework (Figure 3.5) is able to function and is not simply abdicated to the markets. Opportunities are created by interventionist policy and there are other opportunities in the market, as demonstrated by the monthly livestock auction in Geluksburg. Rather than their being no opportunities for the enterprising poor, it is the difficulty in taking advantage of opportunities by establishing well-positioned and functioning firms that is the impediment to development.

6.3 Summary

The purpose of the analysis is to pinpoint the most binding constraints in the framework for small business development in South Africa (Figure 3.5) by applying the Growth Diagnostic taxonomy (Figure 4.1). The findings show that there are constraints both in the high cost of finance and the low return to economic activity.

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A significant contributor to low appropriability is coordination failure by local government in providing appropriate support for micro businesses. Similarly, support offered by the SBD portfolio was found to favour structured and formal business operators, yet enterprises found in rural villages are mostly micro and informal businesses that require bespoke policy and programmes. Furthermore, the low skill levels and business confidence of entrepreneurs in rural villages prevents them from starting-up and making a success of micro enterprises. This human capital constraint in rural economies is a fundamental one that, as long as it exists, renders introduction of other support initiatives impotent – the inexperienced entrepreneur is simply unable and ill-prepared to advance a business opportunity.

In addition to the constraints for rural enterprise development, insight from the analysis identifies an underlying problem to economic development in general. South Africa’s stagnating and underperforming economy is partly attributed to missteps involving corruption, cadre deployment, and poor leadership. As a result, the analysis provides insight into where policy, legislation, and regulations are most problematic for the enterprising poor and identifies where policymakers could gain the “most value for their development buck”, which is the subject of the following chapter.

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Chapter 7 Conclusion and Recommendations

7.1 Introduction

The objectives of this study are required to be achieved through a detailed analysis of the primary and secondary research, which were executed as part of this study. In order to achieve the research objectives, the research questions identified in Chapter one (listed in Table 7.1 below) were ultimately linked both to the relevant investigating methodology and the analysis of the findings in Chapters five and six. This will be discussed in Section 7.2.

Table 7.1: Research questions linked to investigating methodology

Research questions: Source data Investigating methodology What are the binding constraints that inhibit the Secondary Structured interview development of small enterprises in the rural Primary Group interview economy? Secondary research

What improvements should be made to Secondary Secondary research policies, regulations, and programmes that Primary Data analysis support the development of rural enterprises?

How can policy design improvements be Secondary Secondary research institutionalised to ensure ongoing and Primary Data analysis continuous economic development in rural

economies?

7.2 Research Findings

The rural enterprise development framework (Figure 7.1) is advanced from the analysis in Chapters five and six and the broader enterprise development framework (Figure 3.5) to address the research questions of this study. The framework (Figure 7.1) considers the National Informal Business Upliftment Strategy (NIBUS) as central to rural enterprise development based on the finding that informal sector activity is the most prevalent in areas with systemic problems such as a lack of infrastructure, financial capital, relevant skills, and potential markets (Section 5.5).

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Figure 7.1: Rural informal small business development framework in South Africa

Source: Own construction advanced from Figure 3.5

The main findings are summarised in the sub-section that follows against the rural informal small enterprise development framework (Figure 7.1).

7.2.1 The small enterprise development framework and research questions

The analysis in Section 6.2.2, showed that innovative (and high skilled) entrepreneurship operating in formal entities are most desirable for economic growth (Naude, 2013; La Porta & Shleifer, 2015), but the difficulty and complexity of establishing formal small businesses or cooperative entities was prohibitive for the enterprising poor. Conversely, the establishment of informal enterprises and self-employment is more practical and a common practice in developing countries. Moreover, in Section 3.5.2 (i), informal entities were argued to play an important and effective role in poverty alleviation in marginalised economies (Cichello & Rogan, 2018).

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Despite concerns that jobs created in the informal sector are ‘precarious’, mostly low-quality and low paying, and where worker rights are often eroded (SACP, 2013), policy and programmes that actively support the rapid growth of micro and small enterprises were shown to have the potential to absorb large numbers of unemployed and unskilled people and thereby significantly improve their wellbeing (Section 6.2.2). Therefore, the study established, firstly, that informal enterprise development is critical in rural economies (Section 6.2.2 (i)) and, secondly, that the NIBUS was central in the rural enterprise development framework (Figure 7.1) and with regard to the investigation of the research questions.

7.2.2 Aspects that are advantageous

In Section 6.2.1 it was observed that the NDP introduced the concept of a “developmental and capable state” (National Development Plan, 2012). Insight from economic development theory in Section 2.3 illustrates that the state has a key role to play when it comes to “developmental” aspects, citing the examples of Japan and the four Asian tigers – South Korea, Taiwan, Singapore and Hong Kong - all of whom experienced rapid state-driven economic growth. These countries followed an export-oriented development strategy, firstly developing labour-intensive, small-scale industries and then gradually evolving larger, more capital-intensive industries with proactive government support (Rodrik, 2006; Li & Zhang, 2008; Lin, 2017). Moreover, in Section 2.2 it was shown that ideas in Economics have shaped divergent views that persist in the South African context, and that interventionist policies are well supported to tackle the triple and persistent threats of inequality, unemployment, and poverty (Figure 2.5). Politics and economics were argued to be intertwined and policy requires economic growth to translate into inclusive development (Section 2.3). The evidence suggests that in South Africa a “developmental and capable state” approach is more relevant than the pure laissez-faire market- oriented approach envisaged by Adam Smith and David Ricardo.

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From the RDP to the NDP, ANC-led economic development policy has strived to create “a better life for all” (Figure 2.5) and there has been a broad consensus that small enterprises should be promoted to stimulate economic growth and development. Guided by the 1995 White Paper on a National Strategy for the Development and Promotion of Small Business in South Africa, a systematic framework of legislation, policies, and programmes at national, provincial, and local level was developed (Figure 3.5). Placed at the centre of coordinating an enabling environment for small enterprises is the DSBD (Figure 3.4). The analysis in 6.2.4 (i) illustrates the difficulty of this task, but the Department has the advantage of continued and extensive legislative and policy support for enterprise development, which represents a sound foundation for executing rural enterprise development in South Africa (Figure 7.1).

7.2.3 Aspects that are constraints

The analysis in Chapter six utilized the Growth Diagnostic taxonomy (Figure 4.1) to pinpoint constraints to rural enterprise development. It included insights from a case-study to improve diagnosis beyond the standard list of constraints cited in the literature (Section 3.5.2 (ii)) - red tape, labour market rigidity, education, non-financial and financial support. The diagnosis in Chapter six identified several proximate constraints to rural enterprise development. In isolated rural settings, for example, location and lack of facilities present disadvantages, as illustrated in Section 6.2.3 (i) and (iii). Furthermore, the analysis found in Section 6.2.4 (ii) that insertion into the market was mostly problematic where micro entities were ill-equipped to compete with corporates. Ironically, where distance from the market excluded corporates, this constraint often worked in favour of micro businesses, as was the case in Geluksburg.

The analysis also unearthed binding constraints to rural enterprise development. In Section 6.2.4 (i) the analysis highlights that the coordination and support required at local government level is largely

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absent for entrepreneurs, especially with regard to issues such as access to markets, infrastructure, and facilities. Secondly, in Section 6.2.2 (ii) access to finance is identified as a major concern for the enterprising poor and the need for financial assistance for informal businesses goes largely unmet. Lastly, in Section 6.2.3 (ii), the low skill levels and business confidence of people previously not exposed to business retards the development of rural enterprises. The human capital constraint in rural economies is a fundamental problem. If not urgently addressed it might well thwart other support initiatives such as government’s thirty percent spend allocation as inexperienced entrepreneurs are simply unable and ill-prepared to take advantage of opportunities.

These constraints to rural economic development are identified against the background of a weak economy and low growth described in Section 6.2.2 (i). Here, the analysis indicates that economic growth is required for development to take place and this view has been adopted by the NDP (Section 2.3). Therefore, macroeconomic policy to reduce the country’s debt to GDP ratio is important along with growth strategies that strengthen the fiscus and enable demand for small business services in general.

7.2.4 Prioritisation of a response

For the goals of the NDP to be achieved, the rural enterprise development framework (Figure 7.1) requires appropriate inputs and efficient implementation of policy. The analysis in Chapter six identifies several distortions, both proximate and binding. In Section 6.2.1 the conclusion is reached that even though the wholesale correction of all distortions is a technically sound strategy, it is deemed near impossible to implement in South Africa’s fiscal and economic reality (Mathebule, 2019). Thus, the Growth Diagnostic taxonomy (Figure 4.1) was utilised in this study to pinpoint the most binding constraints and the

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recommendations that follow strive for the ‘biggest bang for reform buck’ (Hausmann et al., 2008). .

7.3 Recommendations

Some key implications follow from the diagnosis in Section 7.2: The analysis finds that whilst inputs to support rural enterprise development represent a well- informed and positive response, the leadership of the NDP and the efficient execution of policy pertaining to the NIBUS and informal enterprise development in rural areas is wanting. This translates into poor delivery of the desired outcomes - the demand for small business services is limited, the supply of competent entities impaired, and the number of small enterprises entering the mainstream economy remains stagnant. It follows that advancement towards the envisaged goals of the NDP are not being met and this reduces the potential impact of rural small enterprises on poverty alleviation.

Consequently, the recommendations following this diagnosis focus on the leadership and execution of policy, rather than reforming inputs in the rural enterprise development framework (Figure 7.1):

R1 The DSBD should establish a high-level small enterprise coordination mechanism to manage the small enterprise development framework (Figure 3.5). This should include the Minister’s ongoing involvement in the President’s economic and social development clusters as well as operational inputs from the Director General in the President’s Policy Analysis and Research Services Unit. Representation in the District- Centred Coordination Model across the forty-four districts and eight metros by senior DSBD officials is also required for improved influence over policy execution in local government. This representation at executive and operational level should reinforce the importance of small enterprise development in achieving government’s wider economic objectives. The President has the power to impose discipline, and the DSBD requires support of the President’s councils and forums to impose

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discipline on the execution of small enterprise policy and programmes across the three spheres of government.

R2 The DSBD’s primary role is to create a conducive economic environment for small enterprise success and for this task the Department needs to obtain accurate information on activities in the sector. The DSBD is working towards the development of a Business Development Service Provider (BDSP) Quality Assurance and Support Initiative (QASI) to maintain a registry of all individuals and businesses, and this includes a Measurement, Evaluation, and Learning (MEL) tool (Section 3.3.3). Implementing a reliable MEL tool is viewed as a priority, as reliable data on rural enterprise development would inform the President’s economic and social clusters and forums, and this would garner support from executive leadership and enable authority across supporting institutions (Figure 3.4). Care would need to be taken to design data collection around the duties of the LED Official, so as not to burden the entrepreneur with administration that may distract from business activities. Accurate data is not only required to assist with coordination but also to evaluate and inform the repositioning of policy, if and where required.

R3 The DSBD should adopt a ‘biggest bang for reform buck’ strategy as the Department is modestly funded and, with the government experiencing fiscal pressure and stagnating growth, this reality is likely to persist. The insights from this case-study approach, using qualitative research techniques involving group and individual interviews, exposed the depth of support needed for the enterprising poor to overcome their lack of appropriate education and experience in entrepreneurship. It is recommended that this fundamental and binding constraint be kept at the forefront of development thinking, as further initiatives would be handicapped and valuable resources wasted if the enterprising poor were to remain ill-prepared and, therefore, unable to take proper advantage of such initiatives.

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R4 The DSBD should use Section 18 (1) of the National Small Business Act to publish guidelines for organs of state in national, provincial, and local spheres of government on best practice in developing informal micro businesses to further the National Informal Business Upliftment Strategy (NIBUS). Best practice should include the following aspects found in the literature (Section 3.5.2): ensuring support for appropriate location, separating business and household accounts, and smart formalisation. Moreover, best practice should incorporate insights from this study’s empirical contribution, such as keeping the enterprising poor in business for long periods and developing successful entrepreneurs by following “deliberate practice’ techniques.

R5 Written into the Section 18 (1) guidelines should be a requirement that all LED Officials obtain the New Venture Creation NQF Level 4 and Facilitator NQF Level 5 qualifications. SEDA should partner with the National Skills Fund (NSF) and use the South African Qualifications Authority to set a definitive standard of LED Officer competence across municipalities. This is in keeping with the NDP policy that envisages a “developmental and capable” state and should become a standard measurement in District-Centred Coordination Model and Municipal Integrated Development Plans. As the enterprising poor in rural areas access institutional support from local government, it is critical that those that provide the support (being the LED Officials in municipalities) are suitably equipped. The New Venture Creation and Facilitator qualifications, with special emphasis on “deliberate practice” techniques, would improve capabilities where they are required - in local municipalities.

R6 The “deliberate practice” principles stress the value of keeping informal operators in business for as long as possible. Based on the “10 000-hour rule”, the message is that people can get better and improve their skills over time, whilst being excluded from business activity offers very little opportunity for learning and advancement. However, a vital component in the success of deliberate practice is the presence of expert guidance.

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Simply conducting business as usual will not necessarily advance an entrepreneur’s skill and make a success of the venture. Neither will formalising the business necessarily make the business more successful unless there is an explicit reason to do so. LED Officials should be required to record information on the DSBD’s MEL system, and this should track both the lifespan of the informal business and the actions taken to improve performance. Annual performance reviews of LED Officials should incorporate this requirement as a key performance indicator.

R7 LED Officials need to be held accountable for sourcing and finding creative ways of introducing informal business owners to expert guidance. Stokvels and community forums are common in rural areas and it is collective behaviour and learning circles that are recommended in rural settings (these were used effectively in gathering empirical data for this study). In learning circles entrepreneurs can learn from each other, the LED Official, and from experts brought in by the group from time to time. Where possible, technology should be utilised to reinforce continued learning and frequent engagement. WhatsApp groups could be established for learning circle groups and these could prove to be valuable for sharing information among the enterprising poor.

R8 District-Centred Coordination Model and Integrated Development Plans should follow do-no-harm policies for the informal sector and institute smart, appropriate formalisation rather than blanket formalisation of businesses. The current practice of promoting informal business into “the mainstream economy” is often costly, of little benefit, and difficult to maintain for the inexperienced entrepreneur. LED Officials need to be trained to evaluate whether there is a commercial advantage and the necessary competence to formalise a business and, if not, continue to improve the informal business and the entrepreneur’s skill level to produce better results as an informal entity. Moreover, alternatives exist other than formalising, including pivots such as entering into partnerships with formal businesses on a project to project basis or the small

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enterprise becoming a member, as a juristic person, of a functional and formal cooperative entity.

R9 Problems of financing should be tackled in the District and Coordination Model Units (Districts and Metros). For most informal businesses access to finance involves small amounts, which can be sourced creatively rather than through formal loan agreements. Most Integrated Development Plans at local government level have an allocation for small enterprise and co-operative development. Basic materials and equipment for start-up businesses should be sourced from these budgets and the enterprising poor trained to use the equipment purchased on their behalf. Moreover, SEFA should provide resources to local government to assist with designing and providing financing for revolving credit arrangements within District and Municipal structures.

R10 SEDA and SEFA should continue with its focus to support and promote high-ability entrepreneurs and advance the ISPESE and ISDPC. It is the innovative entrepreneur that generates growth in an economy and initiatives to support formal small businesses and cooperatives are essential in achieving the governments wider economic objectives.

The recommendations cited in this section are achievable even under the tight fiscal situation that government is experiencing and despite the small budget that the DSBD is afforded (Section 3.3.3), as the recommendations leverage existing policy, programmes, and institutions rather than create new ones at further expense. Development of a MEL system to coordinate business development services could be absorbed by the Departments budget allocation, while the more expensive capacity development of LED Officers could be funded by the National Skills Fund and Skills Development Levies Act.

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7.4 Caveats

In this chapter, a number of conclusions and recommendations are reached but these should be understood in context of the following caveats:

7.4.1 This study has elicited issues and made findings partly founded on primary data collected in the setting of Geluksburg and its surrounds. It is explicitly acknowledged that case-study findings generally have restricted applicability outside of the case. This study does not seek to generalise findings from the primary data but rather uses the case to create a heightened level of insight into the issues pertaining to rural enterprise development and elicit the views of people in a rural setting. Therefore, the emphasis of this aspect of the study was to investigate the research questions and not the location itself before cross- sectional comparison with other data sets was conducted to reach broader conclusions.

7.4.2 Geluksburg is isolated from a commercial centre and inhabitants are required to commute some thirty-five kilometres on a gravel district road to access service and retail facilities from the closest town, Bergville. The setting is, therefore, relevant to isolated rural settings and is less significant to understanding rural areas that have ready access to commercial businesses. In these settings, businesses will experience different dynamics and confront the market and competition in significantly different ways. Examples being the existence of foreign traders and the interface with corporate formal businesses.

7.4.3 The programmes assessed in this study were those afforded by the SBD Portfolio at the time of the study. The researcher acknowledges that the SBD Portfolio is advancing its offering to the microenterprise sector, and SEDA’s BESD programme and SEFA’s revolving credit pilot project in fresh produce markets are referenced in this regard. These programmes were not available to participants in the study as

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they are being researched and developed in other localities. Commentary on these programmes is done purely by referencing the Departments own documentation.

7.4.4 The findings and recommendations of this study are concluded on evidence prior to the Coronavirus pandemic of 2020. The outbreak of the Coronavirus and the measures to combat its spread is set to have far reaching implications on the world’s economy and the extent of its impact on South Africa will unfold in time. It is the position of the researcher that the impact on economic growth will be significant in the short to medium term and that policy will revert to preserving jobs and lives of people rather than generating GDP growth. However, in time the Coronavirus pandemic will pass and the underlying dynamics in the South African economy and political context will resurface. At that juncture the findings and recommendations of this study will remain relevant.

7.5 Recommendations for Further Research

From the conclusion of this study, it is recommended that a number of areas be considered for further research in order to fully support micro enterprise development in rural settings. These are discussed below:

7.5.1 If further research were to embrace more or less the same methodology, this study would then pave the way for contrasting findings across cases, which would further the expansion of knowledge on rural economy transformation. Bryman (2012) argues that through the logic of comparison a multi-case study can improve theory building. By comparing two or more cases researchers will be in a better position to establish the circumstances in which a theory will or will not hold (Yin, 2014). The findings from this research showed that rural enterprise development in South Africa is well targeted for poverty alleviation and advocates the need to strengthen the developmental emphasis of current policy to enable entrepreneurs to

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gain the necessary experience to take advantage of opportunities presented. In order to generate theory, the replication of the methods used in this study in similar settings with similar participants would be of importance for further contrast research studies.

7.5.2 The realisation and understanding of how to apply “deliberate practice” to achieve expert performance and the infusion of “deliberate practice” principles into policy is critical but not enough. People need to be given the tools required to harness opportunity and take control of their potential (Ericsson & Pool, 2015). For the micro enterprise the design of a bespoke support methodology that incorporates the principles of “deliberate practice” has been recommended. It would also be beneficial to conduct a study to evaluate and further refine this approach at local government level using “deliberate practice” principles.

7.5.3 The separation of business from the household – a common practice for micro enterprises was found to be the mixing of household expenses and the business. This practice is ill-advised. Using SESE survey data Fourie (2018) found that a seventy percent performance improvement exists for businesses keeping separate financial records. Whilst from a business perspective the matter seems straight forward, the need to share to survive is a reality in poor communities and the social consequences (family disputes, divorce, trauma) need to be understood. For instance, the need for short-term funding may be required to stay in business even though it falls outside of normal business operations – e.g. the business may pay for a funeral then require a loan for stock – and this will have implications for policy around short-term funding (Hartnack & Liedeman, 2017). Methods to migrate people from traditional practices to business practices needs further exploration.

7.5.4 Underpinning government’s labour policy is the concept of ‘decent work’ and the implication that informal enterprises offer low-wage

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employment that is inherently exploitative. As a result, the formal sector has been prioritised and informal sector poorly supported. An investigation into the right to work and right to sell services on terms that the business and employee agree upon, needs to position informal employment as an alternative to unemployment. Furthermore, and relating to the concept of ‘decent work’, a system is required whereby informal businesses and their employees are afforded more protection in times of crisis. Here, the use of the state’s administratively advanced social grant distribution system is viewed as a possible mechanism to advance grants to informal businesses on a predetermined basis. An investigation to uncover suitable methods of advancing support packages to informal businesses is desirable, particularly in times of distress where the enterprising poor have little control in the economy (e.g. times of war or similar where the economy is effectively shut down).

7.6 Conclusion

The purpose of this study was to investigate: (1) the binding constraints that inhibit the development of small enterprises in the rural economy; (2) improvements that should be made to policies, regulations, and programmes; and (3) the means to institutionalise policy improvements. The main findings are summarised against the rural enterprise development framework (Figure 7.1):

i) Inputs

The overall diagnosis is that the DSBD has the advantage of continued and extensive legislative and policy support for enterprise development and this represents a sound foundation for executing rural enterprise development in South Africa. However, the Department has a difficult task in coordinating multiple institutions that support enterprise development in South Africa as it lacks executive authority outside of the SBD Portfolio and has unreliable data on which to base its management and policy decisions.

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ii) Implementing Activities

The study showed that despite there being decent policy to support small enterprise development, multiple constraints existed and these largely developed from poor policy execution rather than a lack of policy. Several constraints to rural enterprise development were highlighted in the research, including government’s lack of coordination to assist entrepreneurs with issues such as access to markets, infrastructure, and facilities. Access to finance by the enterprising poor was also found to be a major concern and appropriate programmes were absent. However, the empirical investigation found that the most fundamental and binding constraints are the low skill levels and business confidence of people previously not exposed to business, while the current programmes offered by SEDA and SEFA are inappropriate. iii) Desired Outcomes

The presence of multiple distortions caused by poor execution translates into the NIBUS being unable to deliver on the desired outcomes of creating demand, advancing the supply capabilities, and increasing the number of small enterprises in the economy. It follows that the envisaged goals of the NDP are not being met and this reduces the potential impact of rural small enterprises on poverty alleviation. In implementing a response to distortions pertaining to inputs and enabling the execution of activities, the study reached the conclusion that, even though wholesale correction of all distortions is technically sound, this strategy is deemed near impossible to implement in South Africa’s fiscal and economic reality. Rather the study suggests that the appropriate response is to address the most binding constraints and strive for the ‘biggest bang for reform buck’.

Therefore, to improve the probability of success in rural enterprises development the study recommends improved execution of policy. This can be achieved, firstly, by high-level positioning of the DSBD in the President’s economic and social development clusters to improve

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influence and, secondly, through the introduction of clear instructions on best practice in Section 18(1) of the National Small Business Act in order to direct appropriate support and promotion of the enterprising poor in informal firms. These activities are designed to create an environment for fully capacitated LED Officials whose delivery will be measured, and to provide improved support services to the enterprising poor based on “deliberate practice” principles.

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Appendix 1: In-depth Interview

IN-DEPTH (UNSTRUCTURED) INTERVIEW: ESTABLISHING A BUSINESS ENTERPRISE

Read to Participant: As was explained in the Information and Informed Consent Form, the information you will provided in this interview is to be considered as confidential. It will not be released by the Researcher in any way that you can be identified as source of the data. Only summary data across all participants will be used in the research findings.

INTERVIEW A: The purpose of the interview is to understand the views and feelings on matching skills and ability to a business idea.

1. Interviewer name:

2. Date and time:

3. Participant number:

4. Using the Study Circle Worksheet as reference, please explain when you first began to acquire the skill of X?

Follow-up questions:

 Personal qualities

 Combining skills and personal qualities and a business idea  Defining activities of the business  Identifying a suitable business type for business idea

INTERVIEW B: The purpose of the interview is to understand views regarding business requirements.

5. Interviewer name:

6. Date and time:

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7. Participant number:

8. Using the Study Circle Worksheet as reference, please explain the immediate business requirements for your business idea?

Follow-up questions:

 Future requirements  Means to raise capital  Fixed and variable costs  Selling price  Potential customers  Proposition to customers  Customer retention

INTERVIEW C: The purpose of the interview is to understand the business model for each business idea.

9. Interviewer name:

10. Date and time:

11. Participants number:

12. Using the Study Circle Worksheet as reference, please explain who you have identified as your top five customers?

Follow-up questions:

 Channel to market  Record keeping  Monthly income statement  Calculating profit/ loss  Monthly income statement  Financial projection (6 months)  Improving profitability

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Appendix 2: Focus Group Interview

FOCUS GROUP INTERVIEW: INSTITUTIONAL ASSISTANCE FROM DSBD Note: The Focus Group Interview concludes the research and is preceded by in-depth interviews as well as various interfaces that the participants may have had with the DSBD over time.

Researcher (moderator) to read to participants of the Focus Group: In line with the Information and Informed Consent Form, the information provided by participants in the Focus Group is considered as confidential. It will not be released by the Researcher in any way that any participant is identified as source of the data. Only summary data across all participants will be used in the research findings.

SECTION A: Biographical information of the Focus Group

1. Interviewer name:

2. Date, time and place:

3. Participant number:

SECTION B: Pre-Investment Assistance From SEDA

4. Based on the participants experience when starting or researching a new business, what were the areas you most needed assistance within the start-up phase?

Follow-up questions:

When interfacing with SEDA:

 What services were offered by SEDA that were most useful to you?  What could SEDA not provide that you needed at this stage of development?  Did the assistance you receive from SEDA make the required difference?  How do you think SEDA could become more relevant for start-up businesses that were in your situation?

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SECTION D: INVESTMENT ASSISTANCE FROM SEFA

5. Based on the participants experience when starting a new business, was it necessary to receive financial assistance? Explain/detail

Follow-up questions:

When engaging SEFA for financial assistance:  How did you experience the advice and service received from SEFA?  Could SEFA assist you?  Did the assistance make the required difference?  How do you think SEFA could become more relevant?

SECTION E: POST-INVESTMENT ASSISTANCE FROM SEDA

6. Based on the participants experience in developing a start-up business post investment what areas do you most need assistance with?

Follow-up questions:

When engaging SEDA for assistance:  How is SEDA positioned to help you in these critical areas?  Can SEDA assist you?  Have you received any assistance to date and is it making the required difference?  How do you think SEDA could become more relevant?

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Appendix 3: Information and Informed Consent Form

RESEARCHER’S DETAILS

Title of the research project Rural Enterprise Development as a Means to Poverty Alleviation

Reference number 215145720

Principal investigator DC Bodley

Address 10 Wild Peach Lane, VCCE, Pietermaritzburg

Postal Code 3202

Contact telephone number 0834430070 (private numbers not advisable)

A. DECLARATION BY OR ON BEHALF OF PARTICIPANT Initial I, the participant and the undersigned (full name)

ID number

Address (of participant)

A.1 HEREBY CONFIRM AS FOLLOWS: Initial I, the participant, was invited to participate in the above-mentioned research project

that is being undertaken by DC Bodley

from Faculty of Business and Economic Sciences

of the Nelson Mandela University.

2. THE FOLLOWING ASPECTS HAVE BEEN EXPLAINED TO ME, THE PARTICIPANT: Initial The investigator is studying rural enterprise development as a means to poverty alleviation. 2.1 Aim: The information will be used to investigate the effectiveness of institutional support for rural enterprise development and recommend improvements on policy thereof. I understand that attendance of study circles and the completion of a worksheet is necessary, before attending at least 3 in-depth interviews with the researcher on my 2.2 Procedures: business idea and model. The study circles will be discussion based and may last up to 3 hours for each component of the worksheet. This means that I commit myself to at least 12

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hours of study circle time where I will be working on my business idea and concept and a further 3 hours to discussing my ideas with the researcher in an interview format. Thereafter, if I interface with the DSBD I may be invited to take part in a group interview, which will be audio recorded, to further share my experiences and opinion. This may require my attendance on 2 to 3 occasions for up to 3 hours at a time, expanding my commitment to the research by a further 6 to 8 hours. Any information that I supply or that is recorded will not be communicated in my name and I will remain anonymous in 2.3 Risks: any findings. No personal or financial risk is foreseen by participating in this study. As a result of my participation in this study I will have the opportunity to explore a business idea in some depth with members of my study circle, guided by a structured 2.4 Possible benefits: worksheet and in explanation/ discussion with the Researcher. This should enhance my ability to generate an income by becoming self-employed. My identity will not be revealed in any discussion, 2.5 Confidentiality: description, recording or scientific publications by the investigator. Any new information or benefit that develops during the course of the study will be shared at the conclusion of the 2.6 Access to findings: study at a formal feedback session, which will be followed by a question and answer session. My participation is voluntary, and it is understood that I may choose to leave Voluntary participation / 2.6 the study at any time and will not be refusal / discontinuation: YES NO asked questions on why I no longer want to participate.

3. THE INFORMATION ABOVE WAS EXPLAINED TO ME/THE PARTICIPANT BY: Initial Mr D Bodley

in Afrikaans English Zulu Other and I am in command of this language, or it was satisfactorily translated to me by

Mr S Khoza

I was given the opportunity to ask questions and all these questions were answered satisfactorily.

No pressure was exerted on me to consent to participation and I understand that I may 4. withdraw at any stage without penalisation.

5. Participation in this study will not result in any additional cost to myself.

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A.2 I HEREBY VOLUNTARILY CONSENT TO PARTICIPATE IN THE ABOVE-MENTIONED PROJECT: Signed/confirmed at Geluksburg on 20

Signature of witness:

Full name of witness: Signature of participant

B. STATEMENT BY OR ON BEHALF OF INVESTIGATOR I, David Cyril Bodley declare that:

1. I have explained the information given in this document to

2. He / she was encouraged and given ample time to ask me any questions;

This conversation was conducted in Afrikaans English Xhosa Other

3. And no translator was used OR this conversation was translated into

isiZulu by Mr S Khoza

Signed/confirmed at on 20

Signature of witness:

Signature of interviewer Full name of witness:

C. DECLARATION BY TRANSLATOR (WHEN APPLICABLE) I, Mr S Khoza

ID number confirm that I:

1. Translated the contents of this document from English into isiZulu as well as the answers given by the 2. Also translated questions posed by investigator/representative; 3. Conveyed a factually correct version of what was related to me.

Signed/confirmed at Geluksburg on 20

I hereby declare that all information acquired by me for the purposes of this study will be kept confidential.

Signature of witness:

Signature of translator Full name of witness:

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Appendix 4: Written Information Sheet

In the town of Geluksburg there are few opportunities to earn money by having a job. Another way of earning money for you and your family, is to establish a business and become self-employed. This is a challenging task and you may need assistance from the Department of Small Business Development (DSBD) if you choose this path.

If you are interested in investigating and pursuing a business of your own, including exploring how the DSBD can assist you, then you may wish to join a study by the Nelson Mandela University concerning rural enterprise development that is taking place in Geluksburg. Participants in this study will benefit by developing and fully understanding a business idea. This will be achieved by attending at least four half- day learning discussions that are structured around a comprehensive worksheet that will help you think about many aspects when in starting a business. This process will take a minimum of three and maximum of six months to complete. In addition, you will attend a minimum of three one-hour individual in-depth interviews to further discuss your business idea with the researcher. Lastly, if you do interact with the DSBD during the research period, you will be invited to attend a group interview with the researcher to discuss this interaction and the effectiveness of any assistance that was provided.

The learning groups and completion of worksheets will take place at the Geluksburg Education Centre and will be facilitated by Mr Khoza and Mr Mazibuko in both English and isiZulu. All research activities are at no cost to you and transport will be arranged if you need to travel more than 2 km’s to the centre. Interviews will be with the researcher Mr Bodley, who will be assisted by Mr Khoza should you need to explore and issue in isiZulu. The information provided by you will be used for research purposes only. Information will not be used in a manner which would allow identification of your individual response. However, words may be quoted in publications, reports and other research outputs but your name will not be used.

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Furthermore, it is understood that you may choose to leave the study at any time and you will not be asked any questions on why you no longer want to take part.

Any person living in the Geluksburg surrounds that is motivated to become self- employed by starting an own or collective enterprise is invited to participate in this study. However, as the study intends to investigate rural enterprise development and the help the DSBD provides, this will involve business-to-business communication in English and will include financial information. For this reason, the study requires you to have a minimum Grade 11/12 English as well as basic number skill competence. As stated, Mr Khoza is available to assist with explanation in isiZulu thought the study, but documents and the worksheet will all be in English, as will your interface with institutions such as DSBD, SARS, banks and others.

By participating in this study, you will improve your own understanding and hopefully start your own rural enterprise that contributes to new income and a better life for you and your family. Your contributions will also assist this study and its contribution to understanding rural enterprise development as well as the streamlining and improvement of institutional assistance from the DSBD.

Researchers details: Name: David Bodley Cell: 0834430070 Email: [email protected]

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Appendix 5: Written Information Sheet (isiZulu)

Endaweni yaseGeluksburg mancane amathuba okukhonga imali ngokuba nomsebenzi. Enye indlela yokukhongela wena nomndeni wakho imali ukuthi uziqalele ibhizinisi uzisebenze. Kuyinto enzima Kanti futhi ungase udinge usizo lomnyango wokuqala amabhizinisi amancane (DSBD) uma ukhetha lo mkhakha.

Uma unothando lokuthola ulwazi nokuziqalela elakho ibhizinisi, kanye nokuthola ukuthi iDSBD ingakusiza kanjani, ungase ufise ukuba yinxenye yocwaningo oluqhutshwa iNelson Mandela Nyuvesi oluhlangene nokuthuthuka kwamabhizinisi emakhaya endaweni yaseGeluksburg. Abahlanganyeli balolu cwaningo bazozuza ukusombulukisa kanye nolwazi lokuqonda ngokuphelele umqondo webhizinisi. Lokhu kuzokwenzeka ngokuhamba okungenani izingxoxo zemfundo eziwusuku lwesigamu. Lezi zingxoxo zihlelwe phezu kweshidi lokusebenzela eliphele elizosiza ekucabangeni izici eziningi ezihlangene nokuqala ibhizinisi. Le ngqubo izothatha izinyanga ezintathu kuyela kweziyisithupha, kanti futhi uzohamba okungenani izingxoxo ezintathu wedwa eziyihora ukuze unabe ngomqondo wakho webhizinisi nom'cwaningi. Okokugcina, uma usebenzisana neDSBD ngesikhathi socwaningo, uzomenywa ukuba uhambe ingxoxo yeqembu labahlanganyeli nom'cwaningi ehlangene nokukhuluma ngakho lokhu kusebenzisana nemiphumela yanoma yiluphi usizo olunikeziwe.

Lawa maqembu okufunda kanye nokuqedwa kwamashidi okusebenzela azoba esikhungweni semfundo saseGeluksburg aholwe uMnu. Khoza kanye noMnu. Mazibuko ngesiZulu nangesiNgisi. Konke okwenziwayo akuzukuphuma kwelakho iphakethe kanti futhi uma uhamba ibanga elingaphezu kwamakhilomitha amabili ukuze ufike esikhungweni uzobonelelwa into yokuhamba. Izingxoxo zizoba nom'cwaningi uMnu. Bodley, ozobe esizwa uMnu. Khoza uma kwenzeka udinga ukwenaba ngesiZulu. Imininingwane nolwazi oluphuma kuwe luzosetshenziselwa ucwaningo kuphela. Ulwazi nemininingwane alizukusetshenziswa ngendlela ezoveza

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ukuthi ungubani. Kepha, amagama angase acashunwe afakwe ezincwadini, emibikweni kanye neminye imikhiqizo yokukhishwa kocwaningo, kodwa igama lakho alizukusetshenziswa. Okunye, kuyaqondakala ukuba ungakhetha ukuyeka ukuba yinxenye yocwaningo nanoma yinini kanti futhi awuzukubuzwa imibuzo mayelana nesinqumo sakho.

Nanoma ubani ohlala emaphethelweni aseGeluksburg onogqozu lokuzisebenza ngokuziqalela elakhe ibhizinisi noma lokuqala ibhizinisi neqembu uyamenywa ukuba azoba yingxenye yalolu cwaningo. Kepha, njengoba ucwaningo luqonde ukuhlola ukuthuthuka kwamabhizinisi emakhaya nosizo eliphuma kwiDSBD, lokhu kuhlanganisa ukuxhumana kwebhizinisi nelinye ibhizinisi ngesiNgisi kanye nolwazi lwezezimali. Ngenxa yalokhu udinga ukuba okungenani nesiNgisi sebanga leshumi nanye noma sebanga leshumi nambili kanye nolwazi oluncane lwezezimali. Njengoba kushiwo, uMnu. Khoza ukhona uma kudingakala incazelo yesiZulu ngesikhathi socwaningo, kodwa imibhalo namashidi okusebenzela azobe ebhalwe ngesiNgisi, kanye nesikhombimsebenzisi ngengeDSBD, SARS, amabhangi namanye.

Ngokubamba iqhaza kulolu cwaningo uzononisa ukuqonda kwakho kanti siyathemba ukuthi uzoziqalela elakho ibhizinisi emakhaya elizonezela ekungeneni kwemali kanye nempilo engcono kuwena nomndeni wakho. Inkongezelo yakho izosiza lolu cwaningo nenkongezelo yalo ekuqondeni ukuthuthuka kwamabhizinisi amancane emakhaya kanye nokuhlanza nokunonisa umnyango wosizo oluvela kwiDSBD. Imininingwane yocwaningo:

Igama: David Bodley Ucingo: 0834430070 Email: [email protected]

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Appendix 6: Oral Information Guide

i) Prior to in-depth interview:

As has been explained to you in the in the Information and Informed Consent Form, the information provided by you in the worksheet and interview, will be considered as confidential data. It will not be released by the Researcher in any way that the Respondent is identified as source of the data. Only summary data across all respondents will be used in the research findings.

ii) Prior to group interview (focus group):

As has been explained to you in the Information and Informed Consent Form, the information recorded in the group interview will be transcribed and is considered as confidential data. The recording and transcript will not be released by the Researcher in any way that any participant is identified as source of the data. However, words may be quoted in publications, reports and other research outputs but your name will not be used.

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Appendix 7: Study Circle Worksheet

Study Circle Facilitator to explain to the Participant: This worksheet will help you understand your business idea and model in some detail. It is to be completed by you after you over a three to six month period as you attend study circle sessions and work through each topics in detail. The worksheet will then be used by you to prepare for a minimum of three in-depth interviews, where you will further discuss your responses and ideas with the Researcher. The information provided on your worksheet is considered confidential data as well as your further explanation in the interviews which will be recorded in written form by the Researcher. Collectively, this information will be confidential and only used in a format that will NOT identify you or your business. Only summary data across all participants will be presented by the Researcher.

1. Participant number:

2. Participants qualifications:

3. Participants business experience:

4. Participants current income source:

5. Business type:

6. Overview of business idea:

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Section B: Skills, Abilities and Business Idea Code

Q10 – 12 10. My key skills are:

Identifying  ______skills and personal  ______qualities  ______(Skills and

Abilities) 11. My dominant personal qualities are:

 ______ ______

 ______

12. By combining my skills and personal qualities, I plan to start a business in my community because people need:

______

______

______

______

______

Q13-16 13. The main areas of activity for this business will be (define exactly what Definition of you will be doing): business (Key  ______Activities)  ______

 ______ ______

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14. To execute on these activities, the business will require the following staff members:  ______ ______ ______ ______

15. The primary service/product this business will supply is:

______

16. This service/product will be different to my competitors because:

______

______

Q17-19 17. My business type is: (tick one) Selecting  A sole proprietorship  business type

(Business  A partnership  type)  A private corporation 

 A co-operative 

18. This is because (state factors which determine this)

______

______

______

______

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19. Ticked below, are the necessary requirements for the business ownership type:

 A business name   SARS registration   CIPC registration 

 A business name ending in “Pty Ltd” 

 Start-up capital 

 A bank account 

 A tax registration number 

 Necessary equipment 

 A partnership agreement   A tax clearance certificate 

 Valid identification 

 Proof of address 

Section C: Business Requirements Code

Q20-24 20. The immediate business requirements are:

Identifying  ______R ______your resources and means to  ______R ______source capital  ______R ______(Key  ______R ______Resources)  ______R ______

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21. As the business grows, it will require:

 ______R ______

 ______R ______ ______R ______

22. The businesses start-up capital will be raised by:

______

______

______

______

23. The owner’s contribution to capital requirements will be:

______

______

______

______

24. The purpose of funds raised is to:

______

______

______

______

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Q25-27 25. The variable costs of the business are:

Factors  ______determining product or service  ______price  ______(Cost Structure)  ______

26. The fixed costs or overheads will be:

 ______ ______ ______ ______

27. The selling price is ______and has been worked out as follows (provide example an item/ service): ______

______

______

Q28-30 28. The potential customers are:

Assessing your  ______customers and  ______potential markets (Customer  ______

Segments & Value Proposition) 29. The value proposition to these customers is:

______

______

______

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30. Customers attitude towards the product/service will be measured by: ______

______

______

Section D: Business Case Code

Q31-34 31. The following five potential customers have been identified:

Understanding 1. ______the sales process 2. ______(Selling) 3. ______

4. ______

5. ______

32. To get my product/ service to these customers, the business will need to use the following channel e.g. door to door selling, tenders, shop floor etc: ______

______

______

33. If a customer is unhappy with price, how will the business react?

______

34. When a sale is complete, how will the business keep a record of this?

______

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Q35-40 35. Below is an example of a financial record for the first month of the Monthly business. List the product/ service type and R’s earned for each revue money stream under income. List the expense type and R’s spent on each management expense type under expenses:

(Income January 2017 statement) Income Expenses

______R ______R ______R ______R

______R ______R

______R ______R

______R ______R

TOTAL R TOTAL R

36. The business income is R ______

37. The business expenses are R ______

38. The gross profit is R ______

39. From this monthly statement, calculate the businesses profit or loss:

______

______

______

______

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40. To properly gauge an idea of how much profit the business is making, produce a monthly income statement as follows:

Business Name: ______Income Statement for ______20___

TOTAL IN RANDS Income from sales R ______

GROSS PROFIT R ______

All business expenses including materials, stock, salaries etc:

______R ______

______R ______

______R ______

TOTAL R______

NET PROFIT BEFORE TAX R______

Q41-45 41. To make a financial projection for the year:

Making further  Calculated all operating expenses R ______financial projections  Allocated an amount to pay back my start-up capital R ______(Revenue streams cnt)  Worked out salaries R ______

42. Draw up a financial projection for half the year (see page 09).

43. This plan shows a profit/ loss in the business of ______after six months of operation.

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44. The business could be more profitable if it generates more income from the following sales items (explain how you would do this and if it involves increasing prices or amount sold): ______

45. The business could be more profitable if it controlled expenses by: ______

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42. FINANCIAL PROJECTION FOR SIX MONTHS Jan Feb Mar Apr May Jun R ______R ______R ______R ______R ______R ______Retained Income Start-up capital

Sales Income R ______R ______R ______R ______R ______R ______

Income Available R ______R ______R ______R ______R ______R ______Operating Expenses  ______R ______R ______R ______R ______R ______R ______ ______R ______R ______R ______R ______R ______R ______ ______R ______R ______R ______R ______R ______R ______ ______R ______R ______R ______R ______R ______R ______ ______R ______R ______R ______R ______R ______R ______ ______R ______R ______R ______R ______R ______R ______ ______R ______R ______R ______R ______R ______R ______ ______R ______R ______R ______R ______R ______R ______

Total Cost R ______R ______R ______R ______R ______R ______

Net profit before tax R ______R ______R ______R ______R ______R ______

Tax @ 28% (tax rate varies according to business type) R ______

Net profit after tax R ______240

Appendix 8: Geluksburg existing employment Schematic overview of existing employment in the Geluksburg* economy (farm and non-farm economy combined)

Formal-sector employment

Income category Public sector Private sector Informal sector Distribution High earning (A) (B) (C) Only >21 people >R153 000 per Professional, Professional, Lucrative earn more than annum semi-professions semi- informal self- R153 612 annually. 45% (educators- 5, professional employment councillor - 1) skilled (tavern owners- are white, 5% Indian and 50% [<6 people] employment or 4, small livestock self-employment farmers-1, are black Note: <57 (farm managers- butcher-1) educators work 4, lodge owners- in area but [<6] 4, shop owner- reside and 1) [<9] spend elsewhere Middle earning (D) (E) (F) Only 33 people R76 800-R153 Un/ semi-skilled Un/semi-skilled, Moderate earn between 000 per annum state (school private sector earning informal R76 800-153 clerk - 6) employment employment and 000 per annum). [<6] (reception-2, self-employment chef-1, NGO (spaza owners managers-2, 5, taxi owners-4, farm machine small livestock operators-8 [>1] farmers-5) [>15] Low earning and (G) (H) (I) 187 people (9% insecure R9600 Unskilled Unskilled, casual Small/ survivalist of the – R76 800 per (cleaners and employment informal-sector population) have annum gardners-25; (including private employment and incomes of R9 school security- household self-employment 600 and higher 12) employees-26, (retail assistance per annum [>37] lodge 4, small livestock housekeeping- farming-26, taxi 4, retail drivers-4, assistance 1, butcher and farm labour-75- auction workers- 100, NGO 5) [<39] facilitators-5) [approx.. <111]

Source: Own calculations using a framework adapted from Neves & du Toit, 2018

* Incorporates the town of Geluksburg, adjacent settlement of Greenpoint and the rural surrounds

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