TITLE A critical analysis of current approaches to SMME development and support within the eThekwini Municipal Area Anneline Chetty Student Number: 961113383 Promoter: Prof Urmilla Bob Submitted in fulfilment of the requirements for a PhD in the Discipline of Geography, School of Environmental Sciences University of KwaZulu Natal, Durban, 2009 DECLARATION The Registrar Academic University of KwaZulu-Natal Howard College Durban KwaZulu Natal Dear Sir/ Madam I, Anneline Chetty, Registration Number 961113383, hereby declare that this PhD thesis entitled: A critical analysis of current approaches to SMME development and support within the eThekwini Municipal Area represents original work by myself and has not been submitted in part or full for any degree or to any other university. Where use has been made of the work of others, it has been duly acknowledged and referenced in the text. The findings presented and the conclusions arrived at in this PhD are entirely those of the author. The research for this thesis was performed under the supervision of Professor Urmilla Bob, of the Discipline of Geography, School of Environmental Sciences, University of KwaZulu Natal, Durban. _________________ ______________ Anneline Chetty Date _________________ ______________ Prof Urmilla Bob (Supervisor) Date DEDICATION To the late Ruth Chetty, my grandmother, whose initial investment in my education has led me to this destination. Thank you for all you have meant to me, your memory will live on in me forever. ACKNOWLEDGEMENTS Firstly, I thank the Lord Jesus Christ, for all the wisdom that He has blessed me with and sustaining me through this thesis and giving me strength to persevere in the face of adversity. The following individuals have been very helpful to me in different ways and I am grateful to them for all their assistance rendered: • Professor Urmilla Bob, whose initial encouragement motivated me in this direction and supported and assisted me throughout the duration of the thesis. Thank you for your dedicated support and belief and for the many sacrifices and late nights you have put in on my behalf. You have become more than my Supervisor. • Anu Pather, for all her encouragement, support and her unwavering confidence in my abilities in various areas of my life. Thank you for being my pillar of strength and supporting me at all times and for your contribution to my work. • Dr Ajiv Maharaj, whose own dedication and perseverance has inspired me to follow in a similar direction. • The entire Chetty Family for their belief in my abilities, support and constant encouragement in all areas of my life. • To my sisters, Vasantha and Lynette and my brothers, Ivan and Clive, my nephews, Joash, Kemuel and Kenan and my niece, Cheyenne, thank you for being a tower of strength to my family and myself and standing by us at all times. • To the stalwart and pillar in my life, my MUM. Thank you for always being there for me and always wanting and believing in the best for me. It is your pride in my achievements that has always inspired me to aim higher. • To my husband Sean, who believes in my abilities and encourages me to be the best I can be at all times. • Finally, but most certainly not least, to my gorgeous precious sons Jeriah and Jasiel whose belief that Mum’s studies is “going to help make people better” has been my source of inspiration and courage. This one is for you boys and hopefully one day you will create your own path on the road to success! Abstract Small, Medium and Micro Enterprises (SMMEs) are considered to be the engines of growth of any economy. In the light of recent economic events and the recession that is surging rapidly across the globe, more and more attention is being focused on SMME development and support. Whilst there are a number of organisations (both public and private) which provide support to SMMEs within the eThekwini Municipality Area (EMA), the overall impacts of these initiatives on SMME growth and development is minimal and there is a dearth of studies that critically examine business support services for SMMEs which the public and private sectors provided. One of the major reasons for this minimal impact is the lack of communication and coordination between various service providers which often results in fragmentation and duplication of services. This study analyses the support measures offered to SMMEs not only from the perspective of the SMMEs themselves but also examines the perspectives of service providers from both the public and private sectors. This study is also placed within a multi-disciplinary conceptual framework which includes the political economy approach, neoliberalism, the public- private-sector debate and empowerment theories with specific reference to the South African context. This study is unique in that it analyses SMME development and support within the EMA from various perspectives within a single study. The objectives of this study were to investigate the awareness and experiences of SMMEs with regards to their support and development and also to critically examine the attitudes and perceptions of service providers (both public and private) towards SMME development and support. In addition, this study sought to assess the capacity of both the private and public sectors to provide effective support and development to SMMEs. An additional objective of this study was to determine the value placed on support measures by determining SMMEs’ willingness to pay for services provided, but more importantly to determine the attitudes of the public and private sectors towards the payment for services offered. Both qualitative and quantitative methods were adopted. In terms of the latter, quantitative surveys were conducted with 250 SMMEs who attended various fairs and conferences held across the EMA. Semi-structured interviews (qualitative approach) were conducted with representatives from the private and public sectors that provide support or services to the SMMEs in the EMA. In this regard, 53 representatives from the public sector and 50 from the private sector were interviewed. The analysis was undertaken thematically and, where relevant, findings pertaining to the different stakeholders interviewed were compared and discussed. Some of the key findings indicate that SMME respondents were more aware of local government and the services they provide than any other tier of government. Furthermore, SMME respondents within the study did not fully grasp the concept of Business Development Services (BDS) and the associated benefits for their business. SMMEs rely heavily on government to provide services free of charge. The main finding is that private sector service providers are better qualified, positioned and trained to provide BDS than the public sector whose main roles should be that of regulator, facilitator and promoter. Whilst government has been a strong proponent of SMME development and support since 1994, this study presents a strong case for the increased role of the private sector. In addition, this study also motivates that local government through their Municipalities can play a significant role in SMME development and support in partnership with the private sector. TABLE OF CONTENTS List of Tables i List of Figures iv List of Abbreviations v CHAPTER ONE: Introduction and Context 1 1.1. Introduction 1 1.2. Motivation for the study 2 1.3. Aims and objectives 5 1.3.1. Aim 5 1.3.2. Objectives 5 1.4. Chapter Sequence 7 1.5. Conclusion 8 CHAPTER TWO: Conceptual and Theoretical Framework 10 2.1. Introduction 10 2.2. Political economy approach 12 2.2.1. Political economy of South Africa 15 2.2.2. The public–private sector debate of the provision of services 18 2.2.2.1. Public–private sector debate and neo-liberalism 26 2.3. Public choice theory 32 2.4. Empowerment Theory 38 2.5. Conclusion 42 CHAPTER THREE: Background to study area and methodology 44 3.1. Introduction 44 3.2. The study area : Ethekwini Municipal Area (EMA) 44 3.2.1. Demographic profile of the EMA 47 3.2.2. The economy of the EMA 48 3.3. Primary data collection 56 3.3.1. Quantitative component 57 3.3.1.1. The Questionnaire 58 3.3.2. Qualitative component 62 3.3.2.1. The semi-structured interview 64 3.4. Secondary data collection 65 3.5. Sampling method 66 3.6. Challenges encountered during the research 70 3.7. Conclusion 71 CHAPTER FOUR: Literature Review 72 4.1. Introduction 72 4.2. Definitions of SMMEs 72 4.3. Who is an entrepreneur? 77 4.4. Critical issues and challenges in SMME development 79 4.4.1. Policy issues 79 4.4.2. Gender dynamics 84 4.4.3. Access to technology 89 4.4.4. Training for SMMEs 93 4.4.5. Facilitating access to finance for SMMEs 97 4.4.6. Facilitating access to markets for SMMEs 101 4.5. Strategies used to improve the competitiveness of SMMEs 102 4.5.1. Creating a conducive environment for SMMEs 103 4.5.2. Facilitating access to skills and capacity building for SMMEs 107 4.5.3. Facilitating access to markets for SMMEs 113 4.5.4. Facilitating access to finance for SMMEs 116 4.6. The rationale for the provision of Business Development Services (BDS) 119 4.6.1. What is Business Development Services (BDS)? 121 4.7. The roles of the public and private sectors in SMME development 124 4.8. Conclusion 132 CHAPTER FIVE: International, National and Local contexts of SMMEs 133 5.1. Introduction 133 5.2. Lessons from international experience 134 5.3. Support for SMMEs in South Africa 137 5.4. Description of the eThekwini Municipal Area 147 5.4.1. History of SMME support within the eThekwini Municipal Area 149 5.5.