SA needs around 3.21 million new SMMEs by 2030 to achieve NDP targets
The National Planning Commission (NPC) recently released its 10-year review of the National Development Plan.
The NDP review revealed that the vision for South Africa outlined in the NDP has not been realised over the past decade. The review revealed that the NDP has been marginalised, leading to fragmented planning and ineffective implementation.
The NDP places the responsibility of creating 90% of new jobs in the workforce in South Africa on the small, medium and micro enterprise (SMME) sector, between 2010 and 2030. The small business sector, which had an estimated 2.5 million small businesses in 2019, was most severely affected by the Covid-19 pandemic lockdown.
22 On Sloane recently published a white paper that seeks to foster a comprehensive understanding of the employment landscape within the South African SMME sector. This was achieved through the compilation, analysis and trend analysis of data from various publications and data sources.
The NDP has set an ambitious target of reducing unemployment to 6% by 2030, with interim goals of 20% by 2015 and 14% by 2020. The unemployment rate in 2015 stood at 24.3%, surpassing the 20% target by 4.3 percentage points. Notably, the discrepancy escalated significantly over the five years leading up to 2020, when the unemployment rate was 18.3 percentage points higher than the 14% target.
Another cause for concern is that, based on the current trajectory, the 2030 unemployment rate could potentially increase to 38%. At the unemployment rate, a negative growth rate of -11.58% would be needed to reach the 2030 NDP target of 6%.
The fact that unemployment levels have increased significantly from the initial figures on which the NDP had based its projections over the past decade remains a cause for concern. There are multiple reasons for the increase, including the socio-economic and health impact of the Covid-19 pandemic, skills deficits in emerging and critical sectors, unsuitable policies, rising crime, growing social fragmentation and lower than-expected investment.
We are in the 2019-2024 Medium-Term Strategic Framework (MTSF) and it is envisaged that the 2024-2030 MTSF would be the last seven-year NDP implementation framework.
Over the past 15 years, the employment ratio has seen a negative growth rate of -1.27%. To reach the NDP target, there would need to be an 8.53% growth rate over the next seven years. The current projection based on the past 15 years is 35.3%. Total employment will also need to see the growth rate increase from 0.92% to 5.91% over the next 7 years, to reach the NDP employment target of 24 million in 2030. The current projection, based on the past 15 years is 17.55 million.
These projections (Employment Ratio and Total Employment) provide an estimate of the employment level in 2030 under the assumption of a continued trend, without major economic disruptions, as observed in the historical data.
In the white paper, 22 On Sloane introduced a “Covid-19 Exclusion Baseline”, which is a hypothetical scenario designed to estimate the trends as if the Covid-19 pandemic had not occurred. For 2020 and 2021, data points were replaced with the average values from a 5-year period (2017, 2018, 2019, 2022, 2023).
This was with the aim of creating a normalised baseline for comparison against the pandemic-impacted data. With the exclusion of Covid-19, the projections improve to 27.83 million for the labour force and 18.44 million for employment, with a decline of 1.16 million in the total number of unemployed individuals.
While the figures paint a more positive picture, they are still significantly behind in reaching the NDP targets.
The NDP envisions that in 2030 the SMME sector will contribute 60 to 80% to gross domestic product growth and employ 90% of the workforce.
Of the overall 24 million employment target (NDP target for total SA employment by 2030), SMMEs would need to employ 21.6 million people in the workforce by 2030. The projection of 9.72 million jobs in the SMME sector by 2030 means that, without major economic disruptions and at the growth rate, SMMEs could potentially create only 1.72 million new jobs.
The Department of Small Business Development emphasised in May 2023 that as of 2023, approximately 2.5 million SMMEs in South Africa employ just under 8 million people and thus to meet the NDP target, there would be a strong need to significantly increase the number of SMMEs and cooperatives in South Africa.
The situation calls for a substantial increase in support for SMMEs, along with the development of integrated strategies within the SMME and cooperative sector, as outlined in the National Integrated Small Enterprise Development Strategic Framework (NISED).
To align with the NDP goal of having SMMEs generating 90% of new jobs by 2030, the need for adjustments to facilitate growth needs to be acknowledged. Providing robust support for SMMEs over the next seven years requires thorough research to inform policies that effectively address gaps.
Attention is required to fill evidence gaps, including obtaining information on SMMEs in rural areas, obtaining more accurate estimates of SMME employment and understanding SMME growth rates. Regularly updated evidence, encompassing the impacts of interventions, is essential for better monitoring and evaluating programmes.
The role of SMMEs in job creation, particularly for vulnerable populations, is pivotal. Governments, private sector and donor organisations in developed and developing nations recognise this, leading to substantial investments in SMME development, as underscored by the International Labour Organisation in 2010.
If South Africa is to achieve its NDP targets, it means that the private and public sectors need to work together to create 3.21 million new SMMEs over the next seven years and, given the estimate of 3.71 employees per SMME, this could potentially help create 11.9 million new jobs by 2030, thereby achieving the NDP targets.
Kizito Okechukwu is the executive head of 22 On Sloane, Africa’s largest start-up campus; and co-Chair of the Global Entrepreneurship Network Africa.
* To have access to the full white paper, visit: https://www.22onsloane.co/resources/
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