The global south has been buzzing as the entrepreneurship ecosystem, as part of the Global Entrepreneurship Congress (GEC), descended upon South Africa and Africa for the first time between the 13th and 18th of March 2017. GEC is an initiative of the Global Entrepreneurship Network that gathers together thousands of entrepreneurs, investors, researchers, policymakers and other start-up champions from more than 160 countries to identify new ways of helping founders start and scale new ventures around the world. At the weeklong GEC, delegates make connections, gain insights, learn about new research, and leave ready to renew their programmes, policy ideas or the skillsets of firm founders. The South African chapter was a remarkable event that will certainly inspire the entrepreneurial spirit the Ministry of Small Business Development has been trying to instil among South African stakeholders for years now. GEC comes to the South African shores just over three years since the B-BBEE Amended Codes of Good Practice were introduced by the Department of Trade and Industry (DTI). It is difficult for one to comprehend the meaning of GEC without also thinking about the work that needs to be done for South Africa to become a truly entrepreneurial state that produces globally competitive innovations, and does so consistently from a multiplicity of demographics, locations and economic classes.
The festivities of the event will leave a sustained domestic energy for some time. At least this is likely to be the case for the relevant stakeholders. However, unless we are deliberate about harnessing this energy, the GEC will amount to just another historic event that much noise was made about, without the materialization of any discernible systemic changes in the lives of South African citizens thereafter. We must therefore use the GEC excitement as a revival to address some of the challenges South Africa is facing in fostering a culture of entrepreneurship. To be specific, can the stakeholders harness the recent global energy to revive the intentions behind B-BBEE codes of good practice? Perhaps one should be even more precise, and ask how the recently energised domestic entrepreneurship stakeholders can fast-track the sluggish corporate buy-in to the call for enterprise and supplier development support from the DTI and Ministry of Small Business Development? As the then DTI BEE unit acting chief director, Liso Steto, cautioned in 2015; “B-BBEE should be viewed as a competitive issue and not compliance”. GEC also comes to South Africa almost a year since the inaugural B-BBEE Commission Conference on Fronting took place on the 29th of March 2016, in Midrand. At that conference, the commission had already received a significant number of fronting complaints to investigate. Almost a year later, and on the 8th of March 2017 in Cape Town, the commission was taking stock of the challenges it has been experiencing in the Financial Sector specific Codes. Both conferences highlight the lack of strategic intent, opportunism and carelessness with which big businesses relate with B-BBEE.
Legislation alone cannot achieve transformation in practice. B-BBEE champions cannot be government agencies like the B-BBEE Commission alone. While the role of the commission is justified given the compliance and fronting issues faced, the true champions should be practitioners. The true champions should be corporations which have both the resources and scale to make visible transformative strides with black small businesses – which they are currently neither procuring from, nor sufficiently empowering. Furthermore, corporations need to realise that failure to invest in enterprise and supplier development is not only a threat to transformation, but also to their competitiveness. It is known that only a negligible number of large corporations are innovating – a huge concern for the overall competitiveness of the country. The rest are too focused on merely staying afloat and surviving the recession at the moment. Put differently, large corporations in South Africa are more concerned with protecting their value, even if it is of low equilibrium socio-economically, rather than concerning themselves with the creation of a new equilibrium where magic in terms of employment and equity can occur. We ought to use GEC as a seed to facilitate robust domestic dialogues and initiatives to shift the transformation equilibrium forward. We ought to take the GEC energy to post-event honest reflections of where we are in supporting small businesses.
We know from economic development projects and literature that no policy, in this case B-BBEE, is without its limitations. It is through this realisation that we should view B-BBEE as a means to an end; where desirable economic outcomes such as more jobs, less poverty and more equity are the intended outputs, while the policy is merely an input instrument. But what then is the middle piece? In a country where the business sector is characterised by a few big corporations providing mass employment, based more on old business paradigms and less on innovation, we should look elsewhere for new products, processes, systems, services. Small businesses in South Africa provide a dynamism that pushes for us to constantly stay innovative. They emerge in different contexts. They are born out of specific localities, and if supported, grow to better those communities at risk by providing new innovations that also take the business sector forward. If one were to make a central claim regarding why big businesses are less receptive of the B-BBEE policy, it would be the assertion that government has not taken the time to make real connections between empowerment and business success, and in my view this is indeed a missing piece. If the strategic business linkage is innovation, then perhaps the DTI should have branded B-BBEE as an innovation policy at the onset, as opposed to one of empowerment only. While this may be a separate issue, it is critical to note in a country with an innovation policy that is arguably invisible or thin and less embedded on the B-BBEE policy. Government and large corporations have undermined the true intention and spirit behind B-BBEE, reducing the conversation about compliance to scorecards or mere empowerment. This particular approach to this policy should be buried. Large corporations and other stakeholders should also emphasise the strategic imperatives behind B-BBEE. If structured differently, we would see big businesses getting clearer innovations out of the related deals with government guaranteeing investment failures for example.
Whatever the weaknesses of big conferences like GEC are, they can however surface several real issues for policy discussion if facilitated the right way. One such interesting topic at the Cape Town instalment of the GEC (GEC+) was the topic on ‘entrepreneurial ecosystems’ brilliantly facilitated by Fredell Jacobs. Participants attempted to answer a question on how cities develop and become global players. For arguably one of the most prolific economists of our time, or at least the most academically cited in the discussion and maybe the only panellist that needed no profile description, Zalton Acs; the answer lies in two areas: tradable goods and demand! He articulated his argument by stating that one needs to create an ecosystem where any small business can emerge, even in places like Phillipi in Cape Town or Alexandra in Johannesburg. He suggests that by capacitating them to make “tradable” products and services through training and development programmes, and then facilitating the process whereby government guarantees “demand” by buying the local products for as long as it takes small businesses to stand on their own or development is prompted. Whilst the Acsian model makes a lot of sense to do the trick, we disagree in seeing the demand as being largely government-led.
The transmission thinking behind guaranteeing demand is powerful if you think about significant amount of resources that small businesses employ just to get one big order. It can take a lot of time and money! If they were to worry less about sales, and focus on improving their craft, the logic is that they would get better and better at what they do. Most importantly, they would explore diversifying their products by creating others. Finally, small businesses supported in this fashion would also improve the human capital of not only the founders, but also the employees. B-BBEE should be seen as playing that facilitation role between small businesses and demand in order to achieve the Acsian transmission described above. However big corporations should raise their hands higher than government to provide both the capacitation required to get tradable winners out of small businesses, and the scale of demand to grow them into medium size and hopefully high-growth prospects.
We must challenge ourselves to think of B-BBEE and small businesses as two strings in a much larger and interdependent tapestry of variables we need to equally get right, including the mindset of large corporations. My attempt in this article was to make such connections, not as solutions but to spark the conversation. Small businesses are vulnerable during early stages, but should nevertheless be viewed as powerful forces of new business energy and diversity from which innovations can stem. In a country where failure rates are staggeringly high, a laissez-faire approach to small business support will not do anyone justice. Instead, it puts South Africa at risk of having only large corporations who provide us neither the innovations nor the employment we need. The link between B-BBEE and Innovation is found in the diversity of thought, experiences and skillset that new forms of ownership and business interpretations black-owned businesses bring to the table. If we do not invest in the diversity and new innovations that B-BBEE, when done right promises us, we should pack our transformation bags and go home to nurse the prevailing equilibrium.