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Small businesses can help South Africa fight unemployment if they get proper support – study

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Small businesses need state support to impact economies. Getty Images

South Africa has an alarming unemployment rate of approximately 32.1%. Solutions have been elusive. The unemployment rate has been consistently high for decades.

Our research has revolved around entrepreneurship. We have examined the “liability of newness” related to small and medium scale enterprises and entrepreneurial development in general. In particular, we’ve looked at the differences between very new small and medium scale businesses, and those that have established themselves in the market place. Our aim has been to understand vulnerabilities, and what support is needed to ensure longevity.

In a recent study, we examined the relationship between globalisation – the integration and interconnectedness of economies, societies and cultures across the world – the development of entrepreneurship in South Africa, and unemployment.

The interaction between the three is key to informing what institutional support and policies should be put in place to create jobs.

We find that globalisation has a dual impact on entrepreneurial activity and development. On the one hand, it helps established businesses in creating jobs and reducing unemployment. With the proper support, globalisation can help new businesses grow into job-creating established businesses. This is done by giving local entrepreneurs new opportunities, such as trade, technology transfer, and access to new markets.

On the other hand, globalisation can dampen early-stage entrepreneurial activity. Local startups often struggle to compete globally.

These findings show that established businesses can help reduce unemployment. But new businesses need the right kind of environment if they are to become established job creators. A new business organisation is in its early stages of development; an established business has a proven business model.

This has important policy implications.

Integration into the global economy

Globalisation is a double-edged sword. It offers opportunities for prosperity as well as challenges.

On the plus side, developing nations that have proactively embraced globalisation have made remarkable improvements in living standards and economic advancement. This holds true for China and India following their adoption of trade liberalisation and other market-oriented reforms.

Then there are higher-income countries such as Korea and Singapore, which were previously impoverished until the 1970s. By integrating into the global economy, these countries have:

  • attracted foreign investment

  • adopted new technologies

  • broadened their export horizons.

However, there is also compelling evidence that globalisation can cause harm. Lower income countries are particularly vulnerable. For example, multinationals can reduce the entrepreneurial prospects of local companies. Walmart’s entry into India’s retail sector, for instance, put immense pressure on local retailers who struggled against its competitive advantages. This shows that globalisation has to be navigated carefully.

This is the heart of our study. It shows that entrepreneurship is negatively affected if a country doesn’t put in place robust support systems for entrepreneurs. They need access to funding, simplified regulations, infrastructure, training programmes, market access assistance, and legal protection.

When these conditions aren’t in place, new business organisations can’t get off the ground or make progress towards becoming better established.

But under the right conditions, globalisation fosters the conversion of new businesses into more established ones. Good environments that support businesses in making the transition empower local entrepreneurs to use the opportunities created by globalisation.

Next steps to reduce unemployment

Our findings provide insights into how established businesses can help reduce unemployment and what needs to happen to enable their establishment. Strategies should therefore be developed to support their growth and sustainability.

We recommend a number of interventions, like providing:

  • Access to essential resources such as credit. For example, Germany has a strong financial system that supports its entrepreneurs. Government programmes such as the KfW Entrepreneur Loan and the ERP Start-up Loan offer low-interest loans and guarantees to entrepreneurs.

  • Reliable infrastructure. This means making sure the essential physical and organisational structures that support business activities are in place. Examples include transport networks (roads, railways, ports), communication systems (internet, phone lines), and utilities (electricity, water supply).

  • Social protection and inclusive growth. This includes skill development, microfinance initiatives, and targeted tax incentives.

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