Open the Funnel

In his State of the Nation address (SONA) ), Jacob Zuma said that the economy had been growing at an average rate of 3.2% per year between 1994 and 2012. But the problem with averages is that they hide the full story. Post-recession, South Africa’s GDP growth rate peaked at 4.8% Q/Q (or 3.7% Y/Y) in Q1 2011; which was fairly decent considering we averaged 5% growth between 2004 and 2007. However, since that brief peak, our GDP has gradually slowed down to 0.7% Q/Q (or 1.8% Y/Y) for Q4 2013. Much lower than the average. Take a look at the downward trend below.

SA GDP Growth

But slowed growth was to be expected in face of strike action, talk of nationalisation and general government mismanagement from the fishery industry to education. Ultimately, it leaves us sitting with an unemployment rate of 24% which just happens to be about the same unemployment that existed in 2010 when the New Growth Path (NGP) was unveiled by Ebrahim Patel. The NGP was to produce 5 million additional jobs by 2020. Then in the 2011 the National Development Plan was introduced, its aim is to create an additional 11 million jobs by 2030. See how the two tie into each other here.

In order for this to happen the economy has to grow at a rate of over 5% per year. One of the key growth drivers to help us achieve this will be development of the small business sector and the government thinks so too or at least they did. Back in 2011’s SONA Jacob Zuma said, “The small business sector is a critical component of the job creation drive.”

Since then work has been done, such as the the formation of The Small Enterprise Finance Agency to centralize funding, the reduction of documents required for exporting and important, the easing of the tax burden and simplifying the legislative requirements for registering a company. Go here for more detail on these.

It’s that last one though that I would like to make my final comments about; registering a company. Despite having simplified the process there is still room for improvement. According to the World Bank, the shortest possible period in which you can register a company in South Africa is around 19 days at a cost of R175 and after completing 5 procedures but that’s if everything goes your way.

All three of these elements, time, cost and the five separate procedures create a barrier to register. In fact our DB Rank for ease of registering a company dropped from 56 to 64 between 2013 and 2014 despite the simplification of legislative requirements. I propose that we look towards the likes of Rwanda and New Zealand who lead Africa and the World respectively.

Each makes use of an online registration process that combine several procedures in one. In New Zealand you can register a company in under a day at a cost of NZD160.22. But in Rwanda the cost of registering is wavered if done online and it will only take a day. This was a part of the reforms they implemented that resulted in them being acknowledged as a top global reformer in the World Bank Doing Business Survey 2010. The result of all their reforms was an average growth rate of 7% per year between 2003 and 2010. Read more about Rwanda’s performance here.

Now, I am not saying that making it easier to start a company is solely responsible for this growth but it is definitely one of the the first steps. If we need to develop the small business sector let’s not turn people away at the first step. After all, only a subset of small businesses actually drive growth. Finding and developing these high growth potential businesses is a numbers game and opening the size of the funnel is a smart move. It’ll be interesting to see if those delivering the post election State of the Nation address agree. Here’s holding thumbs that they do.

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