Overberg District Municipality and The SMALL ENTERPRISE

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seda investigation

Overberg District Municipality and The SMALL ENTERPRISE DEVELOPMENT AGENCY seda
SMME and second economy activities in the Overberg economy. Framework for a review of activities, issues and challengers.

14 FEBRUARY 2007 REV 1: FINAL COPY

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Contents

Page Number 3 4 4 5 6 6 6 7 7 8 9 10

1. Acknowledgements 2. Introduction 3. Investigation mandates 4. Questionnaire structure 5. Methodology 6. Results 6.1. 6.2. 6.3. 6.4. Results Overstrand Results Cape Agulhas Results Swellendam Results Theewaterskloof

7. Results summary 8. Conclusion 9. Recommendations 9. Annexure A. Range of questionnaires 1 – 26. 103 -105 Summary of questionnaires Overstrand 10. Annexure B. Range of questionnaires 27 - 51 Summary of questionnaires Cape Agulhas 11. Annexure C Range of questionnaires 52 to 70 Summary of questionnaires Swellendam 12. Annexure D Range of questionnaires 71 - 102 Summary of questionnaires Theewaterskloof
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1.0 Acknowledgements We acknowledge with gratitude the effort, co-operation and support received from the Community Development Workers of the Overberg. They diligently supported the project by doing the questionnaire interviews and returning the documents to us. The Community Development Workers (CDW) offered to be part of the development process by seda to assist with the growth of the second economy. In particular we thank Mr. Clinton Bronn (Manager: Overberg District Area) for co-ordinating the CDW’s and providing continuous support to the project.

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2.0 Introduction The Small Enterprise and Development Agency (seda) wish to establish the status of the second economy sector of the Overberg with the intention of implementing a national support network as stated in the National Small Business Amendment Act no 29 of 2004. The network is aimed at supporting service providers and small business. The Overberg District Municipality (ODM) encourages success and growth of its second economy but need to establish the status of the second economy in order to support seda. seda subscribe to the National Small Business Amendment Act no 29 of 2004 and below is a summary of its objectives and functions. 1. design and implement development support programmes. 2. promote a service delivery and support network for the growth and second economy to increase jobs and equity. 3. strengthen capacity to small enterprises: a. by assisting service providers b. to compete successfully both nationally and internationally and 1. implement national government policy 2. structure and implement a standard national delivery network for small enterprises and integrate all government funded support enterprises. 3. design and implement development support programmes. 4. establish provincial support structure for implementation of the mandate. The mandate from seda to the ODM is to determine the status of the second economy including the size, structure, dynamics and support needs. The ODM proposed that a representative sample survey assessment of the different segments of small business activities and sector involvement is undertaken. The data will be used to: 1. Develop and distribute a draft area report for discussion and input. 2. Deliver a final report after receiving consensus. 3.0 Investigation mandates The survey and report outputs are itemised as: a. Differentiation between needs of towns and sub-areas of ODM.
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b. Sector – specific breakdown of small business activities or involvement c. Main characteristics of second economy involvement in the region. d. Clarity about current access to small business support in the towns and sub-areas. e. Overview of unique local obstacles for faster small business (SMMS) growth. f. Media liason regarding process and output. g. Conducting stakeholder workshop to formally present the report. 4.0 Questionaires and structure Number of respondents: seda specified that a sample of 100 respondents be considered to provide the overview needed. In considering the geographic spread of the Overberg and the potential locations of the second economy it was decided to increase the respondents to 400. This will magnify the accuracy by four hundred percentage points. One hundred questionnaires were developed and each questionnaire would capture the data from 4 respondents. Copy of the questionnaire is shown in Annexure A. The questionnaire was approved by the ODM. The questionnaire captures the project mandates as separate sections and expanded to cover the entire region. These sections are: 1.0 Spatial Spread – to ensure the region was captured 2.0 Sector Involvement Patterns – to determine the types of smme business 2.1 Annual Turnover – to gauge the financial status of the second economy 2.2 No people involved – to identify the amount of human resources employed in smmes 2.3 Date Business started – to understand the longevity of the sector 2.4 Success rate % - to establish the satisfaction and success of the second economy 3.0 Basic Access to (national, provincial, local) SMME support – to determine the access to national initiatives to aid smme,s. 4.0 Existing SMME focused business or sector organizations – to determine the awareness of the sector regarding access to institutionalised businesses.

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5.0 Important SMME-development-related issues or problems unique to the ODM district – personalised comments and challenges facing the small business persons. 5.0 Methodology The questionnaires were numbered and allocated to specific regions. The amount of potential respondents were directed by the ODM. The ODM consists of the following regions: 1. Overstrand 2. Cape Agulhas 3. Swellendam and 4. Theewaterskloof. To ensure maximum exposure, most towns in the regions were surveyed. The questionnaire control breakdown is shown in the attached Annexures A, B, C and D. Community Development Workers were personally engaged through a management structure to distribute and capture the required data. An execution programme was developed and the completed questionnaires had to be returned on the due dates. They were fast-mailed from the regions to our office.

6.0 Results 6.1 Overstrand Responses: Twenty nine questionnaires were distributed amongst the CDW’s in the Overstrand region. Sixty-five owners of SMME’s responded. This amounts to half of the number of responses earmarked for the area. Six forms were returned without any feedback. Those polled in Gaansbaai feel that their business particulars and turnover figures should not be disclosed. These were the maximum amount of smme’s for the area. Details of Businesses: The majority of businesses in the Overstrand are sole proprietorships and newly established. Others have been in existence for a decade. Industries include retail, manufacturing and the service sectors. Annual turnover on average is at R30, 000 per annum. Most say that have had a little success with their venture. The owners rate their success at about 50%. Some of those questioned chose not to divulge this information.
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SMME Support: About 80% of the owners do not know of basic access to SMME support like the RED Door project and the Micro-Economic Strategy. Most are also not aware of existing SMME-focused organisations, such as banks and Private Credit Assistance. Those who are aware, however, say that they are unable to approach these institutions as “there is too much red tape involved”. Obstacles: A lack of adequate and appropriate business premises and a lack of skills training have been listed as obstacles to SMME development in the Overberg. A lack of access to capital and financial assistance has also been noted. Owners also speak of no support for SMME’s in the region. 6.2 Cape Agulhas Responses: A total of twenty-five survey forms were allocated to the Cape Agulhas area. Out of 100 potential responses, 85 people contributed to the study. Two of the forms were returned without input. Details of Businesses: Sectors polled include the clothing and textile industry, retail and manufacturing industries. Most have a minimal staff structure. Businesses date back to 1980, spanning until 2006. According to the survey results, the trading and manufacturing industries are of the biggest in the area. All rate their success at 40% on average. The owners refused to divulge their annual turnover figures. SMME Support: The majority of respondents are not aware of basic access to SMME support. The same applies with existing SMME focused structures. Respondents only know of banks as being an institution that can assist with financial needs. Obstacles: No access to capital and financial assistance has proved to be a hindrance to small business development in Cape Agulhas. A lack of skills training has also been noted as an obstacle. Owners add that there is also no initiatives and employment opportunities in the region. Many also offered no response. 6.3 Swellendam Responses: Nineteen questionnaires were distributed amongst CDW workers in Swellendam to survey the status of the region’s second economy. Of the 76 potential
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respondents, only 19 responses were noted. Six questionnaires were submitted without responses. Two forms were not returned. Details of Businesses: The businesses polled hailed from the retail, education, manufacturing, agriculture and trading industries. Annual income ranges between R2,000 and R200,000. The success rates of the respective business also vary as widely. It ranges from 20% to 100%. These ventures were started fairly recently, with the most established business coming into existence in 1986. SMME Support: Many of the respondents are not aware that they have access to SMME support at local, provincial and national level. Those that are aware know of the RED Door project, the Macro-Economic Strategy and Project Consolidate. Only a few are also knowledgeable of establishments who can assist with financial aid. Obstacles: The SMME’s polled say that a lack of skills training and access to capital is their biggest hindrance to development. They say they only earn enough to survive from day to day. A lack of initiatives, crime and no SMME support from the municipality has also been noted. Most of those owned surveyed, however, offered no comment in this regard. 6.4 Theewaterskloof Responses: Theewaterskloof is one of the biggest geographical areas in the Overberg District Municipality. Thirty-two survey forms out of 105 were thus earmarked for the region. Nine-seven people responded to the questionnaire out of a potential 130. 3 forms were returned incomplete. Details of Businesses: Those polled were mostly from the trading sectors. Others worked mostly in the Manufacturing, education and retail the service industries. An owner of a textile venture, which was started in 2002, employs 120. Another person in the Education sector says over 900 people are involved in their venture. On average, they have a turnover of R50,000 per year. Success rate amongst the business polled is 60% on average. The most established venture was started in 1988. Others were only recently established. SMME Support: Like in the other regions, the overwhelming majority of respondents in Theewaterskloof do not know that there is access to institutions who can aid in small business development. Similarly, most do not know that there are existing financial institutions that can provide financial assistance. Obstacles:
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Most of the respondents say that more skills training can largely boost small business development in the region. They say that this will better equip them to seek out business initiatives and opportunities. No access to capital is also seen as a stumbling block. Others in Theewaterskloof speak of crime hindering business establishment, as well as the lack of suitable equipment to ply their trade. 7.0 Results summary We have initiated to gather the response of 400 SMME’s in lieu of 100 needed in the seda contract since the geographic spread of the ODM could not be justifiably and accurately assessed. 1. The questionnaires were also personalised by the assistance of the CDW’s who has an intrinsic and enthusiastic interest in the final outcome and potentially be involved with the establishment of a second economy. 2. We also note for the report that the responses are all from Historically Disadvantaged groupings and that the established (previously advantaged) small businesses would generally not co-operate. 3. From the regional results of the questionnaires the following have been concluded: a. Response statistics b. Type of business and turn over c. Basic access to SMME support and business sector support d. Obstacles to SMME development Response statistics Half of the intended response was received. That is 200 smmes responded. This is double the seda needs but 50% of the intended potential responses. We deduce that there are less smme’s active in the ODM as predicted. b. Type of businesses and annual turn over. In the main, the business are survivalist orientated and active in the own resident environments. The type of businesses includes mainly: o Small scale trading – spaza shops, clothing, o Household small businesses – manufacture and sale of clothing, selling of fast moving consumer goods (FMCG) o Service industry – taxis, repairs, delivery services, domestic cleaners and gardening services. Total annual turn over per business ranges from R2500.00 to R150 000. We estimate the gross total turn over for the region is approximately R2.0m. c. Basic access to SMME support and business sector support
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Generally most smme’s are not aware of organisation specifically aimed at smme support. The Red Door initiative is virtually unknown. Instituitionalised businesses such as the commercial banking sector are unapproachable or not geared for easy access to funding. d. Obstacles to SMME development The following are recorded as quoted from the respondents: 1. lack of access to capital or funding in general 2. no skills training 3. no business training 4. no access to appropriate trading space 5. no access to markets 6. no access to equipment 7. cannot identify opportunities 8. high levels of crime 9. competition with established business and immigrants 8.0 Conclusion
The Over berg’s economy output value is approximately:R3.0bn (2001). From our results received the second economy contributes less than 0.1% to this. The second economy is also not integrated in the main economy, it is purely a survivalist environment created by poverty and desperation. The types of business are not necessarily profitable entities and generally operate as sole proprieties. It is not encouraged by the local businesses and trades in poor areas where the levels of income is limited or non existent. The majority of the businesses are not aware of access to SMME support such as red Door, 1000 x 1000 Challenge, Die Plek (Die Plaaslike Ekonomiese) Plan, Project Consolidate, PIMMS and the general economic strategy of the region. The table below indicates the sectors of economy and its contribution to the fiscals. Primary Agriculture Mining Fishing Forestry Secondary Manufacturing Electrical and water Construction Tertiary Internal trade & trade Transport and Communications Financial and Business Services CSP Government

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50% 40% 30% 1996 20% 10% 0% Primary Secondary Tertiary 2001

The second economy is not present in the primary sector, minimal presence in the secondary sector and not active or supported in the tertiary sector. An interventionist second economy strategy would be well received by the general population providing it proves a transformation from the survivalist mode to a sustainable and profitable scenario. 9.0 Recommendations Generally the Overberg Regional District does not have an established second economy and that the first economy is not orientated towards including the second economy. Small businesses in the Overberg operate in a survivalist mode as they do not have substantial turnovers or many employees. As a result, less than 0.1% of the Gross Geographic Product of the Overberg, i.e. R2.0m, Small business is an indicator of the condition of the whole economy. It also forms an essential part in the supply chain of larger and supporting operations. The following are recorded as quoted from the respondents: 1. It is recommended that financial institutions be more approachable. Owners of small businesses in the region say they are unable to garner financial assistance as there is too much ‘red tape’ involved in these agencies. They further note that is difficult to make profits as there is too much competition amongst similar retailers and operate in a purely survivalist mode. Skills training should be provided to owners of small businesses as well as to aspiring entrepreneurs. Basic book keeping skills, and that of sales and leadership and are also of importance. A further recommendation is to synchronize these training areas.

2.

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Employees have no business acumen, thus cannot take advantage of current ventures. It is suggested that the employees be given further training on effectively running businesses. 4. The owners of the small enterprises speak of a lack of adequate space to apply their trade. They say they make use of use makeshift and rundown structures and homes. This does not appeal to consumers. We thus recommend further development and the earmarking of designated areas for trade. 5. no skill and not equipped to take advantage of markets 6. makeshift thus cannot trade to full potential. 7. no business acumen to seize opportunities 8. curb crime 9. now separate trading spaces for different income levels. Immigrants trade differently. Addressing these issues will require effort by Government and State agencies, training institutions, by industry representative organisations, business themselves, and by emerging entrepreneurs. In some cases, this will require redistribution or rebalancing of resources, and in others it will require new invest ment.

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