Service SMMEs can fuel economic growth in SA

The importance of SMMEs to the African economy is well recognised. According to the Centre for Strategic and International Studies, eight out of every ten Africans are employed by some kind of micro, small and medium enterprise.

Traditionally, economists would downplay the importance of services in economic development and job creation. As the World Bank has noted, even though this sector is relatively labour intensive, many services tend to be localised and low-tech with little scope for economies of scale.

Conventional wisdom favours manufacturing-led development, which relies on international trade and capital investment to deliver productive growth and employment.

However, the economic output of the services sector in sub-Saharan Africa has grown rapidly in the last few years, outpacing the global services sector growth by a significant margin. According to Statista.com, services represent 58% of GDP and an estimated 41% of employment on the continent. In South Africa, this sector is the dominant job creator, reported to represent as much as 70% of all jobs.

An underlying driver of this trend is advancement in technology, which is transforming the growth and job creation potential of service SMMEs in Africa. This is true even for localised, lower-skilled services, such as home repair and maintenance, or beauty.

Aggregating supply and demand

“For 43% of our service providers, finding new customers is their number one concern,” says Sayo Folawiyo, CEO of Kandua.com, the business management software for small service businesses (also South Africa’s leading online marketplace for home services).

“This is why our primary focus is connecting vetted service providers with the people who need their skills through our online platform. Even though the service delivery remains tied to a specific location, SMEs no longer need to rely on word of mouth or physical proximity to grow their customer base, thanks to digital platforms.”

He explains that the benefit of digital platforms in matching demand with supply is evident across many different types of services, such as transportation, travel, and tourism or even arts and entertainment.

“A growing, more connected and more urbanised consumer market is increasing the number of customers who look for their next service provider online,” adds Folawiyo.

Productivity and paving the way to formalisation

While exact numbers are difficult to determine, the International Finance Corporation (IFC) posits that the continent is home to an estimated 44 million SMMEs.

It also notes that as much as 85% of SMMEs in South Africa are informal, which means that they tend to be unregistered, have casual employment arrangements and are unable to access external funding. Informality means that these businesses can’t access the institutional resources to help them grow or protect them from shocks, which also creates a precarious situation for their employees.

“Technology makes a difference here,” says Folawiyo.

“Paper-based processes and cash transactions are the norm for most service SMMEs. This makes for inefficient operations and a lack of visibility on business performance. We’ve seen how the introduction of simple mobile-based billing and expense tracking tools have helped some providers save up to eight hours a week. With better record keeping they are also building up a financial track record which may unlock access to finance in the future.”

Augmenting existing skills

Many service SMMEs exist as a vehicle for their owners to earn a living through a set of very specific skills, such as a traditional trade or an art. The challenge has always been that these entrepreneurs now also needed to become skilled business managers.

Folawiyo points out how technology gives them a helping hand: “The small businesses who are approved to join Kandua don’t need to build their own websites or calculate markups and discounts on their invoices – this is done for them by our platform. Similarly, an Uber driver doesn’t need to know all the addresses in the city or even how to read a map.”

“There will always be a demand for services that can or must be delivered in person,” concludes Folawiyo. “What will change is how technology enhances their ability to connect with and respond to their customers’ needs and run their businesses more efficiently and more profitably, unlocking their economic and job-creation potential.”

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