Business Environment in the Eastern Cape:

1. Business Environment in the Eastern Cape:

2. Contents • Background and context • Character of the SMME sector • Institutional framework for Enterprise Development • Key programmes and interventions • Regulatory environment • Challenges

3. 1.Background and context Policy context: • Efforts are made to ensure implementation of programmes supporting SMME’s is aligned to new policy shifts and strategic directions such as NGP, IPAP 2 and 3; NDP; PIDS etc. Legislative context: • The following pieces of legislations guides the implementation of support programmes for SMME’s (white paper 1995; small business act 1996 amended 2004; BBBEE act 2003 amended 2012; ECDC act 1997)

4. 1. Background and context ..cont…. • The Eastern Cape accounts 7.8% of the total national economic output. According to Global Insight (2009) finance and community services contribute slightly more than 50% of the provincial economy. • Despite significant shifts in the global economy, the manufacturing sector remains the third largest contributor at 17% followed by trade at 14.2% in terms of GVA contributions. • The contribution of the agriculture remains relatively modest at 2.1% when compared to the mining contribution of 0.1%. • The provincial economy performed relatively well during 1998 to 2000 and 2002 to 2006 registering growth rates from -0.44% to 4.34 % and 1.66 % to 5.23 % respectively. • Spatially the Nelson Mandela Bay Municipality and Buffalo City Municipality account for three quarters of the provincial Gross Value Added contributing 59.5% and 25.1% respectively. Both regions account for 84.6% of the provincial manufacturing output. • In terms of the labour market the community services sector (government services) remains the largest employer at 35.2% (higher than the national average of 22.9%). The Trade sector is the highest contributor in terms of productive sectors to employment, accounting for 19.0% and followed by Manufacturing at 12.0%.

5. 2.Character of SMME sector • SMMEs play a very vital role in the SA economy, considering the following estimates of their contribution to: • GDP: estimates range from 36% to 45%, compared to an estimated 33% contribution in 1995 and 35% in 2007; targets of SMME future contributions to GDP range from 60% to 80% over the next 10 to 15 years • Private sector employment: estimates range from 56% to 61% • Gross capital formation: at around 25% • Exports: contribution is markedly low, as an estimated 2% of SMEs are export-oriented

6. 2.1 Provincial Structure and Performance of SMMEs: • Stats SA (2007) puts the number of SMMEs in the province at 261 000 – the third largest SMME market after Gauteng and KwaZulu Natal. • According to the DTI’s SMME Annual Review (2007) the Eastern Cape accounts for 5% formal SMME activity and 13% of informal SMME activity in South Africa.

7. 2.1 Provincial Structure and Performance of SMMEs:…..cont.. • The South African Small Business Index estimates the provincial share of the SMME market at only 7%. • According to the DTI/ECDC Survey (2003) about 65% of the provincial small business sector is located in the Amathole, OR Tambo and the Nelson Mandela Bay Metro. • About 51% of small businesses in the Eastern Cape are located in rural areas, being largely micro and survivalist in nature.

8. 2.1 Provincial Structure and Performance of SMMEs:…..cont.. • The International Trade Centre (SME and Export-led Growth) suggests that the Eastern Cape’s structure of the small business market is such that the Eastern Cape: •Has the third largest number of survivalist enterprises (17% of national market); • Has the fourth largest number of micro-enterprises (10%); • Has a relatively small number of very small enterprises when compared to Gauteng, Western Cape and KZN weighing in at 42%, 16% and 15% respectively; • Has a low percentage of small and medium-size enterprises whereas Gauteng, KZN and the Western Cape account for 46%, 16% and 12% respectively.

9. 2.1 Provincial Structure and Performance of SMMEs:…..cont.. The ECDC/DTI (2003) estimates that: •Micro enterprises make up to 91% of all enterprises in the Eastern Cape; •Small enterprises make up to 8% of all enterprises in the Eastern Cape; •Medium and large enterprises make up the balance of 1% of enterprises Collectively, SMMEs contribute 35% of the provincial GGP and 54% of employment as indicated below (ECDC/DTI 2003): •Micro enterprises account for 6% of GGP and 17% of employment; •Small enterprises account for 14% of GGP and 16% of employment; •Medium enterprises account for 15% of GGP and 21% of employment! Large enterprises contribute about 65% of the total economic output of the province.

10. 2.2 sector profiles

11. 2.2 Sector GVA’s contribution at constant 2005 prices for EC’s municipalities, 2012

12. 2.2 Sector GVA’s contribution at constant 2005 prices for EC’s municipalities, 2012

13. 3.Integration of institutional initiatives and delivery mechanism Horizontal and vertical issues of integration: • Policy alignment: • Review of the SMME strategy to ensure alignment and integration with other policy initiatives e.g. NGP, NDP; IPAP 3; national informal business strategy etc. • Involvement of the local municipalities in the roll out of the red tape reduction programme to ensure compliance to legislative requirements e.g. by laws and municipal ordinances that may serve as constraints for business development. • Stakeholder coordination • Coordination of policy implementation through Provincial SMME Forum; Interdepartmental Co=operatives coordinating committee; provincial income security (economic transformation committee) • Replicate the same structures at district and local levels to ensure participation of Municipalities through the existing LED Forums. • Institutional arrangements : • Provision of education and training to cooperative enterprises through IFCD • Fast track capacity building and business support to cooperative enterprises through CDC’s • Roll out of the ‘one stop shops” through strategic collaborations with SEDA and SEFA • Sector focused incubation programmes e.g. ICT; manufacturing, construction; aquaculture; agro processing etc.

14. 4. Key programmes & interventions

15. 4. Key programmes & interventions….cont….

16. 4. Key programmes & interventions….cont….

17. 4.1 Interventions Sector Clustering: • The Eastern Cape economy is largely dependant on a few key sectors namely: • Automotive Manufacturing. • Non- Automotive Manufacturing (NAM) • Agriculture • The automotive sector is a dominant employment creator. • Rising import competition and inputs costs are affecting these sectors significantly. • Shrinking markets

18. 4.1 Interventions cont. Buy E.C: campaign • Purpose • Buy Eastern Cape Campaign is to create demand side mechanisms and incentives that would increase levels of localised production. • How • Leverage the provincial spend across all departments to build on exiting manufacturing capability and enable small scale investment in these sectors. • Supply Chain Management • Transversal Contracts, take off agreements, Contract specifications, Contract management, opportunity/ commodity analysis, provincial spend analysis. • Establish supplier development mechanisms and incentives to stimulate these sectors. • What type of incentives would be favourable?

19. 4.1 Interventions cont. Buy E.C Campaign • Approach • A multi-level approach have been adopted to kick start the initiative • Baseline Study have been initiative to assess the provincial government spend across ‘2’ financial years (FY11/12 to FY12/13) • Assessment on expenditure on goods and service in the Eastern Cape. • Leakage factors • Supplier Development • The department have partnered with EC business chambers (FABCOS, NAFCOC, Border Kei & NMBBC) for the establishment of interventions to support existing enterprises operating in the manufacturing sectors

20. 4.1 Interventions cont. Jobs fund: The primary mandate of the Jobs stimulus Fund is to incentivize the creation of new jobs located within the Eastern Cape by attracting, sector specific, catalytic investments which stimulate sustainable new jobs across the value chain. Focus on industrialized jobs The oversight function of the Fund l focuses on the creation of “real” and sustainable jobs.

21. 4.1 Interventions cont.Jobs stimulus fund • A total of 101 companies were approved to a tune of R69 .9 Millions • A Total of R34 Million was disbursed to 74 of the 101 companies • A total of 6990 jobs were created through the job stimulus fund

22. 4.1 IMVABA- Number of beneficiaries • Since establishment 98 Coops have been approved for R56 Mil • Since establishment R36 Million has been disbursed • Technical skills training was provided to 48 cooperatives: • Food Health and Safety standards • Governance and Leadership • Occupational health and safety • First Aid Training • Training on Crop production; livestock production; Broiler production, piggery production; honey production

23. 5.Regulatory environment • Supported 2 pilot sites for red tape reduction in 2012/2013 (BCM and Lukhanje LM). • Processes are underway to roll out to for Municipalities for 2014/2015. • Regulatory impact assessments to be conducted in conjunction with Municipalities. • Sharing of lessons learned during the pilot phase is very critical for a corporate governance and benchmarking.

24. Key Challenges • 30 day payment of SMME’s is still a challenge for sector departments and municipalities. • Business infrastructure remains a hassle especially for small enterprises; • Reluctance to enforce some of the by laws serve as hindrance for growth of the SMME sector. • Cumbersome administrative processes continue to negatively affect the growth of the SMME sector

25. THANK YOU!DANKIEKEA LEBOHAENKOSI