Launch of White Paper to assess effectiveness of ESD in South Africa

South Africa appears to have a relatively robust financial and capacity-related development landscape for SMMEs. For more than twenty years, various enterprise and supplier development (ESD) programmes and initiatives have been implemented by government agencies, private sector organisations and other role players to support the growth and development of SMMEs, with a specific emphasis on historically disadvantaged individuals. These programmes have long been heralded as a key driver of economic development, job creation, inclusive growth and fostering entrepreneurship.

Yet despite being valued at between R20bn to R30bn per annum, inadequate attention has been given to ascertaining whether these programmes lead to SMMEs’ long-term sustainability.

It is for this reason that small business development specialist, Edge Growth, approached the Responsible Finance Initiative and the Centre for Business Ethics at The Gordon Institute of Business Science (GIBS) last year to assist in thorough research into assessing whether ESD efforts are achieving their mandate of enhancing the development of black-owned SMMEs in South Africa.

Today saw the official launch of a white paper entitled “Enhancing Enterprise and Supplier Development Ecosystem Effectiveness in South Africa”.

Authored by The Gordon Institute of Business Science’s Professor Kerrin Myres, Anne Cabot-Alletzhauser, Amanda Khoza and Professor Anastacia Mamabolo, this research reasserts the need for more impact measurement metrics and better benchmarks to assess “success”.

Cross-sectional qualitative research was conducted between October 2023 and March 2024, consisting of 41 interviews across the full enterprise and supplier development programme ecosystem.

Some of the many key insights included:

Varying degrees of commitment to transformation result in inconsistent levels of compliance and engagement with ESD programmes

While some respondents reported that transformation was considered an imperative for the country’s economic development and for the growth and stability of industries, others had somewhat of a cynical approach which has led to a compliance mindset. This insight suggests that ESD effectiveness begins with the overall business philosophy regarding the role of business and the need for a high level of commitment to transformation as a mechanism for bringing about a more equitable society.

Business-like approaches to ESD offer business benefits and help address implementation challenges

Where corporates recognised the strategic significance of ESD, implementation efforts were broadly and deeply integrated into the core business model, and a long-term view was adopted, ESD was more likely to be effective. Those corporates where ESD is either entirely separate from the business operation or at best engage at arm’s length, seemed to result in short-term ESD programmes that were more tactical in nature and failed to generate much in the way of real impact. Here it is clear that an ESD strategy which is linked to the corporate strategy and integrates the needs of the business directly into the ESD programme, is associated with enhanced effectiveness.

The ESD ‘ecosystem’ is not an ecosystem at all – it is corrupt and competitive

One of the more alarming findings of this research was the feedback by respondents who noted that the sector is fraught with corrupt activity, both overt and implicit. Many corporates, BDSPs and many SMMEs act in their own interests rather than contributing to a common vision of transformation, with little regulation of the ESD ecosystem and limited collaboration between the public and private sector.

Here ESD effectiveness could be improved through an enhanced, well-functioning and collaborative ecosystem that is able to self-regulate and share best practices and data about what does and does not work, along with a code of ethics and quality standards.

SMMEs are generally disinterested in and cynical about ESD but some are engaged and appreciative of the opportunity

Many of the entrepreneurs who started and ran businesses were not particularly attentive to the efforts of the ESD ecosystem players to support them and even appeared to lack knowledge and

understanding of the scorecards intended to benefit them. Here, listening to the voice of

South African SMMEs directly, rather than assuming that we know what they need, will lead to better-designed, executed, and evaluated ESD programmes.

These and the many other insights gained from this research put on paper the steps and action points needed to enhance the effectiveness of ESD programmes. Edge Growth believes that SMEs play a critical role in shaping the future of Africa in general and South Africa specifically and funding this research represents the starting point for much-needed collaboration.

“This research is a good start to crucial conversations and decisive action within the SME development sector. There has been a lot of impactful work done by corporates, SMEs and business development service providers. Ultimately, what this research indicates is that we can both recognise the achievements made within the ESD space to date, as well as address the ongoing work required to create a sustainable, long-term impact for future generations,” says Nabeela Vally, Head of Business Development at Edge Growth.

“At Edge Growth, we are honoured to have ignited the spark for this pivotal research to address whether ESD programmes are delivering what policymakers, sponsors, and programme recipients require, as well as whether there might be more constructive ways to reach those critical ends. We understand the immense value in creating more job opportunities by bridging the gap between businesses and entrepreneurs, and we want to know what is going on and how we can fix it,” says Stuart Townsend, a Director at Edge Growth. “We look forward to collaborating more to better catalyse change within the ESD and SME development landscape”.

Click here to see the full white paper.