One of the key messages to emerge ahead of the review of South Africa’s sovereign credit rating is that the country needs to outline the practical actions it will take to reignite growth, which has more or less petered out in recent years, with few expecting the economy to expand by better than 1% this year.

Indeed, weak growth, along with South Africa’s current fiscal constraints and political uncertainties, will be key considerations in whether the ratings agencies decide to downgrade South Africa to junk status.

It has also become apparent that the actions need to focus primarily on domestic constraints to growth, with the external factors, such as the plunge in commodity prices, unlikely to offer much support in the near term.

A particular area of focus, therefore, is on enterprise development and what stands in the way of the creation and sustainability of small businesses. There is little question that, as part of the response plan, South Africa will need to show evidence of enhanced and upscaled business incubation programmes, which is seen as both a gap in the current small-business landscape, but also an import opportunity.

Small Business Development Minister Lindiwe Zulu said recently that South Africa could no longer operate on the basis that a business is guaranteed to survive if it is only provided with financial or nonfinancial support.

Speaking at the inaugural South African Business Incubation Conference (Sabic), Zulu called for increased “handholding”, or guidance through business incubation to ensure that small businesses evolve into medium-sized businesses with the potential to tap into global value chains.

Sabic was hosted by the Small Enterprise Development Agency (Seda) and discussed key issues, such as business incubation policy coherence between the relevant national departments, funding models, technology commercialisation, role of academic institutions in the incubation space and the creation of national, regional and international technology incubation networking forums for the public and private sectors.

Highlighting the conference theme of ‘Incuba- tion as a Vehicle for Economic Prosperity’, Zulu said the Department of Small Business Develop- ment (DSBD) had recognised the need to develop a new policy framework for re-energising and repositioning business incubators to meet critical challenges for national development.

The department had also recognised the need of bringing this new policy to fruition . . . “to foster a conclusive environment for the development of business incubators in South Africa,” she added.

The DSBD would, therefore, profile and place on the national agenda the vital significance of business incubation to support and sustain not only the small and medium-sized enterprise sector but also the economy, Zulu said.

The DSBD’s view was that the new policy framework for business incubation must evolve to situate business incubators at the heart of a reframed development agenda for innovation in South Africa, Zulu said.

Additionally, the new national incubator policy must be informed by the lessons of international best practices and adapted to suit local conditions and challenges.

South African Deputy President Cyril Ramaphosa, who also attended the conference, stressed that business incubation is considered to be one of the most dynamic and successful measures for supporting early-stage commercial enterprises.

Think Small
“It’s the backbone of our radical economic development programme and it is through small business that we . . . want to radically change the trajectory of our economy. We place the hopes of our nation for a thriving inclusive economy on the success of small business,” he said.

With business incubation in South Africa, which “has an uneven history, with much of what is known as formalised business incubation models based on intermittent industrial hives and unsustainable separate development architecture”, Ramaphosa stressed the need for a new model for such incubation, based on strategic government intervention, coordination and redistribution.

He suggested that such a model must also incorporate the achievements, resources and capabilities of private and nongovernmental agencies.

Ramaphosa added that government’s role could include building critical infrastructure to create space for research and innovation.

Though the South African landscape of business incubation remained dominated by the Seda network of business incubators, there had been a welcome increase in the role-players involved in establishing or operating local business incubators, which included the private sector, major banks, as well as local and provincial government, Zulu emphasised.

Since 1994, South Africa has created an extensive network of more than 110 business incubators, with 78% of these government-funded.

New types of initiatives include the DSBD and Seda-facilitated National Gazelles programme, which will support the growth of 40 high-potential small and medium-sized enterprises (Gazelles) a year “through an integrated package of benefits, business opportunities and incentives, practical and effective business training and support with strong private-sector involvement”.

Finalisation of the list of Gazelles is under way, with the next window of the programme to open later this year.

Further, the DSBD has been allocated R150-million under the Enterprise Incubator Programme for small businesses and cooperatives to support 30 incubators over the Medium Term Expenditure Framework (MTEF). The programme is expected to be piloted in the 2016/17 financial year.

Following this allocation, Finance Minister Pravin Gordhan announced during his 2016 national Budget speech that government had earmarked R475-million for the DSBD to help small and medium-sized businesses and cooperatives.

The National Development Plan Vision 2030 also sets forth a target of creating 11-milllion jobs by 2030, of which 90% are expected from small, medium-sized and microenterprises (SMMEs). These were ambitious targets set for SMME development with a new growth path, Zulu said.

Nontraditional Incubation
Amid ongoing challenges of poverty in South Africa, Zulu highlighted the urgent need for further innovation and experimentation in relation to agriculture and agribusiness incubation projects.

South Africa Essential Oils Business Incubator (Seobi) CEO Ellis Levember agreed, highlighting the incubator’s focus on disruptive innovation in the product value and market supply chains in the agricultural production of essential oils to transform rural farmers into the largest essential-oil producing network in South Africa.

Levember estimated that a 20 ha farm, which produced 6 t/y of export-product essential oils, such as rose geranium, resulted in about R138-million return value a year.

Yet, it was imperative to move the narrative and policy attention of business incubation beyond agriculture and manufacturing, Zulu suggested.

“Alternatively, the policy should recognise innovation in service sectors and in corporate business incubators for service-sector enterprises,” she recommended, adding that, with the rise in tourism and creative industries, these nontraditional sectors of business incubation inventions needed further exploration.

Zulu said that the new innovations for business incubators could be fostered through national, provincial and local government working together to incorporate proposals for business incubation as part of integrated development plans for place-based economic development.

Department of Trade and Industry (DTI) COO Jodi Scholtz subsequently remarked that, with the DTI focusing on incubation to support industrialists, key plans for the DTI include the launch of socioeconomic zones (SEZs) and ten industrial parks. “The DTI intends to ensure that incubators are located and co-located in these SEZs and industrial parks, thereby providing entrepreneurs with access to technical and support management advice, as well as production advice.”

Challenging Themes
Key focus points for further business incubation development should include ongoing consultation with sector players and the provision of space for such incubation, as well as sustaining improvement in networks and soft services offered in incubators, Zulu suggested. “This requires the continuous assessment of the availability of skills and performance of business incubation managers.”

While South African Business and Technology Incubation Association chairperson Michael Reddy agreed that the education of business incubation leaders and employees should be a key focus, he underscored challenges, which included “red tape”, a lack of extensive funding and market access for incubators and incubated companies.

Despite citing standardisation of business incubation regarding accreditation policies as another key challenge, Reddy acknowledged the DTI’s pledge to action in supporting incubation through the development of the South African Business Incubator Establishment Handbook, which was launched in May 2015.

The handbook helps to introduce the basic concepts and issues involved in business incubation for all stakeholders that aim to establish incubators in their communities.

Notwithstanding the need for an integrated national incubation policy, Reddy envisioned a “one size does not fit all” policy, which could suit incubators in different regions in South Africa.

He further insisted on an enabling environment for business incubators without overregulation or “death by compliance”, which currently resulted in incubators spending on average 25% to 30% of their operating budgets on compliance.

Industry players and entrepreneurs also underscored the need for business incubation to have a further reach into the provinces. They further highlighted concerns of job losses regarding the effects of the fourth industrial revolution, which builds on the digital, information technology and automated production revolution and is predicted to include cyber-physical systems.

Big Business Role?
Ramaphosa reiterated the need for established business to play a greater role in the development of small and medium-sized businesses to assist government’s efforts.

South Africa’s efforts must incorporate the informal economy, which continued to play a criti- cal role in the country’s economy, as it provided a critical and crucial buffer against high levels of poverty and unemployment, Ramaphosa said.

Currently, South Africa’s major business groups are undertaking an initiative to contribute senior- level expertise and investments to accelerate the growth of SMMEs, with business majors Discovery founder and CEO Adrian Gore and Bidvest founder Brian Joffe announced as co-conveners. More specific details about the initiative will be announced in the near future.

“If South Africa were able to effectively harness the skills and capabilities, resources, the procurement opportunities and networks of established business, we would not only change the face of small business [but also] ignite a revolution.

“We therefore call on the private sector, labour, government, academia and developmental organisations to build South Africa into a small business incubation nation,” Ramaphosa concluded.