The South African story has been that of a high Gross Domestic Product (GDP) growth, primarily driven by the growth in the financial and services sector. However, not all the sectors of the economy have grown at the same pace and this has been reflected in the low growth in the agricultural output, high unemployment, and huge disparities in income distribution as well as inequality. A growth that is not inclusive affects the society as well as the economy, and it contributes to inequalities which result in negative social outcomes. On the other hand, inclusive growth promotes economic growth by broadening the base for domestic demand and expanding opportunities for an increased participation by Small and Medium Enterprises (SMEs) in the economy. Therefore, the role of the private sector in promoting inclusive markets becomes both a social and economic imperative, since onus sits with the private sector to extend economic opportunities to small producers and SMEs.
UNDP in South Africa has pioneered the efforts of coordinating the private sector to contribute to the development of South Africa, by establishing what is now known as the UNDP-Private Sector Development Forum. In May 2012, UNDP’s efforts culminated in the signing of a Memorandum of Understanding with the Black Business Council (BBC) and Business Unity South Africa (BUSA). BBC and BUSA are the two of the largest federations representing both small and big businesses in South Africa. One of the main objectives of the UNDP-Private Sector Development Forum is to promote inclusive markets by integrating SMEs in the value chains of big corporates. The establishment of the UNDP-Private Sector Development Forum is part of UNDP’s programme to support the Government of South Africa’s objectives of inclusive growth by increasing participation of the poor in the growth process through among others expanding opportunities for youth employment, and stimulation of rural development.
In line with the Government of South Africa’s goal of supporting small business as articulated in the National Development Plan, New Growth Path and the Industrial Policy Framework, UNDP has developed a Supplier Development Programme (SDP) to provide technical assistance to SMEs in South Africa. The SDP is an approximately 9 - 10 month technical assistance, in-depth intervention that provides mentorship to selected SMEs or agribusiness cooperatives that are suppliers or can potentially be suppliers of larger corporates. This technical assistance is aimed at creating a win-win situation for both the large corporate and its suppliers by enlarging the volume, quality and punctuality of sales to the client company, also called “tractor” and therefore, to create employment.
In most cases, the provision of technical assistance results in the SMEs or cooperatives increasing their volumes of sales to other companies beyond the tractor one. The most important characteristics of the SDP methodology are that it encompasses a very thorough diagnosis of all the small firm’s management processes, and that it allows a long period of interaction between the purchasing department of the large company and the SME or cooperative assisted, as demonstrated in figure 1 below. At the end of the SDP period, the SME has reached on average a 6% growth in employment, and 12% growth in sales. (These figures are usually much higher in the case of agribusinesses). In all sectors, the in-depth technical assistance and mentoring completely renew management processes and therefore can be expected to yield even higher results after 2 or 3 years of completion of the SDP methodology.
The SDP may be viewed as a long term intervention, since it is mostly concerned with productive employment rather than immediate direct income distribution as a means of increasing incomes for those excluded. After the capacity of national partners had been developed by UNDP’s programme, through the methodology and training of a group of 40 SDP specialists, it is estimated that the programme will provide support to approximately 400 SMEs per annum.
As highlighted in the 2012 JP Morgan study, 10 percent of South African small businesses employ between 3-10 employees, whilst 22 percent create 1-2 employment opportunities and 67 percent does not create any employment at all. With the UNDP Supplier Development Programme in place, it is anticipated that each SME will on average increase employment by 6 percent and its sales growth will increase by 12 percent.