Want to build the economy? Then watch where you spend your rand

“As South Africa’s unemployment rate has taken a further knock due to the unprecedented impact of Covid-19, more and more young1 people are desperate for employment opportunities.

These opportunities are increasingly likely to come from small businesses, not corporates or the Government. However, there is currently not enough of the right support being directed to small businesses for this to make an impact at the levels we need.

The economic recovery from 2021 is expected to continue in 2022, with the Gross Domestic Product growth expected at 2.1% and to average 1.7% over the medium term2, although the war in Ukraine and the looming global recession now put these numbers into question. Small businesses are widely seen as a major solution slated to deliver value to local economies by bringing growth and innovation to the community in which the business is established3. President Cyril Ramaphosa emphasised this during the 2022 State of the Nation Address, reminding us that around 80% of all the people employed in South Africa are employed in the private sector, and not the government. He confirmed that the key task of government is to create the conditions that will enable the private sector – both big and small – to emerge, grow, access new markets, create new products, and hire more employees4.

The same sentiment was echoed by Minister of Trade, Industry and Competition, Ebrahim Patel at the Black Business Council Annual Summit last year. He added, “Economic growth requires deeper inclusion so that our base of enterprise is widened. If we are to develop the national consensus on growth that we urgently need and the sense that we are in this together, it needs to be based on communities, the unemployed, workers, black entrepreneurs, women, young people and the rural poor seeing a path to jobs and prosperity5.”

Clearly though, given the dire unemployment numbers, this growth is proving difficult to achieve in practice, but there is still hope.

A strong move towards supporting local is emerging as the fragility of global supply chains exposed during the pandemic results in companies rushing to diversify critical supply away from a single source6. This has brought a greater understanding of the importance of home production into the supply-chain mix, which will be a relief for many countries, including South Africa, whose manufacturing sector has been decimated by the concentration of production in economies such as China.

South Africa’s incentives for local production via the BEE codes will be an added driver here, but where local production has been decimated, much support will be needed to rebuild local supply that is reliable and cost-effective.

There is a second reason for developing local supply chains, one that all citizens, not just corporate procurement professionals should be aware of and that is the exponential impact of buying local and supporting local businesses – namely the ‘multiplier effect’ which measures the number of times a Rand circulates within an economy. By purchasing food and other goods that are produced locally, money is retained in the community and its value is ‘multiplied’ which in turn helps create and retain valuable jobs, support families and strengthen community well-being. By supporting small independent businesses in our community and encouraging citizens to trade with other local businesses using local collaboration platforms, local discount cards, and pleasurable local entertainment will build stronger, supportive human communities, generate local jobs, and ensure that our money circulates so that ten families can benefit from every R10 that enters the system7.

Conceptually this justifies localization: spend your money locally and those recipients will have money that they, too, can spend locally, leading to a single Rand having a greater impact than if it were spent just once.  For this we need to support a viable network of small businesses that are (or aim to be) world-class and well-priced – providing consumers with the personalisation, the local style, innovation and the value that they cannot get from the mass malls.

Underlying this challenge and one that negatively impacts our society as a whole is the extreme concentration of wealth in the hands of a few and the resulting inequality it represents. As it currently stands, South Africa is the world’s most unequal society with the worst GINI coefficient, (63% ration in 20228), which expresses the gap between the incomes of the richest and poorest people. This gap is partly a legacy of apartheid structures, whereby a few large companies traditionally dominate the economy and make it extremely difficult for new entrants to break in.

A powerful solution to reduce this massive inequality is the development of a thriving small business sector (that missing middle), that enables the creation of inclusive wealth and the growth of a healthy middle class.

It’s this deeper understanding, that ‘buy local’ is not merely about national pride, but a core lever to change the economic future of the country which is critical – that by changing the way we spend our money we not only just supporting local businesses, but actively supporting local jobs, driving inclusive wealth creation, and a move towards a GINI ratio of 0.

There are corporates that have embraced this and are actively creating a supportive environment for local businesses such as the Victoria and Alfred (V&A) Waterfront, which supports over 400 Small and Medium Enterprises (SMEs). According to their Head of Social Impact & Food Ecosystem, Henry Mathys, it is critical for corporates to understand that they can have a huge impact on the community and how shared value strategies empower small businesses.

“We have placed pragmatic approaches in place to build a pipeline for small businesses. For example, for the food sector, our goal is to be ethical, sustainable and support health and wellbeing, but also support diversity and inclusion.”

Actions such as these, which actively support the growth of an inclusive, thriving economy will help mitigate the country’s three most dominant and urgent challenges of unemployment, inequality, and poverty, and which we as Fetola, play an integral role in driving the change by helping build ecosystems of thriving small businesses, that last.

If we are to make a dent in this triple threat, we need to find ways to encourage all members of the ecosystem, from individual citizens, corporates, and businesses, to investors to play an active role in empowering local entrepreneurs and small businesses, because only when we support the success of our local small businesses, will we create inclusive wealth, build job opportunities and improve the overall economic and social health of the country.


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About the Author:

Terrena Rathanllal is a senior Media Officer at Fetola, a leading provider of scalable, world-class entrepreneurial support programmes for African entrepreneurs. Helping people build businesses that last through scalable solutions that deliver social, environmental and economic impact. Fetola means “change” in Sesotho – and they aim to empower people by supporting the growth and development of sustainable, empowered and thriving small and medium enterprises (SMEs) at scale.

Thank you for reading this article. Terrena regularly writes about small business development, sustainability and circularity, and has a passion for effecting scalable impact at the ecosystem level. To receive updates, please sign up here.