CHAPTER 1 OVERVIEW OF THE STUDY
INTRODUCTION
The development and growth of small, medium and micro enterprises (SMMEs) can play an important role in the economy of a country. In the current economic situation in South Africa people are unemployed and small businesses, especially growing business ventures, create job opportunities (Nieman, 2006:10). The Cape Winelands District Municipality (CWDM) in the Western Cape established an Entrepreneurial Seed Fund (ESF) to assist SMMEs to access seed capital. Seed capital can be defined as capital for small businesses in their start-up stage which will eventually reach the growth stage (Scarborough et al., 2009:492). The growth stage in a small business is measured according to the changes in sales, assets, employment, productivity, profits and profit margins (Olawale & Garwe, 2010:2). The Seed Fund has been established to assist SMMEs in accessing funds, to provide business and skills training to entrepreneurs through the CWDM Small Business Support Programme, to provide mentorship to SMMEs, and to create business linkages through identifying procurement opportunities and engaging with established businesses (CWDM ESFP Evaluation Report: LED Projects 2005-2009,2010b:3). This was in response to the growing socio-economic disparities in the region and to provide local citizens with an opportunity to proactively participate in the mainstream economy as per the Framework Entrepreneurial Seed Fund Programme 2005/2006 (CWDM, 2005a).
The ESF was established in 2005/2006 by the Local Economic Development (LED) unit of the CWDM. This was based on feedback from the CWDM Small Business Programme which offers business training, mentorships and business linkages. Feedback received from SMMEs included difficulty to access seed funding in order to purchase equipment and supplies and lack of support from institutions such as government and the private sector for initial operating costs. The framework and process plan for the Seed Fund was approved by the CWDM in the 2005/2006 financial year. A financial year means a year
ending on 30 June of each calendar year as set out in the Municipal Finance Management Act) (56 of 2003) (RSA, 2003). The initial budget approved in 2005/2006 was for an amount of R 207 000.00 which benefited 26 SMMEs. Currently, the fund has grown to R1, 7m in the 2010/2011 financial year of which 80 SMMEs benefitted from the fund as stipulated in the CWDM Project Implementation and Management Budget of 2010/2011 (CWDM, 2010c:3).
BACKGROUND TO THE RESEARCH PROBLEM
The purpose of the Seed Funding is to provide limited grant funding to SMMEs within the district that require seed capital in order to establish and grow themselves by purchasing equipment and supplies that are needed for the business and by providing a mentorship programme and training in basic business skills. The Seed Fund Programme resides under the LED Department of the CWDM. Officials working directly with the Seed Fund are responsible for the monitoring and evaluation of the SMMEs whilst the Procurement Section of the Municipality is responsible for the procurement of goods and equipment. The allocation of funding is in the form of a grant in-kind through the purchasing of equipment or supplies on behalf of the SMMEs by the CWDM. The allocated funding per SMME is only available for a particular financial year. Business support and development through mentorship is also provided to the SMMEs by an appointed service provider.
According to Marais (2008:10) SMMEs only came into existence in South Africa during the apartheid regime in the mid-1980s with the establishment of the Small Business Development Corporation. Furthermore, black-owned SMMEs were only recognised in policy formulation in the mid-1990s. Herrington et al. (2010:12) Global Entrepreneurship Monitor (GEM) also refers to the history of South Africa economy. The Global Entrepreneurship Monitor which was formed in 1999, is a major international research study aimed at increasing knowledge of entrepreneurship. South Africa has been involved in the study since 2001. According to Herrington et al. (2010:31), South Africa’s economy has historically been dominated by large corporations and the public sector. There was an absence of small businesses in the dominant sectors of the economy and very little attention was paid to small enterprise promotion in public policy. Since mid-1990, the SMME sector has been promoted in order to meet the national economic growth objectives of South Africa. This included policies such as The National Strategy for the Development for Small Business in South Africa (May 1995:1) which was outlined by the Department of Trade and Industry (DTI), the lead department for SMME development.
