Development of a business framework to integrate informal SMMEs and entrepreneurs with the formal South African economy

South Africa has an uneven distribution of economic wealth. The political history of recentdecades is the main reason for this phenomenon and has led to a situation where vastnumbers of citizens did not receive the necessary training and development to embark onself-employment or to be employed at existing companies. These circumstances place aburden on the present government to fight poverty and crime, and in return establish nationalwell being and economic stability. It requires them to find innovative ways by which theycan promote business development and create sustainable jobs for unemployed people.Various programmes to improve the delivery of essential social services to the majority ofthe population are under way. However, the vast numbers of people in desperate need foremployment or other income generating activities outstrip the support programmes alreadyimplemented by the government.Actions from the government are aimed at supporting and training previously disadvantagedentrepreneurs to become active contributors to the economy. One method of generatingemployment opportunities is through the deployment of SMMEs (Small Medium and MicroEnterprises) that can operate as part of the formal economy. “South Africa's 2-million smallbusinesses represent 98% of the country's total number of firms, employ 55% of the labourforce and contribute 42% of the country's wage bill. Yet 87% of these enterprises aresurvivalist and operate outside the formal economy” (Le Roux, 2006).1 Ideally, one wouldlike to see previously disadvantaged entrepreneurs as owners of these SMMEs. However,these entrepreneurs do not necessarily have the capacity to take up business responsibilitiesand management.This research project focuses mainly on situations in the South African economicenvironment with specific attention given to SMMEs. The primary objective is to find asustainable solution that ensures effective and successful deployment of SMMEs. A solutionis proposed in the form of a Business Framework where similar informal SMMEs aregrouped together to operate under a governing body. This governing body (BusinessFramework) provides the necessary infrastructure to support the development of productsand services within these SMMEs. Entrepreneurs and SMMEs affiliated to this BusinessFramework are nurtured till they are mature enough to partake in the formal economy. TheBusiness Framework therefore focuses on the possibilities of incorporating survivalist1 Source: Business Day, June 27, 2006.(informal) SMMEs with formal economic activities and by doing so, tries to improve theirsustainability and create long-term income generating enterprises.Development of such a Business Framework requires investigations of the economiccircumstances in which these SMMEs operate. This includes a study of current governmentsupport programmes and the influences of the formal and informal economies on each other.Various engineering tools and methodologies are applied to evaluate and characterise theseSMMEs. Through the use of Enterprise Life Cycle and Value Chain analyses, internalbusiness processes of informal SMMEs are studied and shortcomings in terms of businessprocesses are identified. A GAP-Analysis is performed and from this a list of requirements isdrawn up that the Business Framework should fulfil.A generic Business Framework is developed using the Zachman Enterprise ReferenceArchitecture. This concept of a Business Framework is tested by means of a case study anddocumented at the end of the report.This document serves not only to describe project related issues from an academicperspective, but shares a concept that can be used by governments and private organisationsto deploy business development more dynamically and effectively.