BUSINESS incubation is "gaining momentum" in South Africa, whose small and medium enterprises (SMEs) have one of the highest failure rates in the world.
Various estimates have placed this rate between 70% and 80% within the first three to five years, and a study published in the African Journal of Business Management largely attributed this to "inadequate capital structures and resource poverty".
Business incubators are meant to correct this, but SA only has 40 incubators - both public and private - where the Department of Trade and Industry was targeting the 250 mark, according to Shahida Cassim, a professor at the University of KwaZulu-Natal's faculty of management studies.
Cassim, who is supervising student research on the topic, said she was not sure if this target was achievable . "With the right commitment and partnerships between public and private sector players, we could achieve the target. Far more important is to ensure the sustainability of the incubators and the vitality of the incubated businesses."
Mark Frankel, CEO of Shanduka Black Umbrellas - an enterprise development organisation that has incubators in Johannesburg, Pretoria, Cape Town and Durban - said the numbers were coming off a low base as incubators were difficult to fund on a self-sustaining basis.
"The majority of the current incubators are government-operated via [the Small Enterprise Development Agency] and I guess these numbers are dependent on their budget," he said. "Business incubation is also fairly new in SA, but seems to be gaining momentum. However, it can be expensive to operate and requires reasonably specialised skills."
Black Umbrellas provides wholly owned black SMEs - with the potential to employ at least four people - with office space, computers, internet access and telephones, vehicles with drivers, a book-keeper service, and a structured mentorship for a low monthly fee.
It scored a R10.5-million grant from the first funding window of the Treasury's Jobs Fund to establish its Durban incubator, owing to its ability to support 40 businesses while creating 142 jobs within the first three years of these businesses's operations.
On the government's side, the Small Enterprise Development Agency's latest annual report showed it had a network of 32 business incubators countrywide, supporting 1845 start-ups by the end of March. This outperformed its target of 1500. The programme aimed to create 1050 jobs, but created 1517 jobs during the year.
This success has prompted the formation of new ones, said Trade and Industry Minister Rob Davies. "The expectation is that the 32 business incubators will be increased to 42 by end of this financial year."
Frankel said global statistics had proven businesses which had been part of an incubator achieved an 87% success rate.
"Businesses within the incubator are fast tracked into market, finance and networking opportunities they might never have otherwise been able to access."
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* This article was first published in Sunday Times: Money & Careers