Skills Development in Very Small and Micro Enterprises pdf

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Compiled by the Research Programme on Human Resources Development,
Human Sciences Research Council
Published by HSRC Press
Private Bag X9182, Cape Town, 8000, South Africa
www.hsrcpress.ac.za
© 2005 Human Sciences Research Council
First published 2005
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CONTENTS
List of tables vii
Acknowledgements ix
Abbreviations xi
1 The existing state of knowledge about very
small and micro enterprises in South Africa 1
Introduction 1
The history of VSMEs in South Africa and current evidence 2
Strategies for VSME skills development in South Africa 6
Conclusion 14
2 Experiences from the rest of Africa 15
Pre-employment programmes 15
In-employment programmes 17
The relevance of debates on skills development for enterprise development

elsewhere in Africa, for South Africa 19
Beyond skills 19
Conclusion 24
3 Two methodological approaches to
researching the VSME sector 25
Introduction 25
The National Skills Survey component 25
The National Skills Fund component 28
Conclusion 30
4 The VSME component of the
National Skills Survey 31
Introduction 31
The nature of the sampled VSMEs 31
The scale of training in the sampled enterprises 34
The nature of training 41
Attitudes to training and perceptions of skills needs 44
Engagement with the National Skills Development system 46
Future training planning 50
Conclusion 52
5 Skills acquisition patterns among
very small and micro enterprises
(the NSF study) 55
Introduction 55
The nature of the VSMEs surveyed 55
Business context and development needs 57
Owners’/managers’ own skills and learning 60
Training and learning in the business 63
Relationship with the National Skills Development Strategy 64
Conclusion 69
6 Lessons for policy and practice 71

References 76


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Table 3.1: Number of interviewees by geographical area 26
Table 4.1: Number of respondents by SETA and type of establishment 32
Table 4.2: Number of employees by type of establishment 33
Table 4.3: Permanent employees by occupational and population group 33
Table 4.4: Percentages of employees trained by type of establishment and
employee type 35
Table 4.5: Establishments with employees participating in training 36
Table 4.6: Number of permanent employees who participated in training during 2002/3
by occupational group and by population group 37
Table 4.7: Participation rates in training per occupational group 38
Table 4.8: Training expenditure 39
Table 4.9: Annual turnover, payroll and spending on training 40
Table 4.10: Ratios of payroll to turnover and spending on training to payroll 41
Table 4.11: Extent to which permanent employees participated in types of training 41
Table 4.12: Number of permanent employees who received training in terms of the ISO
9000 series, other international standards and NQF standards 42
Table 4.13: Training providers by establishment 43
Table 4.14: External training providers compared with the baseline survey 43
Table 4.15: Impact of training 44

Table 4.16: Extent to which skills were underdeveloped or lacking during 2002/3 45
Table 4.17: Extent to which occupational skills needed upgrading during 2002/3 46
Table 4.18: Claiming grants from the levy system 46
Table 4.19: Reasons for not claiming grants against levy payments 47
Table 4.20: Satisfaction with the services of SETAs rendered during 2002/3 48
Table 4.21: Support from the DoL, NSF and/or SETA received by non-registered
establishments 49
Table 4.22: Planned initiation of learnership by establishments 50
Table 4.23: Plans to train in 2003/4 51
Table 4.24: Extent to which particular factors will cause establishments to increase
training during 2003/4 (percentage) 51
Table 5.1: Distribution of owners of sampled enterprises by population group 55
Table 5.2: Employment by occupational level and employment status 57
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©HSRC 2005
LIST OF TABLES


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This volume represents the collective endeavours of a number of people. I would like to
thank the funders and their representatives – the National Skills Fund, the European
Union and the Department of Labour. In particular, thanks must go to colleagues from
these organisations who played a role in research design and in commenting on findings.

These include Ian Macun, Botshabelo Maja, Marcus Powell, Pat Telela, Frans Strydom and
Bongani Mkhize. My appreciation also goes to Human Sciences Research Council (HSRC)
colleagues who also commented on design and analysis, especially Andre Kraak, Azeem
Badroodien and Andrew Paterson. My administrative colleagues, Cilna de Kock and
Zubeyda Ahmed, provided support for the research activities.
This volume would not have been possible without the work done by Bees Development
Organisation and the University of South Africa’s Bureau of Market Research. My thanks
go to all members of their teams, but especially to Professor Johan Martins and Jocelyn
Smith, the respective project managers.
My thanks go also to the Sector Education and Training Authority (SETA) Strategic Project
managers, consultants and service providers, who assisted us in getting access to the
appropriate enterprises and who participated in our final seminar.
This research could not have taken place without the assistance of a large number of very
small and micro enterprise (VSME) owners and managers who gave their time to the
researchers in order to enrich our understandings of the systems in which they are
working. They are too many to name individually, but we hope that their investment of
time in our research will be compensated for by this report and its intended impacts on
policy and practice.
Dr Simon McGrath
Pretoria
December 2004
ix
©HSRC 2005
ACKNOWLEDGEMENTS


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BANKSETA Banking Sector Education and Training Authority
BDS Business Development Services
CETA Construction Education and Training Authority
CHIETA Chemical Industries Education and Training Authority
COSATU Congress of South African Trade Unions
CTLF SETA Clothing, Textile, Leather and Footwear Sector Education and Training
Authority
DIDTETA Diplomacy, Intelligence, Defence, and Trade Education and Training
Authority
DoE Department of Education
DoL Department of Labour
DTI Department of Trade and Industry
ESETA Energy Sector Education and Training Authority
ETDP SETA Education and Training and Development Practices Sector Education and
Training Authority
FASSET Financial and Accounting Services Sector Education and Training
Authority
FET Further Education and Training
FIETA Forest Industries Education and Training Authority
FOODBEV Food and Beverages Manufacturing Industry Sector Education and
Training Authority
GEAR Growth, Employment and Redistribution
HRDS Human Resource Development Strategy
HSRC Human Sciences Research Council
HWSETA Health and Welfare Sector Education and Training Authority
IFEP International Foundation for Education with Production

ILO International Labour Office
INSETA Insurance Sector Education and Training Authority
ISETT Information Systems, Electronics and Telecommunications Technologies
ISO International Standards Organisation
IT Information Technology
LGWSETA Local Government, Water and Related Services Sector Education and
Training Authority
MAPPP Media, Advertising, Publishing, Printing and Packaging (SETA)
MERSETA Manufacturing, Engineering and Related Services Education and Training
Authority
MQA Mining Qualifications Authority (SETA)
MSE Micro and small enterprise
NAFCOC National African Federated Chambers of Commerce
NAMAC National Manufacturing Advisory Centre
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ABBREVIATIONS


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xii
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NGO Non-governmental organisation
NQF National Qualifications Framework
NSDS National Skills Development Strategy
NSF National Skills Fund
NSS National Skills Survey
NTB/HSRC National Training Bureau/Human Sciences Research Council

Ntsika Ntsika Enterprise Promotion Agency
PAETA Primary Agriculture Education and Training Authority
POSLECSETA Police, Private Security, Legal and Correctional Services Sector Education
and Training Authority
PSETA Public Service Sector Education and Training Authority
SADC Southern African Development Community
SAQA South African Qualifications Authority
SETA Sector Education and Training Authority
SETASA Sector Education and Training Authority for Secondary Agriculture
SETO (later to become SETA) Sector Education and Training Organisation
SME Small and medium enterprise
SMLE Small, medium and large enterprise
SMME Small, medium and micro enterprise
TETA Transport Education and Training Authority
THETA Tourism, Hospitality and Sport Education and Training Authority
UNISA University of South Africa
VSME Very small and micro enterprise
VTI Vocational training institution
W&RSETA Wholesale and Retail Sector Education and Training Authority
WSP Workplace Skills Plan


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©HSRC 2005
CHAPTER 1
The existing state of knowledge
about very small and micro
enterprises in South Africa

Simon McGrath
Introduction
The development of very small and micro enterprises (VSMEs – those with 10 or less
employees) is an important policy priority for South Africa. This priority derives from a
number of sources. First, such enterprises are seen as an important generator of
employment and, hence, of poverty alleviation in a country where increasing numbers are
likely to find their future work in smaller and informal enterprises. Second, this is
reinforced by the particular challenge of youth unemployment. It is estimated that
approximately one-third of school leavers will not find formal sector employment or go
on to further studies at present (Kraak 2003a). In this climate, the informal portion of the
VSME segment of enterprises is seen as a vital vehicle for youth employment. Third,
given the historical legacy of white advantage and black disadvantage in South Africa,
VSMEs are also seen as a crucial tool for broad-based black economic empowerment.
Fourth, given the widespread international claims about the economic importance of
entrepreneurship, VSMEs are also considered an integral part of any attempt to construct
a more vibrant entrepreneurial culture in South Africa.
These debates about the importance of VSME development intersect with other national
priorities with respect to skills development. Skills development has been given increasing
attention in the President’s State of the Nation addresses since 2003 and is an integral part
of the Programme of Action for the second Mbeki Presidency (RSA 2004). The Department
of Labour (DoL) is generating R3 billion per annum for skills development through its
levy-grant system and is maintaining the high profile of skills issues through the National
Skills Development Strategy (DoL 2001 and 2004), the second of which will be in
operation from April 2005. Increasingly, too, the Department of Education (DoE) is
stressing the importance of the Further Education and Training (FET) college sector and
the need for public education to address scarce skills needs, a move that has also been
reinforced by the Programme of Action. Moreover, since 2001 there has been a Human
Resources Development Strategy (DoE and DoL 2001) in place that emphasises the need
for joined-up action across government on skills issues. Interest in VSMEs is also evident
in the policy commitment to reorganise the Department of Trade and Industry’s (DTI) set

of enterprise development institutions.
This study seeks to engage with these two interconnected policy arenas: VSMEs and skills
development. It brings together two studies led by the Human Sciences Research Council
(HSRC) under commissions from two units within the DoL. In subsequent chapters, these
two studies will be presented separately before a synthesis chapter draws together the
practical and policy-oriented lessons that arise from the two when read in conjunction.
1


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©HSRC 2005
Before turning to the empirical studies, however, it is important to locate them both
nationally and internationally within the broader debates about VSME skills development
and, in the national case, in the context of existing policies and interventions. Chapter 1
will look at South African research and policy regarding the enterprise development–skills
development interface, while Chapter 2 will shift the focus to African experiences in the
same area before stressing the importance of looking beyond skills.
The history of VSMEs in South Africa and current evidence
The first challenge in writing about VSMEs is that of definition. The simple answer that
VSMEs are all enterprises with less than 10 employees only gets us so far. It is clear that
several of the debates that concern VSMEs are only really about certain segments of the
VSME population. For instance, a medical practice may only employ a receptionist under
the management of a single doctor, but this would be seen as having a degree of
technological sophistication, formality and turnover that excludes it from debates about
poverty reduction or the second economy. Equally, the relationship between the notion
of VSME and that of the informal economy is not a simple one. Many informal enterprises
are survivalist in nature and would fall below the focus of this study. On the other hand,
many VSMEs are formal, in the sense of tax registration, etc., as subsequent chapters

will illustrate.
In this initial discussion, I am primarily interested in enterprises employing low to
intermediate skills that fall on either side of the formal boundary. In discussing the history
of VSMEs, however, my gaze is focused on the particular disadvantages that were faced
by such enterprises if they were black owned. This literature was primarily couched in
terms of the informal economy until 1994, and the focus on informality still continues to a
large extent. In discussing African trends relevant to VSMEs in Chapter 2, I will draw on
the most cognate term – that of micro and small enterprises (MSEs), while being well
aware that this literature tends also to conflate this term with small and medium
enterprises (SMEs) and informal enterprises. However, as we shall see in Chapters 4 to 6,
the VSME sector is highly diverse in many ways, including ownership by population
group and enterprise sophistication.
The state of evidence on South African VSMEs
There is a relatively large literature on aspects of the South African informal and/or VSME
sector (e.g. Hirschowitz, Acutt and Koch 1991; Preston-Whyte and Rogerson 1991;
Manning 1993; Manning and Mashego 1993; Hirschowitz et al. 1994; Manning 1996; Lund
1998; Rogerson 1998; Rogerson 1999a; Visser 1999; Chandra et al. 2000; Skinner 2000;
Kesper 2001; Martins and Van Wyk 2002). This large literature has given us very valuable
understandings of the nature of the sector, although little has been written on issues of
skills development (recent exceptions include Martins and Van Wyk 2002; Malagas 2004).
However, the size of the sector continues to be a matter of considerable methodological
debate and overall uncertainty. Muller (2002) highlights the problems with the statistics
and notes that, while the current estimates are far higher than previous estimates, the size
of the sector is still probably considerably underestimated.
The best estimates of the size of the informal sector put it as constituting two to four
million individuals out of a total workforce of 12 million (ILO 2002; Muller 2002; Devey,
Skinner and Valodia 2003). These figures depend on whether the focus is on informal
enterprises or informal work, the latter given the higher figure (ILO 2002). Africans make
2
Skills Development in Very Small and Micro Enterprises

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Chapter 1
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up approximately 84% of those engaged in the sector and men 55% (derived from Devey,
Skinner and Valodia 2003).
1
According to Devey, Skinner and Valodia, manufacturing in the informal sector employs
almost 200 000 people, a little more than 10% of the total informal sector. Construction
activities are larger, with just over 250 000 workers, but it is the wholesale and retail
sector that predominates, with more than 900 000 workers – half of all informal sector
employment (Devey, Skinner and Valodia 2003). The overall size of the sector is small by
African standards, and the manufacturing component is particularly underdeveloped.
Income levels are lower on average than in the formal sector. However, 30% earn more
than R1 000 per month, putting them ahead of 35% of the formal sector (Devey, Skinner
and Valodia 2003). Overall literacy in the informal sector appears to be high, at 89%
(Devey, Skinner and Valodia 2003). Moreover, 20% of those employed in the sector have
matric or higher qualifications. This compares to 55% of those in the formal sector
(derived from Devey, Skinner and Valodia 2003). These patterns of education and income
are fairly comparable to the situation in other African countries, taking into account the
relatively high levels of education and income in South Africa.
There are a number of reasons why the South African informal/VSME sector is atypical
in structure in comparison to the rest of Africa. First, the formal economy of South Africa
is far better developed than those of other African countries. This has resulted in the
eradication of many pre-industrial manufacturing processes and the relevant skills base.
Second, the apartheid strategy of discouraging African urbanisation has led to an even

greater block on enterprise development than was the case under the most hostile policy
regimes in other African countries. Third, apartheid also led to a particularly stark lack
of inter-racial and inter-ethnic trust in South Africa, which served to undermine the
possibilities for VSME growth through horizontal and vertical business linkages. Fourth,
the apartheid legacy in the education and training system, coupled with the colour bar in
the workplace, meant that blacks also lacked the requisite skills to move into small-scale
manufacturing. Fifth, apartheid-driven industrial policy led to an over-concentration of
economic activity in very large, capital-intensive enterprises. This meant that linkages
were most likely to take place between divisions of these conglomerates rather than
with outside enterprises and that production was polarised between high skills and low
skills, with little of the middle ground in which higher value VSMEs have flourished
internationally. These factors have resulted in a VSME system that is under-represented in
the manufacturing sector but also weak by international standards in retail and trade.
Moreover, it is a sector that is highly differentiated in terms of race, gender and location.
However, one aspect in which the South African VSME economy is increasingly integrated
with the rest of Africa is provided by the role of migrants in South African enterprises.
Rogerson has shown in a number of studies how immigrants from elsewhere in Africa
have come to play a strong role in Johannesburg’s economy (Rogerson 1997, 1998, 1999a,
1999b). He highlights the growth of West and Central African clothing enterprises in the
Johannesburg inner city. These are typically led by well-educated entrepreneurs whose
international networks are of a similar kind and extent to those charted for Congolese
entrepreneurs in Europe (Rogerson 1999a; MacGaffey and Bazenguissa-Ganga 2000).
1 These and subsequent percentages from Devey, Skinner and Valodia exclude both domestic work and subsistence
agriculture. These are included in the ILO estimates of total informal work.


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Skills Development in Very Small and Micro Enterprises

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However, Rogerson contrasts this group of relatively successful niche enterprises with the
experiences of less well-educated workers from Southern Africa in the construction
VSMEs of the same city (Rogerson 1999b). The existence of immigrants clearly further
complicates issues of skills formation in the South African VSME economy but has not yet
been a subject of detailed analysis.
The current state of research knowledge on VSME skills in South Africa
The first, and still the largest, research project in this area in South Africa was The
NTB/HSRC Investigation into Training for the Informal Sector (Hirschowitz, Acutt and Koch
1991). This arose out of a wider range of investigations into the nature of training in South
Africa (NTB/HSRC 1985, 1989, 1991 – see Kraak 2004 for analysis). Notwithstanding its
length (over 300 pages), the Investigation is frustratingly thin on detail about the skills
acquisition pathways of those in the sector, spending far more time canvassing others’
opinions about the functioning of micro enterprises and suggesting ways of improving this
functioning. What does emerge is that only a small proportion of owners had learned their
sector-specific and business skills through formal education and training, although there
was a clear gradient here between lower levels of formal learning amongst African owners
and larger levels amongst white owners. Although families and other networks were more
significant sources of learning than schools or colleges, it was clear that learning through
doing was the most significant source of learning. Experiences from previous employment
did not appear to be particularly important, except in the case of sectoral skills for
coloured owners. However, the small number of coloured respondents may have led to a
distorted response (Hirschowitz, Acutt and Koch 1991: 80). Those surveyed appeared to
see little need for further skills acquisition and little knowledge about where to go for
further skills if they were required (Hirschowitz, Acutt and Koch 1991: 95).
The 2000 Baseline Survey of Industrial Training in South Africa (Kraak et al. 2000) did
not have a primary focus on micro and small enterprises. Nonetheless, it did make a
series of pertinent comments on the skills patterns present, although with an
acknowledged sample bias towards the formal segment. This sample suggested high

levels of formal education and training amongst owners and relatively high levels
amongst workers (Kraak et al. 2000: 104). However, formal technical training was
significantly less common than more academic qualifications (Kraak et al. 2000: 110).
Importantly, the survey suggested that most employees within the sample were receiving
additional training. The vast majority of this was relatively informal on-the-job training
(Kraak et al. 2000: 115). Interaction with the formal skills development system was
limited, and there was little knowledge of the new South African skills development
system (Kraak et al. 2000: 99).
Also in 2000, the World Bank reported on a survey of approximately 800 formal SMMEs
in Greater Johannesburg (Chandra et al. 2000). This showed the highly gender and
racially segmented nature of the formal SMME economy. Approximately 40% reported
skills shortages, yet less than 25% were undertaking training (Chandra et al. 2000: 26).
Chandra et al. suggested that the lack of training might have had more to do with
inadequate training supply rather than lack of demand by enterprises (Chandra
et al. 2000: v).
The most comprehensive, and most recent, survey of micro and small enterprise skills
was commissioned by Ntsika and reported in 2002 (Martins and Van Wyk 2002). Although


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Chapter 1
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there was a sampling bias towards manufacturing within the survey, this report provides
the most thorough statistical data on skills in the sector and contrasts with the formal-only
focus of the World Bank study.
The survey provides some useful insights into the nature of micro and small enterprise
ownership. Almost all owners surveyed were working full time in one enterprise that had

been running for a considerable number of years (an average of 7.1 years). Moreover, this
was not their first experience in running a business (Martins and Van Wyk 2002: 50–53).
When considered in the light of international experience (e.g. Mead and Liedholm 1998;
Mead 1999), these findings paint a picture of a relatively stable and experienced sector.
They also highlight the fact that straddling between formal and informal employment or
running a series of micro enterprises does not appear to be significant in South Africa.
In agreement with the findings of Kraak et al., this study found relatively high levels of
education. However, Martins and Van Wyk found far higher levels of skilled workers in
their sample than would be suggested by the extent of formal training reported by Kraak
et al. (Martins and Van Wyk 2002: 62–63). The interpretation here is complicated by the
fact that Martins and Van Wyk did not have any data for formal technical qualifications
but based their figures on owners’ assessments of whether workers should be classed
as skilled.
Considerably fewer workers (21%) were reported as undergoing additional training than
in the report of Kraak et al. (Martins and Van Wyk 2002: 79), although the figure was very
close to that for the World Bank’s formal SMME sample. However, there was little sense
that skills were inadequate, in stark contrast to the World Bank report (Martins and Van
Wyk 2002: 112–113). Although most owners claimed they were aware of learnerships,
they saw these as of little importance to their enterprises (Martins and Van Wyk 2002:
122–126). Where future training was seen as required, they showed a strong preference
for this to take place in-house (Martins and Van Wyk 2002: 132).
More recently, Ntsika has produced a follow-up study, which looks at some of these
issues in greater depth through a case study approach (Malagas 2004). Its findings largely
agree with those of Martins and Van Wyk, but add a valuable focus on the importance of
understanding the particular market location of the individual enterprise and how this
shapes decisions about skills. This serves as a useful reminder that skills are not the only,
nor even the main, answer to the challenge of small enterprise development.
These five studies provide some useful insights into the nature of skills in the MSE sector,
although, taken together, there are still many gaps and uncertainties in the findings. There
appears to be consensus about the relatively limited interaction between smaller

enterprises and the national skills development system and its formal providers. This is
highlighted even more strongly by qualitative pieces of research that examine the
situation facing street traders (Lund 1998; Skinner 1998, 2000).
There are strong reasons for thinking that improvements in skills and knowledge would
facilitate better enterprise performance, and other South African research points to better
incomes for better-educated entrepreneurs (Rogerson 1998, 1999a). It is also widely
accepted that South Africa is particularly weak in skills development and that VSMEs are
particularly affected by this. However, both the NTB/HSRC and Ntsika reports, more than
a decade apart, find that owners see little need for skills upgrading.


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Skills Development in Very Small and Micro Enterprises
Strategies for VSME skills development in South Africa
Skills development for VSMEs can be seen as falling across the remits of three national
departments: Trade and Industry, Labour and Education. I will draw on two earlier
accounts in addressing each in turn (McGrath 2004a, 2005).
Department of Trade and Industry policy
The Department of Trade and Industry’s flagship policy for enterprise development
remains the White Paper on National Strategy for the Development and Promotion of
Small Business in South Africa (RSA 1995), one of the first major policy statements of the
post-apartheid era. This in itself is indicative of the importance that the new ANC-led
government placed on enterprise development. The foreword to the White Paper made
clear some of the rationale for this prioritisation of enterprise development:
Small, medium and micro-enterprises (SMMEs) represent an important vehicle
to address the challenges of job creation, economic growth and equity in our
country. Throughout the world one finds that SMMEs are playing a critical role
in absorbing labour, penetrating new markets and generally expanding

economies in creative and innovative ways. We are of the view that – with the
appropriate enabling environment – SMMEs in this country can follow these
examples and make an indelible mark on this economy. The stimulation of
SMMEs must be seen as part of an integrated strategy to take this economy
onto a higher road – one in which our economy is diversified, productivity is
enhanced, investment is stimulated and entrepreneurship flourishes. (RSA
1995: Foreword)
The White Paper presented a very positive vision of the possibilities of SMMEs as a
means to meeting a range of South Africa’s development goals, including equity and
redress, black empowerment, economic competitiveness, employment creation and
poverty reduction. Crucially, it argued for the importance of enterprise development being
seen as an integral part of an overall industrial development strategy.
Although the White Paper was positive about the potential of small business in South
Africa, it did also acknowledge the range of major constraints faced by these businesses.
These included:
• a disenabling legislative and regulatory environment;
• poor access to markets;
• poor access to finance;
• the high cost and low availability of suitable business premises;
• inadequate technical and managerial skills;
• poor availability of appropriate technology;
• inadequate infrastructure;
• a heavy tax burden. (RSA 1995: 2.3.1)
This list included skills as one of the major constraints on micro and small enterprise
development. Indeed, a subsequent listing had the following as the first barrier to
specifically black enterprises: ‘Bantu Education restricted opportunities for the acquisition
of technical and professional skills by black people’ (RSA 1995: 2.3.3). This is a legacy
that any vision of inclusive upskilling in South Africa has to address.
6
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Chapter 1
Just as skills shortages were identified as one element of the weakness of South African
small businesses, so skills development was seen as part of an overall strategy for
enterprise development. Subsection 4.7 of the White Paper focused at length on the skills
development challenge. It recommended the development of appropriate programmes for
‘the acquisition of relevant vocational, technical and business skills’. At the level of
survivalist enterprises, it argued that ‘literacy and entrepreneurial awareness’ would be
particularly important (RSA 1995: 4.7).
The White Paper talked of a ‘national training strategy for small enterprises’ (RSA 1995:
4.7), mimicking the similar process that had already taken place for the formal sector. It
argued that the core of this should be a reconsideration by training providers of the ways
in which they could meet the differentiated needs of the SMME sector, including:
• survivalist entrepreneurs lacking even basic literacy;
• micro enterprises in rural areas, where language capabilities are critical for the
absorption of experience;
• women entrepreneurs wanting to focus on particular issues and problem areas and
needing particular time considerations to match home duties and training;
• business and skill needs in sectors like construction, manufacturing, small-scale
agriculture, tourism, etc.;
• self-employment problems experienced by the youth, where the emphasis will have
to fall on awareness about opportunities and development paths.
In addition, it was argued that training should in general help to break with traditional
gender roles in business and skill categories (RSA 1995: 4.7.3).
The White Paper also stressed the importance of such training being modular and
accredited (RSA 1995: 4.7.4). However, it did not explicitly link such notions to the

emergent National Qualifications Framework (NQF), and can be read as being more
interested in accreditation of short courses rather than the development of full awards in
the NQF model. In this manner, it saw accreditation as an important means of quality
assurance rather than buying into the over-optimistic language of progression through
whole awards that has permeated much of NQF thinking.
The White Paper also anticipated in a somewhat critical way the development of the
DoL’s new skills development strategy, which I shall discuss shortly. Here the White
Paper was concerned that the industry training boards would not adequately address the
training needs of the smallest enterprises. This led it to recommend the establishment of a
dedicated ‘Informal Business Training Board’ (RSA 1995: 4.7.4). In this recommendation,
too, lay a concern about the appropriateness of a system of certification that was for both
formal and informal; large and small businesses. It also deviated from subsequent DoL
policy with its suggestion of ‘business internships and traineeships for SMME managers at
well-run enterprises’ as a key learning tool (RSA 1995: 4.7.9).
The White Paper was impressive in its distillation of ‘international best practice’ in
enterprise development. However, it can be subjected to two main lines of criticism. First,
that it was not sufficiently grounded in South African realities (King et al. 2002). Second,
that it provided a complete menu of policy priorities without any sense of prioritisation or
operational strategy (Rogerson 1999). This second criticism is particularly pertinent, as the
nine years since the policy was promulgated have seen little progress in refining the
broad vision. Crucially, the institutional architecture that the White Paper envisaged for
the development of consensus and the operationalisation of the policy vision has been
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little short of disastrous. The National Small Business Council quickly collapsed in the
face of governance and corruption issues, while the lead agency for business
development services, the Ntsika Enterprise Promotion Agency, has struggled to develop
vision, capacity or impact. Indeed, it was announced by the incoming government in
2004 that Ntsika would be merged with another DTI agency – the National Manufacturing
Advisory Centre (NAMAC) – to form the Small Enterprise Development Agency. Given the
crucial importance of institutions to the high skill thesis, such a serious weakness seems
significant for South African attempts to move away from the country’s previous polarised
skill path.
Department of Labour policy
Here I will focus specifically on what the National Skills Development Strategy (DoL 2001),
and its predecessor, the Green Paper on a Skills Development Strategy for Economic and
Employment Growth in South Africa (DoL 1997), said about the VSME dimension of skills
development.
The Green Paper
It is evident from the beginning of the Green Paper that ‘small micro enterprises (SMEs)’
were intended to be an integral part of an overall vision for skills development in
South Africa:
given the demands of a more complex and changing economy, characterized
by increasing use of information, more complex technologies and a general rise
in the skill requirements of jobs, people must also have rising levels of applied
competence. The focus on skills development in this Green Paper is about this
process of deepening individuals’ specialised capabilities in order that they are
able to access incomes through formal sector jobs, through small micro
enterprises (SMEs) or community projects which in turn positively contribute to
the economic success and social development of our country. (DoL 1997: 1.1)
However, alongside this language of VSMEs as an integral part of an overall ‘skills
revolution’ (DoL 1997: 1.1), there was another discourse in which such enterprises were
spoken of primarily in terms of ‘target groups’. This gave the strong impression that it was
the equity dimension of the DTI vision that was being pursued here rather than the more

positive sense of VSMEs as engines of growth and innovation. However, this may be
rather over-critical of the DoL’s vision. What is of more importance is that the VSME focus
was strongly built on notions of sustainability of self-employment and on increased
standards of living. Indeed, it is clear from the Green Paper’s discussion of employment
services that there was a desire to avoid labelling self-employment as simply a fall-back
position for those who could not access wage employment. Instead, it was affirmed as a
valid employment choice (DoL 1997: 5.2.1).
It was also made abundantly clear that VSMEs were seen as an integral part of several of
the key institutional arrangements of the new skills development strategy, such as Sector
Education and Training Organisations (SETOs – later to become SETAs), the levy-grant
system and the proposed learnerships. In short, developing skills in and for VSMEs was
seen as part of an overall strategy to increase skills for all South Africans. Thus, the DoL’s
high skill strategy was not one of simply boosting skills within a knowledge-intensive
enclave, and seems, on paper, to be an appropriate response to the skills challenge facing
the country.
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However, the Green Paper rejected the Small Business White Paper’s call for a separate
Informal Business Training Board. Instead, it argued that there was insufficient
organisation within the informal business community to justify such a structure. The
alternative proposed was that each SETO must have a self-employment focus and
promote learning in small and micro enterprises within their sector and
network with agencies, such as the Ntsika Enterprise Promotion Agency, to
ensure that learning is linked to other SME support measures such as credit

extension, technology transfer, etc. (DoL 1997: 7.2.3.1)
As the Green Paper did not establish a definitive position on a threshold below which
there would be exemption for paying the skills levy, it had to include a commitment to
easing VSMEs’ participation, both as contributors to and recipients of the system. In
particular, assistance was promised for the drawing up of skills plans, which were
envisaged as central to the new strategy, and which became the trigger for accessing the
new levy-grant system when it came into operation (DoL 1997: 8.4.3.1.3). Moreover,
VSME skills development was identified as one of the key uses for the 20% of the levy
that was to be retained for use by the National Skills Fund (NSF) (DoL 1997: 8.5).
I noted earlier that the Small Business White Paper had talked of a form of internships
for micro and small entrepreneurs and that the DoL subsequently developed a similar
yet different proposal. The Green Paper introduced learnerships as the key delivery
mechanism for skills development. It argued that a special form of learnerships was likely
to be needed for VSMEs. It envisaged that the structured learning element of these VSME
qualifications would need to combine both entrepreneurial and technical skills. For the
structured work experience part, the Green Paper acknowledged the likely problems in
getting a placement in a relevant MSE. This led to two possible alternatives: first, that MSE
learners should get work experience across a series of relevant enterprises, and second,
that they should be assisted to gain work experience through ‘pre-arranged and
supervised sub-contracting work’ (DoL 1997: 4.5.6.4).
While these were innovative proposals that indicated a genuine desire to engage with the
particular needs of micro and small enterprises, the difference from the DTI vision is
significant. The DTI position represented the archetypal enterprise developer’s view that it
is most effective to work with those already in the sector. The DoL version appeared to
reflect the similarly typical view of trainers that the main challenge is in addressing the
situation of the pre-employed.
It is also understandable that part of the vision of the Green Paper was one of
inclusiveness, manifested in one aspect through the integration of micro and small
enterprises into the national training strategy for the first time. However, questions were
raised at the time of the strategy as to whether this proposed integration was potentially

disadvantageous for VSMEs, as it sought to force them into an excessively formal
qualifications structure, rather than building from their own skills needs (King 1997).
Significantly, this issue has been acknowledged within the DoL as an important one to
address when planning the next National Skills Development Strategy (NSDS), which will
begin in 2005.
Ironically, however, the Green Paper was elsewhere blocked in its attempts to effect
radical change in the training system by the nature of the post-apartheid organisation of
government portfolios. In spite of the best efforts of the Congress of South African Trade
Unions (COSATU) training lobby, a major responsibility for the supply side of training
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remains with a separate DoE (and nine provincial departments), which control the Further
Education and Training (FET) college sector. This means that, while the Green Paper
raised the issue of linking learnerships with college programmes, it had to acknowledge
that this must be a matter for the DoE to decide upon (DoL 1997: 8.7). The degree of
policy incoherence between the Departments of Education and Labour remains a major
constraint on any move towards ‘joined-up’ policy in skills development generally and
skills for self-employment in particular. It is also a serious obstacle to the broader attempt
to construct a higher skill, more inclusive economy.
The National Skills Development Strategy
The National Skills Development Strategy (NSDS) of 2001 (DoL 2001) was very much
in keeping with the Green Paper’s vision. It came at a point when the institutional
architecture proposed by the Green Paper (SETAs, levy-grant and learnerships) had finally
come into existence and can be read as a reiteration of the vision that was intended to

guide the workings of the new system. The subtitle of the NSDS, ‘Skills for productive
citizenship for all’, was indicative of the strong inclusiveness drive of the DoL. The NSDS
stressed the dual mandate of the skills development system to respond both to the
challenges of globalisation and international competitiveness on the one hand and to
poverty reduction and social development on the other.
It was clear in the NSDS that the formal sector could not be the sole focus of skills
policy, given its small size and even smaller potential for employment creation in
comparison to the VSME/informal sector (DoL 2001: 2.2; 3.1). One of the five objectives
of the NSDS was ‘to stimulate and support skills development in small business’ (DoL
2001: 2.4).
The NSDS also appeared to reflect a maturing vision of the nature of the VSME sector
within the DoL. While acknowledging the fact that many VSMEs are survivalist, it did not
fall into the trap of seeing them as being just a social protection issue, or wishing them
out of existence:
Many small businesses in our country are ‘informal’ and fall outside regulatory
and taxation arrangements. In practice, many are trapped at the low value-
adding end of the production spectrum. The challenge is to assist these
enterprises to climb the value chain and this will require skills. (DoL 2001: 3.4)
The NSDS clearly distinguished between survivalist and sustainable micro and small
enterprises and saw skill as an important element of strategies for both (DoL 2001: 3.26-
3.27). It also acknowledged the importance of other elements of enterprise development
and called upon the SETAs to collaborate with the DTI and its agencies in developing a
coherent strategy.
Although the formal sector can be argued to have driven the initial development of
the DoL’s skills development strategy, the significance of the VSME sector has been
an important sub-theme in these key policy documents. Policy has clearly encouraged
the SETAs towards inclusivity of both membership and focus. It has also stressed the
importance of the articulation between Labour’s policy and those of Education and Trade
and Industry.
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Department of Education policy
Elsewhere, I have outlined the key elements of the DoE’s strategy for reconfiguring the
FET sector, which is the most relevant part of the education system for my concerns in
this book (e.g. McGrath 1998a, 2000, 2004b). My treatment there focused on the main
thrust of this policy process, which has been about a reconfiguration of provider
institutions. However, here I will focus on another element; one that has been
surprisingly under-emphasised in broader debates about the college sector.
One of the most striking changes in the FET policy, as it moved from a report by the
National Committee on Further Education (DoE 1997), through a Green Paper (DoE 1998)
and a White Paper (RSA 1998a) to an Act (RSA 1998b) and later an implementation
strategy (DoE 1999), was the diminution of official attention to the issue of training for
self-employment and, indeed, to any sophisticated understanding of the nature of the
skills that the system should be trying to develop (McGrath 2000). Moreover, even at the
start of this process, the apparent understanding of these issues was weak.
The National Committee for Further Education Report
Although the Report did acknowledge the importance of training for self-employment, it
was not fully developed. Indeed, the Report as a whole was inadequately conceptualised
in terms of issues about globalisation, work and the likely future trajectory of the South
African economy (McGrath 2000). As a result, it failed to address the likely labour market
destinations of the learners it was concerned to serve. Thus, no clear picture emerged of
the linkage of FET to either formal sector or informal sector employment. The work of
the committee was, thus, strangely disarticulated from the parallel processes going on in
the DoL.

The reason for this can only be speculated upon, but it appears that the DoE, and its
favoured stakeholders, were determined to emphasise an educational rather than an
economic rationale for FET and to stress equity over growth. However, it can be argued
that such a position was taken to an extreme in this and subsequent documents that
prevented any real engagement with the genuine attempts of the DoL to address skills
through the lenses of both equity and growth.
The Green Paper
The Green Paper did contain a more sophisticated reading of the nature and likely
trajectory of the South African and global economies. It also stressed the need to work
with the DoL on the development of learnerships (DoE 1998: 1.1.3). On the issue of the
informal sector, the Green Paper noted:
The significance of the rural and informal economies: Perhaps only 30% of
South Africans are the beneficiaries of formal employment. The majority of
citizens find themselves systematically excluded from full employment and
urban life. Many are engaged in the informal economy, especially in cities and
towns. Many others are unemployed. In these local economies, world-class
manufacture is likely to have little role to play, beyond the limited possibility of
some outsourcing and the growth of small informal sector businesses. (DoE
1998: 4.5.5)
However, this was as far as the Green Paper went on the subject. The issue of the
informal sector was completely absent when the ‘future challenges’ for the funding
system were considered (DoE 1998: 3). Indeed, there was only one further reference to
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VSMEs or the informal sector in the rest of the Green Paper. This can be contrasted with
a number of statements that implied a focus on formal sector job creation, in spite of
economic realities. None of the DTI’s vision of vibrant VSMEs or the DoL’s argument
that there are skills needs for all workers and all enterprises can be seen in the Green
Paper’s account.
The White Paper
I have argued that the Green Paper’s attempt to embed FET policy in its economic
context was too limited (McGrath 2000). However, the White Paper rejected even this
limited attempt as ‘economism’ (RSA 1998a 1.5). In the whole of the White Paper, there
was only one paragraph that made mention of the economy at all, with one passing
reference to the need to develop ‘programmes to promote enterprise development,
entrepreneurship and job creation’ (RSA 1998a: 5.25).
The National Strategy for Further Education and Training
Even this small commitment to training for self-employment in the White Paper
disappeared by the time the Department developed a strategy document for the sector in
the following year. Thus, it appears from a strict reading of the policy documents of the
DoE that there is no real mandate for a focus on training for self-employment. How this
is understood within the provider institutions it controls, however, is another matter, as I
shall discuss shortly.
The Human Resource Development Strategy for South Africa
The issue of policy coherence was a major commitment of the first Mbeki Presidency
(1999–2004). This was manifested in a series of inter-departmental strategy documents on
issues of particular national priority. One of these was the area of human resources
development, and this resulted in a joint strategy from the Departments of Education and
Labour in 2001 on Human Resource Development Strategy for South Africa (HRDS) (DoE
and DoL 2001).
Given what I have said about policy developments in the two departments, the HRDS
gave the impression of having been driven more in the FET/skills development area by
the DoL’s more sophisticated and inclusive vision.
In keeping with the objectives set out in the NSDS, one of the 22 objectives proposed by

the HRDS was ‘skills development for SMME sector’ (DoE and DoL 2001: 17). Moreover,
this was chosen as one of the seven priorities for the first year of the strategy (DoE and
DoL 2001: 19). The HRDS also echoed the NSDS’s concerns with addressing the needs of
both survivalists and sustainable VSMEs (DoE and DoL 2001: 42–3), and reiterated the
DoL’s view that skills development for VSMEs must articulate with other elements of
enterprise development strategy. In the context of skills development for enterprise
development, the most striking point made by the HRDS concerned the work of technical
colleges:
These [technical] colleges need to become more responsive to the employment
opportunities in the SMME sector. This is the only sector where the prospects
for employment growth at an intermediate level are strong. (DoE and DoL
2001: 32)
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This appeared to reinstate a concern that had been lost from the DoE’s policy vision.
However, its exact status within the Department remains unclear. While A New
Institutional Landscape for Public Further Education and Training Colleges (DoE 2001)
aligned itself to the overall objectives of the HRDS, it made no mention whatsoever of
this element of the HRDS vision. The ‘landscape’ was for merged colleges, but the
presence of VSMEs in their local landscapes was not addressed. Equally, the subsequent
restatement of overall educational priorities in the Strategic Plan for the Department of
Education, 2002–2004 (DoE 2002) made no mention of this commitment. However, a
concern with self-employment did at least return to the next two annual iterations of the
strategic planning process (DoE 2003, 2004).

South African skills development policy for VSMEs – is there enough coherence?
What, then, does South African policy on skills development for VSME development
amount to? This is not easily answered. The policies of both the DTI and the DoL display
a clear commitment to the issue. Moreover, they stress the need for inter-departmental
policy coherence, and they stress the importance of this issue being seen as part of
broader national strategies for skills and enterprise development. Both departments also
have a strong sense of the need for stakeholder involvement and the creation of
consensus around national policies, although they have differed as to whether skills
development for enterprise development requires its own sectoral institution. Nonetheless,
there is apparent agreement on the role that SETAs should play in promotion of the skills
needs of all enterprises. Equally, both departments acknowledge the diversity of VSMEs
and the need for strategies that address different segments.
This high degree of consensus around the issue is undermined, however, when the DoE
is added into the picture. Education policy does not appear to acknowledge the
importance of the issue to anything like the same extent. Moreover, it seems unwilling to
acknowledge that there is a particular challenge of working with survivalists. Although the
HRDS suggests a shift towards a more coherent strategy with the DoL, the extent of such
a shift is brought into serious question by the lack of reflection of key elements of the
HRDS in the subsequent departmental strategy documents. The challenge of developing a
coherent strategy across all skills levels, thus, appears to be undermined by the lack of an
adequate educational response.
The enterprise and training policies do contain within them a largely consistent vision of
the way in which South Africa can build skills from the lowest to the highest levels and
thus upskill all South Africans. They represent an account that is basically in keeping with
high skill theory (Brown, Green and Lauder 2001; McGrath et al. 2004) in suggesting that
skills at all levels can be developed in ways that promote both competitiveness and
equity. Both policies also see an important role for the state as a catalyst for change.
However, the failure of the education policy to engage with a similar discourse has
seriously undermined the prospects for a coherent strategy on skills for all being
developed across government.

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