REPORT ON SMALL BUSINESSES IN SOUTH AFRICA - 2016.

CURRENT STATUS OF SMME SECTOR 

This study was commissioned by Small Enterprise Development Agency and was conducted by the Bureau for Economic Research at the University of Stellenbosch and published in 2016. The study compared trends and developments in the sector between periods 2008 and 2016.

This sector (SMME) is seen in the developing countries as a key driver of economic development and job creation.  There has been much talk in South Africa in terms of the recognition of the value that entrepreneurship has on both the country’s economic stability and individual participant’s livelihoods.

The study under discussion  points out that a lot of writings on enterprise development, particularly small businesses focusses mainly on practical issues facing entrepreneurs, primarily focussing on:

·         Effectiveness of measures, policies  and initiatives put in place by the South African government  in an effort to the small business sector.

·         Evaluation of the overall impact made by both  the private and public sector organisations in developing this sector.

·         An evaluation of perceptions and paradigms of entrepreneurship

According to this study, the current estimate of SMMEs in South Africa according to the Department of Small Businesses is 2.2million – made up of formal and informal enterprises. Just less than a million of these operate in the Retail, Wholesale  (domestic trade)  and Accommodation sectors.  The study found  African  people constitute the majority  of SMME owners at 71%, while the white owners constituted only 20%.  Of these SMMEs, Africans further constitute 89% of ownership of informal enterprises.

It is further reported that there was a significant decline of white SMME owners between 2008 and 2015 – with a reported 6% rate.  Within this period – Indians and Africans were the only population groups who increased in ownership. However, the growth of African owners  is not satisfactory at only 5% compared to that of Indians at 47% in the same period.   

As discussed above,  white ownership of formal SMMEs decreased by 6%  between the period 2008 and  2015. It is further reported that the share of the Coloured population declined together with that of white people – while African’s increased from 30% to 34% in 2015. 

It will be interesting to find out why is this so – is it because of:

•  government policy of Black Economic Empowerment?
• prevailing entrepreneurial culture?
• the growth of non-white entrants into his sector

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Commentary on this issues need clear qualification and understanding of the questions. The questions on their own would form a subject of a detailed investigative reporting. The fact is there is something happening here – it is either that Africans are not interested in business (which I don’t agree with) or perhaps the business environment is tough for them to operate (which I agree with).  The large participation of African population will bear witness that indeed many do want to operate businesses – but it is simply hard out there. Fact that their enterprises are not formal is an issue of concern. What makes it hard has been cited in the report as follows:

• access to finance
• poor infrastructure
• low levels of research and development
• lack of capability enhancement
• onerous labor laws
• critical skills shortage
• inefficient government red-tape
• access to markets
• high crime levels
• existential threats

 These challenges could be directly or indirectly responsible for the reported low growth in number of SMMEs from 2008 to 2015 in comparison with economic growth at the same period.  The study also reported that the contribution of the sector to the GDP increased over the same period. This clearly means that a lot of focus should be really directed to formalising and incentivising the sector. Whereas South Africa has quite a number of agencies that seek to do exactly that, perhaps it is important to find out why 89% of the sector is still informal. 

The study further found out that:

• Most SMMEs are found in industries that require low capital outlay
• Mining is still not accessible for small SMMEs
• Whereas white-owned SMMEs are constitute the largest portion of formal enterprises, their share continues to decline

View full report under Reports Section on this blog.