by Ray Hayes
South African President Cyril Ramaphosa wants to grow his country’s economy with the help of small businesses. President Ramaphosa was quoted as saying, “the growth of our economy will be sustained by small businesses, as in the case of many countries.” Although his efforts are commendable, more than 28.6 percent of South African SMME (small, medium, and micro enterprises) owners are not confident the government is doing enough to foster development. One of the many factors contributing to small businesses pessimism is the overwhelming growth and development of large firms compared to small firms.
At least 1,000 of South Africa’s (SA) largest companies (including the federal government) employ 56 percent of countries workers. Small businesses almost seem to be an after thought at times in the country. Another haunting fact about the country’s small business sector is 70 percent of start-ups fail in their first two years. Roughly 5 percent of employment occurs in micro firms, 11 percent in small firms and 12 percent in medium firms. SMMEs firms’ employee only 29 percent of South African workers.
The Small Business Institute (SBI), in partnership with research company SBP, has been working since 2018 on SA’s first baseline study of SMMEs (small, medium, and micro enterprises). The results from the study provided the following, “research, supported by the Treasury and the South African Revenue Service, shows that in 2016, SA (South Africa) had only 176,333 “micro” firms with fewer than 10 employees (66% of the total); 68,494 small firms with 11-50 employees (26% of the total); and 17,397 medium enterprises employing 51-200 people (6.5% of the total). These add up to just more than 250,000 SMMEs — a far cry from the small business development minister’s estimation that there were about 2.1-million small enterprises in SA.”
One thing is clear instead of putting so much focus on small business, South African officials are doing a disservice to medium sized businesses which has created most of the countries jobs in the SMME sector. The focus should be placed equally on medium and small firms. Furthermore, South African officials must develop a clear definition of SMMEs across its laws and regulations. The SBI study reviewed more than 70 laws and learned that there are numerous interpretations of SMMEs and “the proxies used are outdated and complicated to apply, track and verify.”
Once the SBI study is completed in 2019, it will, “…provide path-breaking evidence for more effective public policy and dialogue to advance small business development and expansion by vastly improving our understanding of the business dynamics of the small firms operating across SA, and the effects of the business environment on their growth and job creation potential.”