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Small businesses not growing quickly enough

Economy

Asha Speckman

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231111 Ubuntu hair and beauty Studio employees (L) Hlokes Segone and Palesa Williams center with their client Busi Shembe at their place of work in Mondeor South of Johannesburg.photo by Simphiwe Mbokazi

SOUTH Africa’s small, medium and micro enterprises (SMMEs) are not growing at the pace required for large-scale wealth and job creation, a new study published this week has revealed.

The companies cite barriers to funding, inflexible labour laws and regulatory pressures such as empowerment laws, as some of the hurdles for small businesses to achieve success.

The headline report – Priming the soil: Small Business in South Africa – presents the findings of the first round of SBP’s annual study that will run for three years at first, tracking the performance and experience of 500 SMMEs.

“These are firms that can make a big dent in unemployment – they have survived the first two years of operation, they currently employ between 10 and 50 employees, and they operate in sectors that the government has prioritised for growth – manufacturing, business services and tourism,” said SBP, a Johannesburg-based firm specialising in business environment research in sub-Saharan Africa.

The study finds some good news. Just over half of the firms surveyed planned to grow in the short term. SMMEs in the business services sector, in particular, were confident of growth, but manufacturing and tourism firms were less so.

Just over half of business services firms envisage expanding staff numbers, as do 35 percent of manufacturers and a fifth of tourism firms.

The bad news, however, is that job creation in recent years has been slow. Less than half of the firms on the panel have grown their staff numbers over the past five years and less than a third created new positions in 2011. What that says is that South Africa’s SMMEs are simply not growing at the pace needed for large-scale wealth and job creation.

Of the factors contributing to this, the economic climate rated highest, as could be expected, SBP said.

The release of the initial findings came just days after the handover of the National Development Plan 2030 document to President Jacob Zuma. The vision crafted by the National Planning Commission envisages that most employment over the next 20 years would be generated by “small and expanding firms”.

Chris Darroll of SBP said the study also showed that many SMME companies within the manufacturing sector were considering leaving the sector in a few years’ time.

Firms across the spectrum identified the inflexibility of labour legislation as a critical constraint to growth, denying SMMEs the flexibility needed to respond to rapid changes in the market. SMMEs also expressed anxiety about increased inflexibility if proposed amendments to the labour laws materialised.

Compliance with broad-based black economic empowerment (BEE) was also a major barrier. “It emerges clearly from the data that the country’s SMMEs feel weighed down by broad-based BEE requirements that are costly to implement, but offer few benefits. Widespread dissatisfaction among all the firms, including black-owned businesses, is very evident, despite some 57 percent having accreditation. Accreditation comes with annual costs, is administratively burdensome, and is not balanced by enhanced access to procurement opportunities,” Darroll said.

SBP said to achieve the target of creating 5 million jobs over the next 10 years South Africa would need to produce 13 600 new manufacturers.

For more on the study, visit www.smegrowthindex.co.za

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