Baseline data and policy changes needed for small business to deliver jobs target for NDP

  • Data key to unlocking ‘new dawn’ for small business
  • South Africa has only a quarter of a million formal SMMEs, far off the mark of current estimates
  • Early research shows while 98,5% of SA economy is SME’s, they’re only delivering 28% of jobs
  • Employment concentrated: 56% of jobs come from 1000 largest employers (includes govt)
  • SBI calls for immediate shut down of Department of Small Business Development

Ahead of Government’s Job Summit, the Small Business Institute is warning that the National Development Plan’s goal of small business creating 90% of jobs by 2030 will be stillborn unless this vital segment of our economy is properly understood.

The Small Business Institute (SBI), in partnership with the Small Business Project (SBP) today launched the early findings of South Africa’s first and most comprehensive study to determine the size, nature, challenges and potential of small to medium sized companies in South Africa.

Bernard Swanepoel, chairman of the SBI, explained the study is intended to deliver the baseline facts needed to underpin policy interventions and strategic planning for small business development in South Africa.  It will provide fresh, accurate data to help steer the country’s small business segment in the right direction.

“Right now, we are flying in the dark,” says Swanepoel. “It’s no surprise then that we can’t seem to make headway tackling unemployment and inclusive economic recovery and growth if we’re relying on guesswork. No matter how good government’s intentions are, without the facts, policy to help SMEs will be based on ideology or ignorance.”

“The early research has already made some alarming findings,” says Swanepoel.

  • Despite comprising a relatively high proportion of ‘formal’ firms (98.5% in 2016) micro, small, and medium enterprises provide much lower proportion of jobs than previously estimated (28% in 2016);
  • Employment in South Africa is relatively concentrated – the 1000 largest companies (which include government) employ 56% of those who have jobs;
  • Large firms have added more jobs and grown employment at a faster rate in the 2011 to 2016 period than small business;
  • Small firms pay more to retain staff than the larger firms (as a percentage of turnover) but are not employing people at a desirable rate.

“A matter of great concern highlighted by the review is that South Africa’s small business segment is an outlier internationally in respect of SMEs’ contribution to GDP, employment and the fiscus,” says Chris Darroll, CEO of SBP.

“For example, in OECD countries, over 95% of enterprises are SME’s, accounting for between 60%-70% of the working population and contribute as much as 60% to GDP. Small businesses continue to be as economically fragile as they were over two decades ago, with some 70% of our emerging small businesses failing within their first two years of operation. We need the right data to get the right answers to develop the right policies.”

The research also found that government has failed to apply a common definition of a small, very small, or medium business across its laws, regulations and key strategies. The definition of small enterprises was completely inconsistent across the 70 laws, regulations and key government strategies it reviewed.

“This lack of policy harmony generates a mind-boggling amount of red tape, confusion, and barriers for SMEs starting, running or growing their businesses despite the advent of a Department of Small Business Development tasked with coordination, red-tape reduction and data collection. It has failed in its mandate – the minister has yet to issue guidelines to enforce Section 18 of the Small Business Act which requires all cabinet ministers to review the impact of their actions on SMEs.  The only rational course of action is to shut it down and collapse it into a nimble, strategic unit in the Presidency,” says Swanepoel.

The study’s early findings confirm that despite good intentions, most small business policy and supportive initiatives developed over the years – by both the private and public sector – fail since their assumptions and data have been wrong. In the research, for example, the CEO Initiative’s SASME Fund identified 84 000 firms with turnover between R20m and R500m as its ‘investable universe’ when in fact there are more likely to be only 20 000 – 40 000 firms the fund could support.

“To meet the objectives outlined in the NDP, we need a vastly improved understanding of the business dynamics of small firms, which includes their diversity, characteristics, needs and constraints. Our study, whose methodology will be peer-reviewed, will do this.  Without a coherent, single-minded strategy based on proper evidence we will simply fail to unleash the entrepreneurial value that drives innovation and the potential for SMEs to grow their enterprises to employ millions more South Africans,” says Darroll.

The public launch of the study also is a call to for big business to support the next phase of the project. StatsSA, National Treasury and SARS are supporting the research team and funding for the first phase has been provided by Remgro and nominated partner Business Partners, who will share data with SBP.

“The findings, based on preliminary analysis of both secondary and primary research are showing some telling facts about South Africa’s small business landscape,” says Swanepoel. “By the time of the Presidential Job Summit in September, we will be in a position to present path-breaking information from our study that could radically transform what we think we know about small businesses.”

The results of the baseline research, as well as position papers to support an advocacy campaign, will be released in early 2019.

To support the baseline study of small business in South Africa, contact: Chris Darroll