EDITED 2014 REVIEW OF SMALL BUSINESSES IN ...Annual Review of Small Businesses in South Africa...

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CATALYST

EDITED 2014 REVIEW OF SMALL BUSINESSES IN SOUTH AFRICA REPORT FOR THE DEPARTMENT OF SMALL BUSINESS DEVELOPMENT

AnnualReviewofSmallBusinessesinSouthAfrica2007-2014

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EXECUTIVESUMMARY

Theperiodcoveredby this review(2008-2013)wascharacterisedbyconsiderablydifficulteconomicconditions,withgenerally subduedoverall

growthperformance,highlendingrates,fallingbusinessandconsumerconfidenceresultinginslowingdemandandweakenedcapacityutilisationin

theprivatesector.Businessbankruptciessoaredandtheeaseofdoingbusiness,asmeasuredbytheWorldBank1,deteriorated.Thesetoughtrading

conditionsundoubtedlyhaveimpactedthebusinessprospectsandperformanceofSMMEs.SouthAfricaboastsawiderangeofpublicandprivate

sectorsmallbusinesssupportinstitutions,presentlyestimatedataround214intotal,providingavarietyofsupportservices.However,theongoing

criticismlevelledatthesupportsystemisthatittendstobefragmentedorunintegrated2andthequalityofsomeoftheservices,particularlybusiness

advisoryservices,iscontinuouslybeingquestioned.Thequalityofsmallbusinessdataremainsachallenge,resultinginlackofaccuratefiguresonthe

totalnumberofsmallbusinessesinthecountry.Thishasanegativebearingonpolicymakingandimplementation.Withthiscaveatborninmind,the

mainfindingsofthisreviewareasfollows:

1. Currentestimatesshowthat thecountryhasroughly2,7million formaland informalsmallbusinessescombined, representinganestimated

averageannualgrowthrateof14,5percent,some74,396newenterprisesperannum,overthereviewperiod.Threeprovinces–Gauteng,Western

CapeandKwaZulu-Natal–accountforthemajorityofformalSMMEs,withinformalsectorSMMEspredominantlylocatedinGauteng,KwaZulu-

Natal,LimpopoandEasternCape.

2. Thesectorcontinuestobedominatedbyverysmallandmicroenterprises,comparedtothoseclassifiedassmallandmediuminsize.SMMEsare

predominantlyinvolvedinthefinancialintermediation,insurance,realestateandbusinessservicessector,followedatadistantsecondbythose

in retail trade. Manufacturing and community, social and personal services have declined since 2007, while sectors such as construction;

electricity,gasandwater;andtransport,storageandcommunicationhaveshownmarginalgrowthinSMMEnumbers.

1CurrentlytheEaseofDoingBusinessindexranks189countries.2Forinstance,inherkeynotespeechattheForgingEnterpriseconferenceinCapeTownon28May2015,theMinisterforSmallBusinessDevelopmentidentifiedlackofintegrationasbeingofthekeyweaknessesinsmallbusinessdevelopment.


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3. Most businesses survive up to three years of operation and thereafter there is a sudden decline in survival rates, confirming conventional

knowledgethatsmallbusinessesgenerallystruggletosurvivebeyondtheirfirstthreeyearsofoperation.

4. Theyear2013/14sawasignificantdropinnewbusinessregistrations,withcompanyregistrationsfallingby45percentandco-operativesby52

percentfromthepreviousyear.Businessesregisteredascooperativessignificantlylagotherlegalforms.

5. The 2008-2010 period saw a sharp rise in business bankruptcies, liquidations and insolvencies. While the situation has shown steady

improvementsincethen,itisstillworsethanthe2007level.

6. Justoverhalfofthecountry’sSMMEsareurban-basedandmorethantwo-thirdsarehome-based,withonly13%and5%,respectively,operating

fromanofficeblockorfactory.

7. Thehighestconcentrationofbusinessownersisinthe36to55-yearagegroup.NearlyfortypercentofrespondentbusinessownersheldaGrade

12qualification,withjustoverone-thirdholdinguniversityqualifications.

8. ContrarytotheconventionalviewthatentrepreneurshipinSouthAfricaismorenecessitythanopportunitydriven,thereviewfoundthatthe

majorityofrespondentsweremotivatedtostarttheirownbusinessesbypositivefactorsratherthananegativeurgetoescapeunemployment.

9. Twenty-fourpercentmoremalesthanfemalesownbusinesses.Sincethelastreviewthenumberoffemaleownedbusinesseshasdecreasedby

almost20%.Whereaspreviously,womenwerealmostequallylikelytoengageinentrepreneurialactivityasmen,currentlytheproportionof

womenengaginginentrepreneurialactivityislower(8%)thantheproportionofmendoingthesame(11%).Womenownjustoverone-thirdof

allSMMEs,anotabledecreasesincethe2007review,whenwomenwerereportedtocompriseforty-fivepercentofallbusinessowners.

Malesaremorelikelytostartbusinessesandemploystaffearlierintheirlivesthantheirfemalecounterparts.Businessownershipamongwomen

risessteadilybyage,peakingatthe40-59agegroup,afterwhichisfallssignificantly.Mostnoteworthyisalowanddecliningbusinessownership

rateamong15to29-year-oldwomen.


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10. Thereviewfoundgrowthof124560peopleinself-employmentsincethepreviousreview,anaverageannualgrowthrateofonly1%,totalling

justover2millionindividualscurrentlyinself-employment.Themajorityofrespondentseitherhadeithernoemployeesoremployedbetween

2and4employeeseach.Only2%ofallbusinesseshadmorethan20employeesandjust1%employedover50employeeseach.Overall,an

estimated8,4millionemployeesworkedforSMMEsin2013,acontributionof55%tooverallemployment.

11. Similartoemployment,accuratelydeterminingtheGDPcontributionofSMMEsremainsachallenge.Usingadifferentapproachtotheoneused

in2007,thisreviewestimatestheoverallGDPcontributionofSMMEsatbetween41%and47%oftotalGDP.SMMEsaremarginallyinvolvedin

bothimportingandexporting,andtrademostlywithlocalcustomers.

12. PreviousstudiesshowthatSMMEsindifferentsectorsoftheeconomyfacedifferentchallenges.ManufacturingandbusinessservicesSMMEs

mainlyfaceachallengewithrecruitingskilledpersonnel.TourismSMMEsmainlyfacedifficultiesinaccessingfinance.Overall,localeconomic

conditionsandlackofskilledstaffarethemainchallengesfacedbyallSMMEs,followedbylackoffinanceandburdensomeregulations.

Thereviewmakesfiverecommendations:

• Prioritisetheimprovementofthequalityofsmallbusinessdata,whichhasanimportantbearingonpolicyqualityandrelevance

• Analysereasonsforlowlevelsofentrepreneurshipamongyouthbetweentheagesof15and29,particularlywomen,andimplementprogrammes

tostimulateentrepreneurshipwiththisagegroup

• Analysethecausesofconcentrationofsmallbusinesseswithinonlythreeofthecountry’sprovincesandtwoeconomicsectorsandimplement

targetedmeasurestodrivehigherlevelsofentrepreneurshipinotherprovincesandsectors

• Analysethecausesofsharpdropsinbusinesssurvivalafterthreeyearsofoperationandreasonsforapparentlackofprogressionbeyondthe

microandverysmallbusinesssizecategoryandimplementmeasurestoenablethistransition

• Analysethecausesoflowlevelsofco-operativeestablishmentanddesignappropriateresponsesthereto


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LISTOFACRONYMSANDE AspenNetworkforDevelopmentEntrepreneurs

CC CloseCorporation

CIPC Companies&IntellectualPropertyCommission

GDP GrossDomesticProduct

GEDI GlobalEntrepreneurshipDevelopmentInstitute

GEI GlobalEntrepreneurshipIndex

GEM GlobalEntrepreneurshipMonitor

LFS LabourForceSurvey

SEDA SmallEnterpriseDevelopmentAgency

SMME Small,Medium&MicroEnterprise


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TableofContents

EXECUTIVESUMMARY.............................................................................................................................................................................................................................1

LISTOFACRONYMS...................................................................................................................................................................................................................................4

A.BACKGROUNDANDMETHODOLOGY ................................................................................................................................................................. 7

1. INTRODUCTION ............................................................................................................................................................................................................... 7

2. SAMPLEDESIGNANDDATACOLLECTION .............................................................................................................................................................. 7

B. NATIONALMACRO-ECONOMICCONTEXT ....................................................................................................................................................... 11

C. SMALLBUSINESSSUPPORTINSOUTHAFRICA:INSTITUTIONSANDDYNAMICS ............................................................................... 11

D. SMALLBUSINESSSECTORPROFILEANDDYNAMICS .................................................................................................................................. 14

1. DEFINITION .................................................................................................................................................................................................................... 14

2. SIZE,GROWTHRATESANDTRENDSOFSOUTHAFRICA’SSMALLBUSINESSSECTOR .......................................................................... 15

3. PROVINCIALDISTRIBUTIONOFSMALLBUSINESSES ....................................................................................................................................... 18

4. THEMAJORITYOFSMMESFALLWITHINTHEMICROANDVERYSMALLSIZECLASS ........................................................................... 19

5. SMMESCONTINUETOBECONCENTRATEDINONLYTWOECONOMICSECTORS .................................................................................... 21

6. BUSINESSLIFESPANSHOWSASIGNIFICANTDECLINEAFTERTHEFIRSTTHREEYEARSOFOPERATION .................................... 22

7. NEWBUSINESSREGISTRATIONS ............................................................................................................................................................................. 22

8. BANKRUPTCIES,LIQUIDATIONSANDINSOLVENCIES ...................................................................................................................................... 23

9. SMMESAREMOSTLYURBANTHANRURAL-BASED .......................................................................................................................................... 24

10. DEMOGRAPHICS,EDUCATIONALATTAINMENTANDNATIONALITYOFBUSINESSOWNERS ............................................................. 25

11. MAINMOTIVATIONFORSTARTINGABUSINESS ............................................................................................................................................... 27

12. BUSINESSTURNOVERANDOPERATINGPREMISES .......................................................................................................................................... 28


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E. PARTICIPATIONINENTREPRENEURIALACTIVITY ..................................................................................................................................... 30

1. PROPORTIONOFTHEECONOMICALLY-ACTIVEPOPULATIONINVOLVEDINENTREPRENEURIALACTIVITY ............................... 30

2. WOMENPARTICIPATIONINENTREPRENEURIALACTIVITY .......................................................................................................................... 31

4. SOMECHALLENGESFACEDBYWOMENINBUSINESS ...................................................................................................................................... 36

F. CONTRIBUTIONOFSMALLBUSINESSESTOTHESOUTHAFRICANECONOMY .................................................................................... 37

1. CONTRIBUTIONTOSELF-EMPLOYMENT .............................................................................................................................................................. 37

2. ESTIMATEDTOTALEMPLOYMENT ......................................................................................................................................................................... 38

3. FULL-TIMEVERSUSPART-TIMEEMPLOYMENT ................................................................................................................................................. 40

4. SMMECONTRIBUTIONTOGDP ................................................................................................................................................................................ 41

5. CONTRIBUTIONTOEXPORTANDIMPORT ........................................................................................................................................................... 42

G. CHALLENGESFACEDBYSMALLBUSINESSES ................................................................................................................................................ 43

H. CONCLUSIONSANDRECOMMENDATIONS ...................................................................................................................................................... 44


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A. BACKGROUNDANDMETHODOLOGY

1. INTRODUCTION

TheNationalSmallBusinessAct,1996requiresthecompilationofanannualreviewofsmallbusinessinSouthAfrica,focusingontheperformanceof

thecountry’ssmallbusinesssector,measuredaccordingtoanumberofcriteria.Similartopreviousreviews,thisreportpresentstheresultsofa

nationalassessmentofsmallbusinessperformance fortheperiod2007to2013.Thereport isbasedontheresultsofadetailednationalsurvey,

comprisinganin-depthqualitativeandquantitativeanalysisofkeysmallbusinessperformancevariablesandtheoverallsupportenvironment.These

reviewsareintendedtouncoverkeytrendswithinthecountry’ssmallbusinesssector,toprovideabasisforpolicyresponsesandsupportprogrammes

aimedatstimulatingthesector,andtoenablethemeasurementoftheimpactofthesepoliciesandprogrammes.Animportantdevelopmenttobe

noted,followingthelastreviewconductedin2007,istheintroductionofanewCompaniesAct(71of2008),whichintroducednewlegalformsof

business,whichhasabearingonwhatisunderstoodasasmallbusiness.Thiscallsforduecautionincomparingthe2007andcurrentreviews.

2. SAMPLEDESIGNANDDATACOLLECTION

BasedontheMay2013CIPCdatabaseandinformationfromotherstakeholders,whichindicatedthattherewere1,3millionSMMEs,150,000informal

tradersand54,000co-operatives,aformulawasappliedtoselectthesample.Ata95percentconfidenceleveltheoverall,numericallyproportional

sampleof4,200enterprises,wasselectednationallyforinterviews.Itcomprised2495SMMEs,1089co-operativesand622informalbusinesses,with

theoveralltotalroundeddownto4,200(seeAppendixforthesamplingprocess).Table1presentstheactualrealisedSMMEsample,brokendownby

province.Datawascollectedthroughreviewsofexistingmaterial3,datamining,focusgroupdiscussionswithsmall

3TheseincludedofficialdocumentssuchastheStatsSALabourForceSurvey(LFS),StatsSASurveyofEmployersandtheSelf-employed(SESE),CIPCEnterpriseRegister,the2004and2007SMMEReviewReports,andvariousotherSMMEresearchreports.


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businessassociationsandotherrepresentativebodies,andquestionnaire-basedface-to-faceinterviewswithenterprisesacrossallnineprovincesof

thecountry.

TABLE1:BREAKDOWNOFSURVEYSAMPLE

PROVINCES SMMEs INFORMALBUSINESSES CO-OPERATIVESEasternCape 150 32 27FreeState 123 22 7Gauteng 1,780 143 34KwaZulu-Natal 556 66 44Limpopo 109 30 20Mpumalanga 128 29 13NorthWest 79 29 12NorthernCape 28 9 3WesternCape 659 60 8TOTAL 3,612 420 168Source:Urban-Econ2013

3. LIMITATIONSOFTHESTUDY

This study is not without its limitations and, as in all empirical studies, the limitations should be identified and considered when making recommendations

and conclusions. The limitations of the study are the following:

- Lack of available and/or reliable data sources: Citing prior research studies should have formed the basis of 2014 Annual Review’s literature review

and helped lay a foundation for understanding the research problem we were investigating.


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Like in the previous Annual Reviews, the 2014 research depended on having access to external data sources from CIPC, StatsSA, SARS and provincial

governments to enrich the primary data but access was denied or limited. Additionally and from the municipal, provincial and country wide level,

there are no well-maintained and inclusive SMME databases.

It has then required us to limit the scope of our analysis, the size of our sample, which in turn became a significant obstacle in finding a trend and a

meaningful relationship. Structural relationships with these official government institutions are needed to ensure access to data sources and

consistent undertaking of the Annual Review is needed to avoid not relying on secondary information.

- Longitudinal effects: the time and finance available to investigate a research problem and to measure change or stability over time was constrained

by the due date of this assignment. Proper time management and flexibility should be considered for the next Annual Reviews to allow the completion

of the research within the acceptable confines of the assignment’s due date.

For instance, time did not allow the research team to organize workshops with SMMEs and Cooperatives in each province and as such follow-ups

were not planned for and used.

- True random sample: Caution must be exercised when projecting the findings from this study to the whole population of SMMEs and Cooperatives.

The main, and unavoidable, limitation is that the sample of 4200 small businesses studies was not a complete random sample.

Therefore, it is not known whether the responses upon which these results are based are systematically different from those that would be obtained

from a true random sample of SMMEs and Cooperatives. Care should be taken in generalizing the findings to all rural small businesses in other regions

in the country.


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- Measure used to collect the data: After completing our interpretation of the findings, we have discovered that the way in which we gathered data

inhibited our ability to conduct a thorough analysis of the results.

For example, we regret not including questions on Cooperatives’ groups dynamics and nuanced challenges for women-owned enterprises in the

survey that, in retrospect, could have helped address why there is decreasing Cooperative formation and registration as well challenges affecting low

female owned enterprises which are factors that have later in the study. Future Annual Review series should have these questions in their methods

for gathering data.

- Self-reported data: Whether we were relying on pre-existing data or we were conducting a qualitative research study and gathering the data

ourselves, self-reported data was limited by the fact that it rarely can be independently verified. In other words, you have to take what people say,

whether in interviews, focus groups, or on questionnaires, at face value. However, self-reported data can contain several potential sources of bias

that we should be alert to and note as limitations. These biases become apparent if they are incongruent with data from other sources.

These are: (1) selective memory [remembering or not remembering experiences or events that occurred at some point in the past]; (2) telescoping

[recalling events that occurred at one time as if they occurred at another time]; (3) attribution [the act of attributing positive events and outcomes

to one's own agency but attributing negative events and outcomes to external forces]; and, (4) exaggeration [the act of representing outcomes or

embellishing events as more significant than is actually suggested from other data].

- Cultural and other type of bias: we noted that our questionnaires were administered in English, which might have created some negative bias is

when some respondents, their places, or things were viewed or shown in a consistently inaccurate way by the interviewer. This was noticed during

questionnaire review sessions and we then began to be critical in reviewing how we have stated a problem, selected the data to be studied, what

may have been omitted, the manner in which we have ordered events, people, or places, how we have chosen to represent a person, place, or thing,

to name a phenomenon, or to use possible words with a positive or negative connotation.


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All questionnaires identified to have had some biases were scrutinized and cleaned together with individual interviewer concerned. Piloting

questionnaires should be done thoroughly at early phase to pick up and sort out such biases.

Despite the limitations identified, this study is designed to add to existing empirical body of small business and co-operatives research in rural and urban

areas. The study is further based on the scientific opinion that existing published evidence of both qualitative and quantitative nature that influences the

performance, trends and challenges faced by small businesses and co-operatives to become sustainable globally is still lacking, the findings of this study could

make a significant contribution to a better understanding of the nature of urban and rural small businesses and co-operatives in South Africa.

B. NATIONALMACRO-ECONOMICCONTEXT Duringtheperiodunderreview(2008-2014),thecountry’seconomyfacedconsiderabledifficultiesonanumberoffronts.GrossDomesticProduct

(GDP)fellsignificantlybetween2008and2010,withtheeconomyreachinga-6%growthrateduringthefirstquarterof2010,andcontinuingat

mutedperformancelevelsformostoftheperiodsincethen.Thebanklendingratesoaredconsistentlyfrom2007,reachingprecipitouslevels(around

15%)in2009,andremainingabove10%perannumuntiltheendof2010.Withconsumerconfidencefalling,demandslowed,andcapacityutilisation

intheprivatesectorweakened.Businessconfidenceplummeteduntil2010andthoughimprovingthereafterremainedlargelysubdued.Bankruptcies

touchedahighof500duringthelatterpartofboth2008and2010,andremainedmarkedlyvolatileformostoftheperioduptotheendof2013.The

easeofdoingbusiness,asmeasuredbytheWorldBank4deterioratedfromarankingof32in2008to41by2013.Theseweretoughtradingconditions

forallenterpriseswithintheeconomyand,nodoubt,withsignificantlynegativeimpactonthebusinessprospectsandperformanceofSMMEs.

C. SMALLBUSINESSSUPPORTINSOUTHAFRICA:INSTITUTIONSANDDYNAMICS 4CurrentlytheEaseofDoingBusinessindexranks189countries.


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Sincethereleaseofthegovernment’ssmallbusinessWhitePaperinMarch1995,anumberofsmallbusinesssupportinstitutionsandprogrammes

havebeenestablishedacrossSouthAfrica5.Theseencompassinitiativesandinstitutionswithinthegovernment(national,provincialandlocal),private

commercialsector,educationalinstitutions,non-profitsector,andinternationaldevelopmentagencies.Therehasbeenamarkedgrowthinenterprise

developmentinitiativesstartedbylargecorporationsinresponsetothegovernment’sBlackEconomicEmpowermentlegislationandregulations.The

rangeofsupportinitiativescoversanumberofsupportareasaslistedintable2below.

TABLE2:SUPPORTMEASURESINTHEFIELDOFSMALLBUSINESS

• Advocacy • Exportdevelopment • Smallbusinessexhibitions

• Businessfinance • Informalbusinessdevelopment • Smallbusinessmedia

• Businessincubationandinformation • Mentorshipandbusinessadvice • Supplierdevelopment

• Businessskillsdevelopment • Microfinance • Technologytransferandadvice

• CorporateSMMEinvestment/finance • Productdesignandinnovation • Venturecapital

• Enterpriseeducation • Publicpolicy • Women’sbusinessdevelopment

• Entrepreneurshipresearch • Ruralandtownshipenterprise

development

• Youthenterprisedevelopment

InmappingthesupportavailabletoSMEsinSouthAfrica,theAspenNetworkforDevelopmentEntrepreneurs(ANDE)foundthatSouthAfricaboasts

asmanyas214providersofSMMEsupport(figure1).

5Somesupportinstitutions,particularlynon-governmentalones,pre-datethe1995WhitePaper.


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Figure1:ProvidersofSMMEsupportinSouthAfrica

Source:ANDE,SouthAfrica’sEntrepreneurialEcosystemMap,dateunspecified

However,whilethecomprehensivenessoftherangeofsupportservicesisgenerallyacknowledged,themaincriticismisthattheseservicestendtobe

fragmentedorunintegrated6andthequalityofsomeoftheservices,particularlybusinessadvisoryservices,iscontinuouslybeingquestioned.Various

studieshaveobservedthatavailablesupporthasthefollowingcharacteristics:

• Supportavailablebutfragmented

• Mismatchbetweencapacitysupportandfunding

• Betterco-ordinationbetweeninitiativesrequired

• Thereexistsagapinthefundingofearlystagebusinesses

Thesegapsandweaknessesintheoverallsupportsystemmeanthatthemanycapacitydevelopmentneedsofsmallbusinesses,whilebeingaddressed,

arenotadequatelymet.This,inturn,hasanegativebearingonthecapabilities,performanceandlongevityofSMEs.

6Forinstance,inherkeynotespeechattheForgingEnterpriseconferenceinCapeTownon28May2015,theMinisterforSmallBusinessDevelopmentidentifiedlackofintegrationasbeingofthekeyweaknessesinsmallbusinessdevelopment.

89

71

53

214

0 50 100 150 200 250

CAPAC ITY DEVELOPMENT PROV IDERS

D IRECT F INANCE PROV IDERS

ECOSYSTEM SUPPORT PLAYERS

TOTAL


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D. SMALLBUSINESSSECTORPROFILEANDDYNAMICS 1. DEFINITIONTheNational Small Business Act, No. 102 of 1996 defines a small enterprise as “a separate and distinct business entity, including co-operative

enterprisesandnon-governmentalorganisations,managedbyoneowneroranumberofownerswhich,includingitsbranchesorsubsidiaries,ifany,

ispredominantlycarriedoninanysectororsub-sectoroftheeconomyandwhichcanbeclassifiedasamicro,averysmall,asmalloramedium

enterprise”.TheActusesthreequantitativemeasures–“totalfull-timeequivalentofpaidemployees”,totalannualturnover,andtotalgrossasset

value(fixedpropertyexcluded)–tocategorisesmallenterprises.Basedonthesethreemeasures,thefoursmallenterprisecategories,whosesize

differsbyeconomicsector,aremicro,verysmall,small,andmedium.Usingemploymentandtotalannualturnover,smallenterprisesaredefined

broadlyasfollows:

TABLE3:SMALLBUSINESSDEFINITIONBYEMPLOYMENTANDTURNOVER

Sizecategory Employment(Lessthan)

Turnover(Lessthan)

Micro 5 R200,000

Verysmall 20(10foragriculture) R1m–R6m(variesonsector)

Small 50 R3m–R32m(variesbysector)

Medium 200(100foragriculture) R13m–R64m(variesbysector)

Source:2007SMMEReview


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2. SIZEANDGROWTHRATESANDTRENDSOFSOUTHAFRICA’SSMALLBUSINESSSECTOR

Duetolackofcrediblebaseline(census)data,thetotalnumberofsmallbusinessesinSouthAfricaremainsacontentiousissue,withdifferingsources

suggestingvaryingfigures.Accordingtothe2007SMMEAnnualReviewtherewere2.4millionSMMEsinSouthAfricain2007,outofwhichonly512

518were formalbusinesses.Asmallbusinesssurveyundertaken in2010byFinscopereported that thecountryhad5979510SMMEs.Further

analysisoftheFinscopestudyrevealedthat86%ofsmallbusinesseswerenotregisteredwithCIPC(Amraetal.,2013),indicatingthatthemajority

wereinformalSMMEs.Therefore,accordingtoFinscopetherewere837131formalSMMEs(14%)in2010,withinformalSMMEsaccountingforthe

balanceof5142379businessesor86%ofthetotal(comparedto1,887,482inthe2007ReviewReport).Thisisamajorpolicychallenge.Usingthe

definitionofanSMMEpresentedearlier,availableofficialsourcesindicatethatthetotalnumberofactiveSMMEsinthecountrywas2,738,929asof

31March2014.Thebreakdownpertypeofenterpriseispresentedbelow.

TABLE4:ACTIVEBUSINESSASAT31MARCH2014

CloseCorporations 497050 PersonalLiabilityCompany 8055

PublicCompanies 2503 CompanyUnlimited 4

PrivateCompanies 649296 StateOwnedCompany 60

NonProfit(Section21) 15958 StatutoryBody 1

LimitedbyGuarantee 4 PrimaryCo-Operative 85472

ExternalCompaniesunderSection21A 31 SecondaryCo-Operative 559

ExternalCompanies 1414 TertiaryCo-Operative 24

Totalformalbusinesses 1260431

TotalinformalenterprisesaspertheStatsSAQLFSurvey(2013) 1478498

Grandtotal(formalandinformalenterprises) 2738929

Source:StatsSA2013,CIPC2014database(firstquarter),Urban-Econupdate


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In2013,afterrevisingtheirdatabases, theCompanyandIntellectualPropertyCommission(CIPC)andtheSmallEnterpriseDevelopmentAgency

(Seda),foundthatSouthAfricahadanestimated1155854SMMEs.Inthefirstthreeyearsafterthe2007Review,from2007to2010,thegrowthrate

wasestimatedat17.8%.However,fortheyearsfrom2010to2013,growthdroppedto11.4%.Theoverallannualaveragegrowthratefortheperiod

2007-2013isthereforeestimatedat14,5%,totallingtosome74396newbusinessesperannum,aspresentedinfigure2.

Figure2:Growthratetrendsofsmallbusinesses,2007-2013

Source:2007SMMEAnnualReviewReport,2010FinscopeReport,CIPC2013databaseandUrban-Econcalculation


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FIGURE3:GROWTHTRENDSOFSMALLBUSINESSES,2007-2013

Asmentionedabove,mostSMMEsoperateinthefinancialintermediation,insurance,realestateandbusinessservices.Thisnumberdeclinedin2014

ascomparedto2007,whiletherewasasignificantincreaseforthetransport,storageandcommunication,construction,andelectricity,gasandwater

industries.VeryfewSMMEsoperateintheminingandquarryaswellasthe.

0,0% 5,0%10,0%15,0%20,0%25,0%30,0%35,0%40,0%45,0%

Agriculture, forestry and fishing

Mining and quarrying

Manufacturing

Electricity, gas and water

Construction (contractors)

Trade, catering and accommodation services

Transport, storage and communication

Financial intermediation, insurance, real…

Community, social and personal services

3,4%

0,4%

11,3%

0,2%

7,3%

22,9%

3,4%

44,4%

6,7%

3,6%

0,6%

8,4%

4,0%

9,4%

20,7%

5,3%

43,6%

4,5%

2013

2007


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3. PROVINCIALDISTRIBUTIONOFSMALLBUSINESSES

ThemajorityofformalSMMEsarebasedinthreeprovinces–Gauteng(49,28%),WesternCape(18,25%)andKwaZulu-Natal(15,39%).Gauteng,

KwaZulu-Natal,LimpopoandEasternCapealsohavesignificantinformalsectorbusinessconcentrations.

Figure4:ProvincialdistributionofallSMMEs,2013

Source:CIPC2014database(Q1)

Since2007,thenumberofinformalSMMEshasriseninGauteng,Limpopo,MpumalangaandWesternCapeanddroppedinEasternCape,FreeState

andNorthWest(figure4).

2,18%

3,53%

3,03% 15,39% 49,28%

3,41%

0,77% 18,25%

4,15%

8,00%

7,70%

14,30% 18,80% 24,60%

6,60%

0,70% 5,90%

13,40%

0%

20%

40%

60%

80%

100%

NORTH WEST MPUMALANGA L IMPOPO KWAZULU -NATAL

GAUTENG FREE STATE NORTHERN CAPE

WESTERN CAPE EASTERN CAPE

Formal Informal


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Figure5:ProvincialdistributionofinformalSMMEs,2007and2013

Source:The2007SMMEAnnualReviewReportandCIPC2014databasefirstquarter(Urban-Econcalculations)

4. THEMAJORITYOFSMMESFALLWITHINTHEMICROANDVERYSMALLSIZECLASS

Asduringtheprevious(2007)reviewperiod,thesectorremaineddominatedbyverysmallandmicroenterprisesin2013,withanegligibleproportion

beingsmallandmediumenterprises.Therehavebeenslightdecreasesinthenumberofmicroandmediumenterprises,withasimilarlymarginal

increaseinthenumberofverysmallandsmallenterprises.Itis,however,importanttonotethatfiguresinthe2007SMMEAnnualReviewReport

includedbothactiveanddormantbusinesses,whilethecurrentfiguresreflectonlyactiveones.

5,90%

14,30%

0,70% 6,

60%

18,40%

8,00%

24,10%

7,70%

14,30%

6,90% 11,20%

0,70% 4,20%

18,50%

5,00%

27,50%

11,10% 15,00%

0%

5%

10%

15%

20%

25%

30%

WESTERN CAPE EASTERN CAPE NORTHERN CAPE

FREE STATE KAZULU -NATAL NORTH WEST GAUTENG MPUMALANGA L IMPOPO

2007 2013


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Figure6:Comparisonofbusinesssize,2007and2013

Source:The2007SMMEAnnualReviewReportandSEDAdatabase,Urban-Econcalculations

37,4%

47,0%

11,8%3,8%

36,3%

48,1%

12,5%

3,1%0%

10%

20%

30%

40%

50%

60%

Micro Verysmall Small Medium

2007 2013


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5. SMMESCONTINUETOBECONCENTRATEDINONLYTWOECONOMICSECTORS

Asin2007,thelargestnumberofSMMEsareinvolvedinfinancialintermediation,insurance,realestateandbusinessservices(43.6%)andretailtrade

(20.7%).Manufacturingandcommunity,socialandpersonalserviceshavedeclinedsince2007,whileconstruction;electricity,gasandwater;and

transport,storageandcommunicationhaveshownslightincreases.

Figure7:Formalsmallbusinessesbysector,2007and2013

Source:2007SMMEAnnualReviewReportandUrban-Econ

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Agriculture,forestryandfishing

Miningandquarrying

Manufacturing

Electricity,gasandwater

Construction(contractors)

Trade,cateringandaccommodationservices

Transport,storageandcommunication

Financialintermediation,insurance,realestateandbusinessservices

Community,socialandpersonalservices

2013 2007


22

6. BUSINESSLIFESPANSHOWSASIGNIFICANTDECLINEAFTERTHEFIRSTTHREEYEARSOFOPERATION

Mostbusinessessurviveuptothreeyearsofoperationandthereafterthereisasuddendeclineinsurvivalrate.Thisconfirmsconventionalknowledge

thatsmallbusinessesgenerallystruggletosurvivebeyondtheirfirstthreeyearsofoperation.Figure8:Businesslifespan

Source:Urban-Econ

7. NEWBUSINESSREGISTRATIONS Theperiod2008-2011stillsawthepredominanceofCloseCorporations(CC)asapreferredlegalformforestablishingabusinessinthecountry,with

themajorityofnewbusinessesregisteringasCCs.Themarkedimpactofthe2008CompaniesAct,whichbroughtanendtotheCCasalegalformfor

newbusinessregistration,canbeseenfrom2011/12onwards,particularlyduringthe2012/13year.Theyear2013/14sawasignificantdropin

overallbusinessregistrations,withcompanyregistrationsfallingby45percentandco-operativeregistrationby52percentfromthe

8,38

41,54

28,74

21,34

0

5

10

15

20

25

30

35

40

45

0 - 1 YEARS 1 - 3 YEARS 3 - 5 YEARS 5+ YEARS


23

previousyear.Statisticsshowthatthereisstillasignificantlysmallernumberofco-operativesbeingregistered,laggingtheotherlegalformsbya

significantmargin.

Figure9:Newbusinessregistrationsince2008

Source:CIPC2013 8. BANKRUPTCIES,LIQUIDATIONSANDINSOLVENCIES

Aspreviouslydiscussedunderthesectiononmacro-economicoutlook,withtheeconomyexperiencingsignificantdifficultiesduringmostofthe2008-

2010period,bankruptcies,liquidationsandinsolvenciesrosesharply,registeringthehighestlevelin2009,theyearthecountry’seconomy

27358

26334

27530

121768

222146

122684

261065

253683

179922

59731

0 06504

9279

8109 15340

21515

10334

0

50000

100000

150000

200000

250000

300000

2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 2013/2014

Companies CloseCorporations Co-operatives


24

officiallyentereda recession.Thesituationhasshownsteady improvementsince then,with the firstquarterof2013showingamarkeddrop in

liquidationsandinsolvencies,thoughstillhigherthan2007levels.

Figure10:Businessliquidationsandinsolvenciessince2007

Source:StatsSAbusinessliquidationsandinsolvencies 9. SMMESAREMOSTLYURBAN-THANRURAL-BASED

The2001GlobalEntrepreneurshipMonitor(GEM)studyshowedthatsixtypercentofSouthAfrica’sSMMEsareurban-based.Usingasimilarapproach

aswasusedbyGEMin2001,thecurrentreviewfoundthatthesamepatternstillholds,albeitwithafive-percentagepointdeclineinthenumberof

urban-basedSMMEsandanincreaseofthesamemagnitudeinrural-basedSMMEs.ThesamepatternholdsforbothformalandinformalSMMEs.

2314

4763

6078

4082 41813718

3189

0

1000

2000

3000

4000

5000

6000

7000

2007 2008 2009 2010 2011 Q1/2012 Q1/2013


25

Figure11:UrbanversusruralSMMEs,2001 Figure12:Urbanversusrural,formalandinformalSMMEs,2013

Source:Berryetal.2001(GEMapproach) Source:UrbanEcon(GEMapproach)10. DEMOGRAPHICS,EDUCATIONALATTAINMENTANDNATIONALITYOFBUSINESSOWNERS

Twenty-fourpercentmoremalesthanfemalesownbusinesses,withthehighestconcentrationofbusinessownersagedbetween36and55years,and

AfricansandColouredsaccountingformorebusinessesthanIndiansandWhites.MorethanathirdofrespondentbusinessownersheldaGrade12

qualification,withjustaroundone-thirdholdinguniversityqualifications.SouthAfricanationalsownthevastmajority(98%)ofSMMEs.

Urban60%

Rural40%

55% 53%45% 47%0%

10%

20%

30%

40%

50%

60%

Formal Informal

Urban Rural


26

Figure13:Genderofowner Figure14:Ageofowner Figure15:Populationgroupofowner

Male62%

Female38%

19- 35years43%

36- 55years50%

65+years7%

70%

61%

5%

4%

15%

African/Black

Coloured

Indian

Other

White


27

Figure16:Educationalattainment Figure17:Nationalityofowner

Source:Urban-Econ2014 11. MAINMOTIVATIONFORSTARTINGTHEBUSINESS

MuchisoftenmadeofentrepreneurshipinSouthAfricabeingmorenecessitythanopportunitydriven.Theresponsesbelowpaintadifferentpicture

tothiscommonlyheldbelief.Themajorityofrespondentsweremotivatedtostarttheirownbusinessesbypositivefactorsratherthananegativeurge

toescapeunemployment.Importantly,ifthosewho“sawanopportunity”,“sawagapinthemarket”,and“didmarketresearchandtherewasdemand”

werecombined,thosemotivatedtostarttheirbusinessesbyaperceivedmarketopportunitywouldaccountforthirty-fivepercentofallrespondents.

1%1%

9%

39%

11%

5%

32%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

NO SCHOOL ING

PR IMARY SCHOOL

GRADES 8 - 11

GRADE 12

TECHNICAL COLLEGE

TVET COLLEGE

UNIVERS ITY / UN IVERS ITY OF TECHNOLOGY

SouthAfrican;98,30%

NonSouthAfrican;1,70%


28

Figure18:Mainmotivationforstartingthebusiness

Source:Urban-Econ

12. BUSINESSTURNOVERANDOPERATINGPREMISES Figures18and19onannualturnoverandbusinesspremisesreinforcewhatwasreportedearlier:thatthemajorityofenterprisesaremicrotovery

smallinsize.Justoverninety-twopercentofrespondentshaveannualturnoverofuptofivemillionrand,whichplacestheminthemicroandvery

smallenterprisecategory.Morethantwo-thirdsofthebusinessesarehome-based,withonly13%and5%,respectively,operatingfromanofficeblock

orfactory.Thisalsogivesanindicationofthesizeoftherespondentbusinesses.

0% 5% 10% 15% 20% 25% 30%

BecauseIenjoyit

Ididmarketresearchandtherewasdemand

Ihadaninterestinaparticularproductorservice

Ihadrelevantskills

Isawagapinthemarket

Isawanopportunity

Iwantedtobemyownboss

Iwantedtomakeanincomeformyself

Other


29

Figure19:Annualturnover(Rand) Figure20:Businesspremises

Source:Urban-Econ Source:Urban-Econ

1-1m 1m-5m 5m-10m 10m-50m 50m+% 83,30% 9,46% 4,17% 3,91% 1,44%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Retailstoreinshoppingcentreormall

Officeblockinshoppingcentreormall

Officeblock-other

Officeblock-lightindustrial

Houseconvertedintoindustrialuse

Officeblock

Lightindustrial

Houseconvertedtoretailuse

Houseconvertedtocommercialuse

Homeoffice

Factory


30

E. PARTICIPATIONINENTREPRENEURIALACTIVITY

1. PROPORTIONOFTHEECONOMICALLY-ACTIVEPOPULATIONINVOLVEDINENTREPRENEURIALACTIVITY

SouthAfricacontinues tohavearelativelysmallproportionof itspopulation involved inentrepreneurialactivities.According toGEDI, there isa

significantscopetoincreaseparticipationinentrepreneurshiparoundtheworld.InSouthAfrica,thefiguresaresignificantlyless.Figure20shows

thatsince2005therehasnotbeenanymarkedimprovementinentrepreneurialparticipationwithintheSouthAfricanpopulationasawhole,both

menandwomen.Infact,therehasbeenaslightdrop,from11,4%in2007to10%presently.Thispresentssignificantscopetoincreaseparticipation

inentrepreneurialactivitiesacrosssociety.Figure21showsthatthemajorityofentrepreneursareintheinformalsector,withwomenmorelikelyto

beactiveintheinformalthanintheformalsector.

Figure21:Ownersasa%ofeconomicallyactivepopulationbygender Figure22:Ownersasa%ofeconomicallyactivepopulation bygender&sector,2013


0%

2%

4%

6%

8%

10%

12%

14%

Women Men Total

SESESept2005 LFSMar2007 2014SMMEReview

0%1%2%3%4%5%6%7%8%

Women Men Total

FormalSector InformalSector


31

2. WOMENPARTICIPATIONINENTREPRENEURIALACTIVITY

Since2007,thenumberoffemaleownedbusinesseshasdecreasedbyalmost20%,andiscurrentlyestimatedtobe723000,asdeterminedbythe

StatsSALFS.Whereaspreviouslywomen inSouthAfricawere roughlyequally likely toengage inentrepreneurial activityasmen, currently the

proportionofwomenengaginginentrepreneurialactivityislower(8%)thantheproportionofmendoingthesame(11%),withthedifferencebeing

slightlymoremarkedintheformalsector(4%males,2%females)thanitisintheinformalsector(7%males,6%females)–(figure21).

Gender SESESept2005 LFSMar2007 2014SMMEReview

Women 922000 876000 723000

Men 771000 1058000 1216000

Total 1693000 1934000 1939000

Source:2005and2007figuresfrom2007SMMEAnnualReviewReport;2014reviewfiguresfromQuantecOnlineData(basedonStatsSA2008-2014QuarterlyLFS)BasedontheStatsSALFSofMarch2014,womenownjustoverone-third(37%)ofallbusinessesinthecountry(figure22).Thisisanotabledecrease

intherepresentationofwomenasbusinessownerssincethe2007SMMEAnnualReviewReportinwhichwomenwerereportedtocompriseforty-

fivepercentallbusinessowners(figure23).Trendsindicatethatwomenbusinessownershavealsodecreasedinrepresentationinbothformaland

informalsectors–fromthirty-onepercentofformalbusinessespreviouslytotwenty-fivepercentcurrently,andfromfifty-onepercentofinformal

businessestoforty-threeperccent.


32

Figure23:Workingagewomenamongstallbusinessowners7 Figure24:Womenasa%ofallbusinessownersaged16-65years, 2005-2007

Source:QuantecOnlineData(basedonStatsSA2008-2014QuarterlyLFS) Source:2007SMMEAnnualReviewReport

7Businessownersaredefinedasemployers(employingoneormoreemployees),aswellasownaccountworkers(notemployinganyworkers).Boththeformalandinformalsectorsareincluded,withtheagriculturalsectorrepresented,aswellasthoseworkinginprivatehouseholds.

43%

37%29%

25%

50%

43%

0%

10%

20%

30%

40%

50%

60%1Q

2008

2Q20

083Q

2008

4Q20

081Q

2009

2Q20

093Q

2009

4Q20

091Q

2010

2Q20

103Q

2010

4Q20

101Q

2011

2Q20

113Q

2011

4Q20

111Q

2012

2Q20

123Q

2012

4Q20

121Q

2013

2Q20

133Q

2013

4Q20

131Q

2014

Womenas%ofallbusinesses

Womenas%ofallformalbusinesses

Womenas%ofallinformalbusinesses

24%

29% 28%31% 31%

52%54%

50% 49%52%

43%

48%

44% 44% 45%

0%

10%

20%

30%

40%

50%

60%

LFSMAR2005LFSSEPT2005LFSMAR2006LFSSEPT2006LFSMAR2007

Formal Informal Total


33

Figure24presentssectoralparticipationbygender8. Itshowsahigher levelofwomenrepresentation,comparedtomen, in foursectors:Private

households,exterritorialorganisations,representativesofforeigngovernmentsandotheractivitiesnotadequatelydefined(69%),manufacturing

(59%),community,socialandpersonalservices(53%),andwholesaleandretailtrade,etc.(52%).Womenparticipationinconstructionandtransport,

storageandcommunicationisnegligible.

Figure25:Businessownershipbyindustryandgender,2014

Source:QuantecOnlineData(basedonStatsSA2008-2014QuarterlyLFS)

8Miningandquarrying,aswellaselectricity,gasandwatersupplyindustrieshavebeenleftoutbecausetheirsamplesizesaretoosmall.

96%

90%

61%

56%

48%

45%

41%

31%

4%

10%

39%

44%

52%

55%

59%

69%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

CONSTRUCTION

TRANSPORT, STORAGE AND COMMUNICATION

FINANCIAL INTERMEDIATION, INSURANCE, REAL ESTATE AND BUSINESS SERVICES

AGRICULTURE, HUNTING, FORESTRY AND FISHING

WHOLESALE AND RETAIL TRADE: REPAIR OF MOTOR VEHICLES, MOTOR CYCLES AND PERSONAL ANDHOUSEHOLD GOODS; HOTELS AND RESTAURANTS

COMMUNITY, SOCIAL AND PERSONAL SERVICES

MANUFACTURING

PRIVATE HOUSEHOLDS, EXTERRITORIAL ORGANISATIONS, REPRESENTATIVES OF FOREIGNGOVERNMENTS AND OTHER ACTIVITIES NOT ADEQUATELY DEFINED

Male Owned Business Female Owned Business


34

Table5showsthatmalesaremorelikelytostartbusinessesandemploystaffearlierintheirlivesthantheirfemalecounterparts.Businessownership

amongwomenrisessteadilybyage,peakingatthe40-59agegroup,afterwhichisfallssignificantly,althoughstillshowinga5%overallgrowthrate

forthe60-79agegroup.Abovetheageof79,womenbusinessownershipfellby8%from2008to2014(amongmen,thedropduringthesameperiod

wastwopercentagepointshigherthanthatofwomen,at10%).

Mostnoteworthyarelowanddeclininglevelsofbusinessownershipamongthe15to29-year-oldwomen,atotaldropof4%overthe2008-2014

period.Althoughbusinessownershipratespickupsignificantlyfromthe30to39-yearagebracket,ownershipwithinthisagegroupstillfallsbelow

30%,andhasmostlybeenonadeclinesince2008.

TABLE5:CHANGESINMALEANDFEMALEBUSINESSACTIVITIESFROM2008TOQ1,2014Businessownersandemployersaged:

2008 2009 2010 2011 2012 2013 2014Q1 2008-2014GrowthRate

15-29 Male 16% 15% 14% 14% 16% 15% 15% 0%Female 13% 13% 13% 11% 11% 11% 11% -4%

30-39 Male 31% 31% 32% 32% 31% 29% 31% 0%Female 29% 28% 27% 28% 25% 24% 24% -3%

40-59 Male 46% 47% 46% 46% 46% 48% 49% 0%Female 47% 48% 47% 50% 52% 52% 52% 2%

60-79 Male 7% 7% 8% 8% 7% 8% 8% 2%Female 10% 11% 12% 12% 11% 13% 13% 5%

Above79 Male 0.2% 0.1% 0.1% 0.2% 0.1% 0.1% 0.1% -10%Female 0.3% 0.1% 0.2% 0.3% 0.1% 0.2% 0.2% -8%

Total Male 100% 100% 100% 100% 100% 100% 100%

Female 100% 100% 100% 100% 100% 100% 100%

Source:QuantecOnlineData(basedonStatsSA2008-2014QuarterlyLFS)


35

AccordingtoNationalTreasury,unemploymentishighestamongtheyouthaged18to29(51%withinthe18-24agegroupand33,8%withinthe25-

29 age group)9. Given this, there is a need to increase the rate of entrepreneurial activity among women within this group, where currently

entrepreneurialactivityislowandhasbeendecliningovertime,astable5shows.3. RACIALDEMOGRAPHICSOFWOMENINBUSINESS

Ninety-twopercentofallbusinessesownedbyAfricanwomenin2013areintheinformalsector.Thishasremainedlargelythecasesincethelast

review.Womenofotherpopulationgroupsarealsoconcentratedintheinformalsector,thoughtoalesserextentcomparedtoAfricanwomen.The

majorityofformalwomen-ownedbusinessesinSouthAfricaareownedbywhitewomen,followedbyAfricanwomen.Proportionally,whiteandIndian

femalebusinessownersinSouthAfricaaremorelikelytoownformalbusinessesthanblackandcolouredwomen.

9NationalTreasury,“Confrontingyouthunemployment:policyoptionsforSouthAfrica”,February2011


36

Figure26:Womanownership(%),2008 Figure27:Womenownership(%),2013 Figure28:Womenownershipbyrace(number)

Source:QuantecOnlineData(basedonStatsSA2008-2014QuarterlyLFS) 4. SOMECHALLENGESFACEDBYWOMENINBUSINESS

Surveyrespondentsreportedthatwomenarestillclusteredinserviceindustries.Intervieweescommentedthattheclusteringofwomenbusiness

ownersinserviceindustrieswasdueto lowbarrierstoentryintheseindustries.Respondentsnotedrepeatedlythataccesstofinancetostartor

expand their businesses remained the primary challenge forwomen entrepreneurs. Thiswas attributed to distrust of female entrepreneurs by

commercialbanksandalackofsupportfromtheirspouses(wheredualsignaturesarerequiredtoaccessbankfinance).Redtapewasidentifiedas

9%

22%

91% 78

%

AFR ICAN OTHER

Formal Informal

8%

18%

92% 82

%

AFR ICAN OTHER

Formal Informal

53132

602290

12800

16630

5618

4213

76242

28787

F ORMAL BUS INESS INFORMAL BUS INESS

African Coloured Indian White


37

themainobstacletoaccessingfinancefromgovernmentSMMEsupportagencies.Thisincludesapplicationformsthataretoocomplicatedandlengthy

processesinvolved.

Arelatedchallengeisthatofteninindustrieswherewomen-ownedSMMEsareclustered(suchaseventsmanagementandcatering)contractsare

awardedwithveryshortleadtimesinwhichtodelivertherequiredservice,therebymakingitimpossibletosecurefinancefortheproject,wherethis

mayberequired.Insuchinstances,capitalisrequired,andaccessingmoneyfromcommercialbanksoftenprovesimpossible.Respondentsalsonoted

thatanother reasonwhy thegrowthofwomen-ownedbusinesses in industries suchas construction is slow isdistrustofwomenbyestablished

businesses.Anotherkeychallengeintheconstructionsectoristhatwomen-ownedconstructionSMMEsarerarelyawardedratingsatorbeyondgrade

three,meaningtheyarenotabletotenderforlargeprojectsthatrequirehighergrading.

F. CONTRIBUTIONOFSMALLBUSINESSESTOTHESOUTHAFRICANECONOMY

1. CONTRIBUTIONTOSELF-EMPLOYMENT

Thenumberofself-employedpersonsisoftenusedasanindicatorforSMMEsbecauseitreflectsbusinessesthataretoosmalltohaveshareholders.

StatisticsSA’sLabourForceSurvey(LFS)usesthequestion:‘Didyourunordoanykindofbusiness,bigorsmall,foryourselforwithoneormore

partnersinthelastweek?’todeterminethenumberofself-employedpeopleintheeconomy.The2007SMMEAnnualReviewusedthisLFSfigureto

arriveatanumberof1942000self-employedpersons.ThesamequestionisaskedintheLabourForceSurveyin2013andtheresultis2066560

individuals.Thisshowsagrowthof124560self-employedpersonssincethepreviousreview,anaverageannualgrowthrateofonly1%.


38

Figure29:Numberofself-employedindividuals

Source:2007SMMEAnnualReviewReport,StatsSA(2008-2013)-Q2.4bintheQLFS2. ESTIMATEDTOTALEMPLOYMENT

SimilartothenumberofSMMEs,thenumberofSMMEemployeesisnotspecificallycapturedbyStatsSA.However,anapproximationcanbederived

fromtheanswerstotheLabourForceSurveyquestion:‘Howmanyemployeesarethereatyourplaceofwork?’Ofthosewhosaidtheywereself-

employedin2013,sixty-twopercentsaidtheyhadnoemployees.Theresponsesoftheremaining38percentareshowninfigure29below.Forty

percentofthosebusinessesthatdidemployothersemployedbetween2and4employees,with19percenthaving1employeeandanother19per

centhavingbetween5and9employees.Only2%ofallbusinesseshadmorethan20employeesandonly1%hadover50employees.Thisconfirms

thatover90%ofallbusinessescanbeclassifiedasmicroorverysmall.

1942000

2223684

2010230

2115551

2071072 2141008

2066560

1 800 000

1 850 000

1 900 000

1 950 000

2 000 000

2 050 000

2 100 000

2 150 000

2 200 000

2 250 000

2007 2008 2009 2010 2011 2012 2013


39

Figure30:NumberofSMMEsemployingstaff,2013

Source:StatsSALFS

InordertodeterminethetotalemploymentprovidedbySMMEstheaveragenumberofemployeespercategoryisused.Forexample,inthecategory

‘between2and4employees’theaveragenumberof3employeesisused(plus1fortheowner,foratotalof4employeesperenterprise)todetermine

totalemployment.Businessesthatdonotemployanystaffotherthantheownerareconsideredasprovidingonejob(fortheowner).Table6presents

estimatedtotalSMMEemploymentcontributionbasedonthiscomputation.

TABLE6:SMMECONTRIBUTIONTOEMPLOYMENT,2013FormalSector InformalSector Agriculture Privatehouseholds Total

Micro(1-5) 814502 2024415 60926 9200 2909043

VerySmall(5-10) 931254 182686 96476 - 1210416

Small(10-50) 2835079 62630 166838 - 3064546

Medium(over50)* 1079387 40428 104661 - 1224475

Don'tknow(2jobsassigned)** 19040 11972 519 - 31531

TOTALEMPLOYMENT 5679261 2322130 429420 9200 8440011

Source:AdjustedbyUrban-EconfromStatsSA2013data

48779

144551 116407 8680346653 21588 9520

99575

167178

228363914

-,809 5986

1 EMPLOYEE BETWEEN 2 AND 4 EMPLOYEES

BETWEEN 5 AND 9 EMPLOYEES



50 OR MORE EMPLOYEES

DO NOT KNOW

FormalSector InformalSector


40

NOTE: *TheQLFSdoesnotprovideabandofabove50employees,thatis,amediumsizedbusiness.Thus,thelowestpossibleemploymentnumberof50peopleisusedasaconservativeestimateforthiscategoryofbusinesses

**Somerespondentssaidthattheydidnotknowhowmanypeoplewereemployedattheirplaceofwork.Forthesethemostfrequentresponseof2personswasassigned.

Allinall,thetotalemploymentcontributionmadebySMMEsinSouthAfricain2013isconservativelyestimatedat8440011jobs,takingintoaccount

thatthenumberofjobsinmedium-sizedbusinessesishardtodetermine.Forthesebusinesses,thelowestestimateof50peopleperbusinesshasbeen

used.ThismeansthatSMMEscontributearound55%toSouthAfrica’stotalformalandinformalemployment.

3. FULL-TIMEVERSUSPART-TIMEEMPLOYMENT

TheLabourForceSurveydoesnotdistinguishbetweenfull-timeandpart-timejobsastheonlyrequirementisthattherespondenthasworkedinthe

previousweek.Asamplesurveycarriedaspartofthisreview,however,showsthatthemajorityofemploymentinSMMEsisfull-time,withpart-time

employmentmoreprevalentatthelowerendofthesizespectrumanddroppingsharplyforbusinesseswithtwentyemployeesandupwards.

Figure31:Full-timeversuspart-timeemployment,2013

Source:Urban-Econ

38% 43%49%

23%

4% 0%

62% 57% 51% 77% 96% 100%

0%

20%

40%

60%

80%

100%

120%

1to4employees 5to9Employees 10to19Employees 20to49Employees 50to99Employees 101to199Employees

FullTime

PartTime


41

4. SMMECONTRIBUTIONTOGDP

DeterminingaccuratelytheGDPcontributionoftheSMMEsectorremainsachallenge.The2004reviewoftenyearsofsmallbusinesssupportinSouth

Africa (1994–2004) reported that SMMEs contributed 45% to 50% to the country’s GDP. Acknowledging the difficulties in computing the GDP

contribution,the2007ReviewestimatedthatSMMEsaccountedfor27%to34%oftotalGDP10.Variousotherstudieshaveestimatedthesector’sGDP

contributionin2010atbetween52%and57%(D’Imperio,2012).The2013ReviewadoptedadifferentapproachtoestimatetheGDPcontributionof

SMMEs.This approachmakesuseof the2007and2010employment toGDP ratio trendsaswell as the results from thenational SMMEsurvey

undertakenin2013.Thus,forthecurrentreviewtheemploymenttoGDPratioapproachwasadjustedbasedonthe2013SMMEsurveyresults.On

thisbasis,theoverallcontributionofSMMEstoGDP,usingtheadjustedratio,isestimatedatbetween41%and47%.Table7presentsthevarious

studies’estimatesofGDPcontributionbySMMEsfrom2004to2014.

TABLE7:ESTIMATEDSMMECONTRIBUTIONTOGDP

Report EstimatedSMMEcontributiontoGDP

Reviewof10yearsofsmallbusinesssupportinSouthAfrica:1994–2004 45%to50%

2007SMMEReview 27%to34%

Various2010studies 52%to57%

2014SMMEReview 41%to47%

Sources: 2007 SMMEAnnual Review Report, D’Imperio 2012, Review of Ten Years of Small Business Support in South Africa 1994 – 2004; and Urban-Econcalculations.

10The2007reviewdidnotmakeacleardistinctionbetweenthemediumandlargeenterprises.


42

5. CONTRIBUTIONTOEXPORTANDIMPORT

SouthAfrica’smajorexportsaremostlythosethatSMMEsareonlymarginally,ornotatall,involvedintradingin,including:mineralproducts,products

ofthechemicaloralliedindustries,vehicles,aircraft,vesselsandassociatedtransportequipment.Asimilarscenarioappliestothecountry’simports.

Consequently,SMMEsaremarginally involved inboth importingandexporting (figure31).Figure32shows thatSMMEs trademostlywith local

customers,thusconfirmingtheirlimitedactivityininternationaltrade.

Figure32:Involvementinimportsandexports Figure33:Majorcustomergroups


9,72%

90,28%

11,05%

88,95%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

BUS INESS EXPORTS

BUS INESS DOES NOT EXPORT

BUS INESS IMPORTS

BUS INESS DOES NOT IMPORT 0% 10% 20% 30% 40% 50% 60%

Othersmallbusinesses

Walk-incustomers

Nationalorprovincialgovernment

Municipalities

Mediumbusinesses

Largebusinesses

Businessesyouvisitonaregularbasis

Salesviabusinesswebsite

Otherbuyers


43

G. CHALLENGESFACEDBYSMALLBUSINESSES

Figure33below,basedontheSBPlongitudinalsurveyof500SMEsinmanufacturing,tourismandservices,presentsthemainconstraintsimpeding

thegrowthofrespondentfirmsin2012and2013.Themainconcernfacedbymanufacturingandbusinessservicesrespondentswaslackofskilled

personnel.Fortourismfirms,ontheotherhand,lackoffinancewasthemostcommonimpediment.Overall,localeconomicconditionsandlackof

skilledstaffwerethemainchallengesfacedbySMMEs,followedbylackoffinanceandburdensomeregulations.A2010studyconductedbytheWorld

BankidentifiedseveralobstaclesfacedbySMMEs.Table8categorisestheseaccordingtotheirseverityfordifferentfirmsizes.

Figure34:Chiefimpedimentstogrowth

Source:SBP,SMEGrowthIndex™,2012and2013

Table8:Perceivedseverityofobstacles,byfirmsize

Severity Micro Small Medium

Mostsevere Accessto

finance

Crime Crime

2ndsevere Accesstopremises

Electricity Electricity

3rdsevere Businesslicensing

Accesstofinance

Corruption

4thsevere Competition Corruption Accesstofinance

5thsevere Corruption Competition Accesstopremises

Source:AdaptedfromWorldBank2010(inRethinkingSmallBusinessSupportinSouthAfrica,2011)

15% 13%18% 14%

5%

15% 12% 12% 10% 10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Lackofskilledstaff

Burdensomeregulations

Localeconomicconditions

Lackoffinance Costoflabour

2012 2013


44

H. CONCLUSIONSANDRECOMMENDATIONS

ThisreviewshowsthatalthoughsmallbusinessescontinuetoplayanimportantroleintheSouthAfricaneconomy,contributinganestimated41%-

47%tothecountry’sgrossdomesticproduct(GDP)andanestimated8,4millionjobs,about55percentofallemploymentintheeconomy,theyhave

beennegatively impacted by the sluggish performance of the economy. This has seen a fall in the overall number of newbusinesses registered

particularlysince2010.Therehasalsobeenaslightdropintheoverallproportionofbusinessownerstotheoveralleconomicallyactivepopulation.

SMMEsalsofacearangeofconstraints,keyamongthembeinglocaleconomicconditionsandaccesstoarangeofkeyinputs.Thecountry’ssmall

businessesarebyfarpredominantlyrepresentedinthemicroandverysmallsizeclassandaremainlyconcentratedinthreeprovinces–Gauteng,

WesternCapeandEasternCape.Thereislowlevelofentrepreneurialactivityamongyoungpeoplebetweentheagesof15and29,bothmenand

women.Femaleentrepreneurshippicksupsignificantlyonlywithinthe40to59-yearagegroup.Thereisamarkeddeclineinbusinesssurvivalrate

afterthreeyearsofoperation.Smallbusinessesalmostexclusivelyoperatewithinthedomesticeconomy,withnegligibleparticipationininternational

markets.Therateofestablishmentofco-operativesremainsquitelow.Smallbusinessdataremainsaperennialpolicychallenge,makingitextremely

difficulttomeasurewithanydegreeofaccuracythefullextentofthecountry’ssmallbusinesssectoranditsperformance.

Thefollowingfivekeyactionsarerecommended:

(a) Prioritisetheimprovementofthequalityofsmallbusinessdata,whichhasanimportantbearingonpolicyqualityandrelevance

(b) Analysereasonsforlowlevelsofentrepreneurshipamongyouthbetweentheagesof15and29,particularlywomen,andimplementprogrammes

tostimulateentrepreneurshipwiththisagegroup

(c) Analysethecausesofconcentrationofsmallbusinesseswithinonlythreeofthecountry’sprovincesandtwoeconomicsectorsandimplement

targetedmeasurestodrivehigherlevelsofentrepreneurshipinotherprovincesandsectors

(d) Analysethecausesofsharpdropsinbusinesssurvivalafterthreeyearsofoperationandreasonsforapparentlackofprogressionbeyondthe

microandverysmallbusinesssizecategoryandimplementmeasurestoenablethistransition

(e) Analysethecausesoflowlevelsofco-operativeestablishmentanddesignappropriateresponsesthereto


45

ANNEXURE:THESAMPLINGPROCESSFORTHE2013SURVEY

FORMULA: N/(1+(N(e)2))

BusinessNumbers

Precisionat95%confidencelevel

SampleSize Timeframeimplication

Costimplication

Humancapitalimplication

Confidencelevel(P)

Selection

Formalbusinesses 1300000 1% 9924 High Veryhigh Veryhigh Over95% Nothinghasbeenusedherebecauseofthehighcostandhumancapitalimplication

Co-operatives 54000 1% 8438 High Veryhigh Veryhigh Over95%Informalbusinesses 150000 1% 9375 High Veryhigh Veryhigh Over95%

Total 27737

Formalbusinesses 1300000 2% 2495 Good Good Good Over95% 2495Co-operatives 54000 2% 2389 Good Good Good Over95% Informalbusinesses 150000 2% 2459 Good Good Good Over95% Total 7343

Formalbusinesses 1300000 3% 1110 Low Low Low Over95% Co-operatives 54000 3% 1089 Low Low Low Over95% 1089Informalbusinesses 150000 3% 1103 Low Low Low Over95% Total 3302

Formalbusinesses 1300000 4% 625 VeryLow VeryLow VeryLow Around95% Co-operatives 54000 4% 618 VeryLow VeryLow VeryLow Around95% Informalbusinesses 150000 4% 622 VeryLow VeryLow VeryLow Around95% 622Total 1865 4206

roundedto4200

Source:Urban-Econ

Date post:	28-Mar-2021
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EDITED 2014 REVIEW OF SMALL BUSINESSES IN ...Annual Review of Small Businesses in South Africa...

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