Johannesburg – It is becoming increasingly difficult to
operate a small business in South Africa, and the SME community expects that
this will become ever more so in the future, according to the SME Growth Index.
The index is produced by business environment specialists
The SME Growth Index is a multi-year research project,
investigating the views and experiences of a panel of some 500 SME operators in
These firms employ between 10 and 50 people, and are active
in three sectors of the economy regarded by government as having growth
potential: manufacturing, business services and tourism.
Nearly three quarters of the firms surveyed, or some 74%,
feel that it had become more difficult to operate a business in the year
preceding the survey. A mere 6% feel that it has become easier, with the
remaining 19% indicating that it has not changed.
Manufacturers are most negative about the business
environment, with around 81% feeling that things have become more difficult.
Some 71% of business services panelists feel that things
have become more difficult and only 7% that they have become easier.
Respondents in the tourism and business services sectors are
more positive, although large majorities of both groups still feel that
operating a business has become more difficult.
These results are jarring when measured against government’s
emphasis on manufacturing as a growth area. Manufacturers are the most negative
about trends in the business environment.
Given that manufacturing is also an endeavour that is likely
to require specific fixed capital investment whose options for disposal in the
event of failure are limited, that its input prices are climbing, that it may
require scarce and pricy hard artisanal skills, and that it is prone to
unionisation (even in small scale plants), it is a tough sector to operate in.
This may also explain why manufacturing in South Africa is in long-term
Tourism, less subject to these conditions, evidences much
greater confidence. These results point to a need for serious policy
adjustments for manufacturing if industrial plans are to have a chance of
Larger firms, particularly those employing more than 40
people, are more likely to feel that things are getting more difficult than
their smaller counterparts. This is deeply worrying, as it points to barriers
and disincentives to firm growth – which means barriers to creating the
employment opportunities South Africa desperately needs.
Those who feel that operating an SME was more difficult gave
a range of explanations: the overall state of the economy; poor governance
factors; the price of utilities; and the political climate.
Legislation and regulations (“red tape”) are repeatedly
raised. A heavy compliance burden is diverting time and resources away from
firms’ core business, and labour legislation makes employing staff risky. When
asked specifically about the regulatory burden, not a single respondent says
that it has decreased.
A little over half report an increase in the burden, and
slightly fewer than half say it had stayed the same.