Picture: ISTOCK
Picture: ISTOCK

For a segment of the economy that is expected to create close to 10-million jobs by 2030, it is disconcerting how little we still know about small and medium-sized enterprises (SMEs) in SA.

To date, no baseline study has been done on SMEs — which means most of our policies have relied on some element of thumb suck. The Small Business Institute (SBI) has taken up the challenge, spending R1.5m of a total estimated requirement of R7m to try and paint a comprehensive picture of this crucial segment of the economy, in order to better inform legislators.

According to the National Development Plan, SMEs should create 90% of the new jobs needed to bring unemployment to 6% by 2030. Yet the initial findings of the SBI study, released last week, highlighted a number of disconcerting facts.

First, SA’s SME sector is much, much smaller than originally thought, consisting of only about 250,000 businesses — a fragment of previous estimates that were as high as 6-million.

Second, SMEs employ far fewer people in SA than they should. While SMEs contribute nearly 98.5% of the number of formal firms in the economy, they only account for 28% of the jobs. Based on international trends, this should be about 60% to 70%. Instead, a huge 56% of jobs in SA come from only 1,000 employers, including the government — and these jobs are growing at a faster rate than what SMEs are creating.

It is also time to give SMEs their own permanent seat at the Nedlac table. A number of organisational bodies representing SME interests exist, but only the SBI has an (indirect) seat at Nedlac, through its membership of Business Unity SA.

The initial findings, which incorporate existing research, as well as corporate and personal income tax data, are already highlighting a number of disconcerting facts.

Many of the challenges facing SMEs are well-publicised, such as the problems created by the late payment of invoices by the government and the private sector, a lack of access to funding, and overregulation that places a heavy burden on virtually all small business owners.

According to the SBI, about 75 hours, or nine working days a month, are spent on compliance. Given that 66% of SMEs in the country employ fewer than 10 people, that is a huge burden that probably falls on the owner, who should be focused on growing the business. Also alarming is that in 70 pieces of legislation and regulations that are applicable to small business, the SBI found no consistency around something as simple as the definition of an SME.

Another item on the government’s to-do list is to ensure the impact on small business is considered whenever new legislation or regulations are considered. This is already a legal requirement, but is largely ignored. Enforcing it could be a relatively easy win, with a potentially significant positive impact on SMEs.

It is also time to give SMEs their own permanent seat at the Nedlac table. A number of organisational bodies representing SME interests exist, but only the SBI has an (indirect) seat at Nedlac, through its membership of Business Unity SA.

Without a voice at key institutions such as Nedlac, it will simply remain too easy for big business, labour and the government to continue ignoring the plight of SMEs.

There are a number of other regulatory issues that should be fixed. At the moment, for example, mining firms score a higher number of points on the BEE scorecard when they help a start-up through their enterprise development programmes than when they help an existing small firm stay in business. Addressing this could be one small step that helps lower the significant failure rate for new businesses in SA.

While much can be done to assist SMEs, specifically from a legal and regulatory perspective, the reality is that the broader economic environment is not conducive to entrepreneurs. Without higher growth rates, more policy certainty and an environment in which administrative cost increases such as electricity tariffs are more in line with inflation, few salaried employees with the capital, contacts and experience required to successfully start and run businesses will take the plunge.