Challenges Facing Small Businesses

Frances Baard SMME Week

Overview

• NDP• Challenges• Conclusion

NDP• Sets out ambitious goals for smme’s:– Target – 90% of employment opportunities to be created by

this sector by 2030.– Envisions the SA economy growing by at least 5,4% growth

per year over the next 15 years – to treble in size ( smme sector is pivotal to drive this growth)

• These targets depend on a business environment that supports the growth and sustainability of existing smme’s; a culture of entrepreneurship and enables new sme’s to prosper

Challenges• Growth cycle of smme’s : survivalist businesses to potential high growth

entrepreneurial firms– Require a richer more detailed analysis of the smme lifecycle to enable

policy to be targeted more effectively.• Comparatively underperforming –

– Estimated that SA smme’s account for 60% of empployment compared to global average of 77%.

• Exceptionally high failure rate:– Min Rob Davies noted that 70% of smme’s fail in their first year.

• World Bank: Viability of micro-enterprises is linked to the motivation for starting the business:– Successful businesses start by choice, as entrepreneurial ventures.– Survivalists – motivated by a lack of other employment options – seldom

successful.– Most of SA’s smme’s fall into the latter category.– Since - Decline in smme’s employing less than 50 workers

Challenges• NDP places smme’s at the head of the employment charge.• Regulatory burden:

– Smme’s spend a disproportionate amount of time dealing with regulatory compliance ( approximately 8 working days a month dealing with red tape – a cost of about R 216 000/year- 4% of turnover if the smme turn R 5 million per year)

– Top red tape headaches:• Dealing with SARS• Labour issues• Dealing with their municinaplities• Compliance with BEE

– Responses differed across industries: tourism – concerned with municipal issues; manufacturers – labour issues (11 days per case to resolve a dispute)

Conclusion• Policy makers need to understand the complexity and diversity of

the sector. – Needs linked to incentives.

• Address the red tape and burdensome regulations.– Use regulatory impact assessments as a mechanism to reduce

red tape.• Interventions to reduce skills shortages• Incentives to encourage investment in smme’s.