SME Industry Analysis in South Africa
In 2008, the DTI published a comprehensive report on the Small, Medium
and Micro Enterprises (SMME) sector of South Africa (The DTI, 2008). As
economies evolve over time and adjust to new circumstances, so too the
SMME landscape in South Africa. This might be particularly true given the
major economic events of the last eight years. Some of these events include the
global financial crisis of 2008 and 2009, and a new administration in
government (President Zuma vs. former President Mbeki). Also a full cycle of
interest rates (from a tightening to an accommodative cycle), and the peak of
the commodity super cycle.
With these changes in mind, it is reasonable to assume that the SMMEs in
South Africa have adapted themselves to the new circumstances. The aim of
this report is to identify the current situation of SMMEs in South Africa, and to
compare this with their situation in 2008. From these time-comparisons some
trends emerge.
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This research note starts off with a short overview of the current literature on
SMMEs in South Africa, with a focus on the DTI report. Then we present the
methodology used to derive a proxy for the number of SMMEs in the country.
This section is followed by the relevant data, which is presented in tables and
graphs according to two main topics. The first topic deals with demographic
and geographic properties of SMMEs;. It derives data from the Quarterly
Labour Force Survey (QLFS), as published by Statistics South Africa
(StatsSA). Here we focus on the distribution of SMMEs by province, race,
income groups and economic sectors. The second main topic focuses on the
financial indicators of SMMEs. It is based on the Quarterly Financial Survey
(QFS) of StatsSA, and the focus is on the aggregate income statement of
companies.
Since we cover a wide spectrum of indicators on SMMEs, we mostly
present only tables and graphs of the data, with limited comment and analysis.
The aim is to provide future researchers with the data they need to do more in
depth analysis of specific topics regarding SMMEs.
“The definition for SMMEs encompasses a very broad range of firms, some of which includes formally registered, informal and non-VAT registered
organisations (The DTI, 2008). Small businesses range from medium-sized enterprises, such as established traditional family businesses employing over a
hundred people, to informal micro-enterprises. The latter includes survivalist self-employed persons from the poorest layers of the population. The upper end
of the range is comparable to the small- and medium-sized enterprises (SME) segment found in developed countries. In South Africa, a large majority of SMMEs
are concentrated on the very lowest end, where survivalist firms are found (Berry, 2002). These firms can take the form of street trading enterprises, backyard
manufacturing and services, and occasional home-based evening jobs. The informal sector comprises almost exclusively of SMMEs; those classified as survival
entities have very little growth potential and are less likely to hire staff (The DTI, 2008).”
Challenges faced by SMEs
LACK OF
ACCESS TO
FINANCE
Limita tions of access to finance for SMMEs are very common. Given their highly
conservative nature, South African banks and lenders are more inclined to put resources
in small businesses in their later stages of development. They are less likely to lend to
start-up SMMEs. The degree of these inclinations, however, can vary depending
primarily on locational differences. For instance, Finscope’s Small Business Survey
reported that SMMEs in Gauteng and North West tend to have greater access to finance
relative to SMMEs in the other provinces. In Gauteng, the greater access to finance could
partly explain why the province is home to about 48% of formal SMMEs. SMMEs in
Mpumalanga and the Northern Cape, on the other hand, find it difficult to access finance.