Annual Review on Small Businesses in South Africa: Sector Analysis and Policy Insights

1. Annual Review on Small Businesses in South Africa

2. Why the need for Annual Review To present an analysis of the SMME sector and its ecosystem in a way that would be both academically rigorous and policy-relevant with the mandated focus to establish: • A description of trends and an assessment of SMMEs in the broader context of the South African economy • Provide a consisted conceptual framework for such analysis • Establish key impediments and challenges faced by SMMEs which can inform further research/policy or programme intervention • Identify areas for growth potential • Determine the effectiveness/ineffectiveness of government interventions

3. Approach followed for the 2016/2017 Annual review LITERATURE REVIEW Contextualize and inform further research STATISTICAL ANALYSIS Establish trends and the features of the sector at the time of the research QUALITATIVE INTERVIEWS Establish government and industry experiences and assumptions PROVINCIAL CASE STUDIES Analyse the implementation of specific government policies QUANTITATIVE RESEARCH & QUALITATIVE AUGMENTATION Establish the needs and challenges of SMMEs and to understand their perceptions regarding government initiatives

4. Sector performance

5. Sector Performance Business ownership • Majority of SMMEs and co-operatives are black owned, i.e. 87% (39% in formal sector, although still dominant in the informal sector it is showing a downward trend) • Majority of business owners between ages 36 and 65-years old accounting for 82% of all business owners • Gender divide remain persistent in all population groups Employment • SMME contribution to employment estimated at 67% • Dominate sectors remain Wholesale and Retail Trade as well as Construction Contribution to GDP • Small and Micro 48,04% • Highest Wholesale, Retail and Tourism • Lowest Manufacturing, Electricity, Gas and Water supply

6. Sector Performance Ease of doing business • Ranks higher than most BRICS countries in terms of the most of the indicators used by World Bank Ease of Doing Business project 2017 Competitiveness • Although SA remain above average for policy effectiveness & implementation these are on a downward trend. Key factors to be addressed are Policy Reform; Access to finance; and Education and Training Entrepreneurship • 2017 GEM Report - for every person considering to start a business 1.5 persons exit (41.2% exited because business was not profitable; 25.9% exited because of lack of finance compared to 5.9% exited because of opportunity to sell the business and 6.8% who exited because they found another job opportunity – research thus suggest the high rate of business discontinuances due to economic and business environment.

7. Key findings from the research • Government targeting and differentiation should focus on the different size categories and sectors • Government agencies lack the necessary systems and procedures to effectively implement their policies • Government initiatives not adequately targeting highly vulnerable groups • The regulatory and legislative system is too burdensome on SMMEs and co-operatives • SMME uptake of government projects is low due to the quality and accessibility of these initiatives

8. Key recommendations • Consolidate government information through the development of a national database • Standardize government processes and systems and improve key performance indicators • Develop a comprehensive tailor-made SMME growth package that caters for SMMEs and co-operatives in each stage of the business journey