Red tape, policy are killing SA’s small business owners

Low employment rates, conflicting laws, regulations and strategies, no policy harmony and a bird’s nest of red tape are squeezing the life out of small businesses.

And the department of small business development (DSBD), which is supposed to oversee the sector, has done little to improve the situation.

These were some of the findings of South Africa’s first study to determine the size, nature, challenges and potential of small- to medium-sized companies. It was carried out by the The Small Business Institute (SBI), in partnership with the Small Business Project (SBP).

“A lot of people have done a lot of studies on SMEs but they are generally disparate,” said SBP CEO Chris Darroll. “We were given the opportunity to look at South African Revenue Service and Treasury data, looking at corporate income tax data and also IRP5 employment data.”

Using these data sets, Darroll and her team identified a number of critical issues.

“The findings show us we have a very small community of formal small businesses in South Africa, less than a quarter of a million. The majority (66%) comprise of businesses which employ less than 10 people, or what we call micro firms.”

Darroll said 26% employed between 11 and 50 employees. Only 6.5% of the 250 000 businesses employed 51 to 200 people.

“If we say 98% of our business community comprise of small, medium and micro enterprises (SMMEs), only 2% are actually corporates – those which employ beyond 200 employees. Small firms are the heart of the community.”

Darroll said it was a wake-up call in a country which generally looked at small business as a “Cinderella sector” and made SA lag in terms of small business driving employment growth.

Smaller firms were also paying more to retain experienced staff.

The study’s early findings confirmed that despite good intentions, most small business policy and supportive initiatives developed over the years – by both the private and public sector – failed, since their assumptions and data were wrong.

SBI chairperson Bernard Swanepoel said the country was “flying in the dark when it came to the broader picture of SMMEs”.

“It’s no surprise then that we can’t seem to make headway tackling unemployment and inclusive economic recovery and growth if we’re relying on guesswork,” Swanepoel said.

“No matter how good government’s intentions are, without the facts, policy to help SMEs will be based on ideology or ignorance.”

Swanepoel claimed the DSBD had failed in its mandate.

“The minister has yet to issue guidelines to enforce section 18 of the Small Business Act, which requires all Cabinet ministers to review the impact of their actions on SMEs.

“The only rational course of action is to shut it down and collapse it into a nimble, strategic unit in the Presidency.”

ALSO READ: MPs berate inept small business development department

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