This is TIPS’s third publication on the State of Small Business in South Africa which is a periodic special edition of our Real Economy Bulletin. The series provides baseline data on the number of small businesses and their contribution to the economy, as well as their distribution by industry and location, ownership by race, gender and age, investment and profitability.
The bulletin first looks at the number of small business, both formal and informal, and the rate of growth. The figures show how the legacy of apartheid has left the country lagging behind other upper middle-income countries, which is a core factor behind very low employment levels.
The next section looks at value added, assets and profitability. Small formal businesses directly generate a third of value added in South Africa. Informal enterprise adds around 5%, but with very low profitability and access to resources.
In terms of the production structure, around a fifth of formal small businesses provide professional services, ranging from education and healthcare to engineering, legal advice and creative work. A quarter are in retail and hospitality. In the informal sector, retail trade accounts for close to half of all businesses, including street traders.
The bulletin also analyses education levels, race and gender, the numbers of young people becoming business owners, and the geographic distribution of small business. The share of black entrepreneurs in small business climbed from 40% in the early 2000s to 60% in 2019. The pandemic hit them disproportionately hard, but by the end of 2022 their share in small business ownership had returned to pre-pandemic levels. Black people have consistently owned around 95% of informal enterprises.
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