Annual Forum Papers

Displaying items by tag: Small Enterprise Development

The small and medium enterprise (SME) sector in South Africa has been the focus of attention since the first democratic elections in 1994. Not only does the sector offer the opportunity to enhance entrepreneurship amongst previously disadvantaged communities in South Africa, but it is also seen as one that has the ability to absorb relatively more labour per unit of output than large scale enterprises. One possible reason for the relatively higher labour absorption of the SME sector is that they pay relatively lower wages per worker.

In order to investigate whether this is indeed the case and whether this has resulted in relatively better performance by the SME sector in the manufacturing industry, we present data that offer a breakdown of key economic variables (value added, employment, wage bill, etc.) in the manufacturing industry by four size groups of enterprises: small (employing 1-19 workers); medium (employing 20-49 workers); large (employing 50-199 workers); and very large (employing more than 200 workers).

The data are presented for four points in time, spread over the period 1971-1996. Although the results are not as accurate as they might have been if we had time series of annual data, the analysis of the changes over the discrete time intervals gives us some idea of the economic performance of the different size groups of firms.

We start with a discussion of the data set in Section 1. Section 2 gives the broad descriptive picture of the role of SMEs in the industrial structure of South Africa and its changes over time. Finally, in Section 3 we turn to an analysis of the wage-employment trends in the different size groups of firms, based on the decomposition model developed by Mazumdar (2000), which has been used in an earlier paper for the South African manufacturing sector as a whole (Mazumdar and van Seventer 2002).

Section 1: Data

While a previous analysis of real wage decomposition for South Africa made use of an extensive industry database consisting of 30-year trends on an annual basis covering about 46 industries in the South African economy, this database is not endowed by a size class distinction. For our purposes here, we have to settle for less perfect data, recently made available in an unpublished format by Ntsika (1999). Although Ntsika has tried to cover all sectors in an attempt to bring size class differences in the South African economy to the surface, we limit our analysis to the manufacturing industry. The data shown in Table 1 are, according to Ntsika (1999), drawn from various issues of the Stats South Africa Statistical Yearbook. This cannot be correct as the last Stats South Africa Yearbook was published in 1995, while the more recent South African Statistics 2000 publication - which resembles the Statistical Yearbooks very closely - does not offer size class information. More likely, the information shown in the next table is drawn directly from the manufacturing census publications for the relevant years, which suggests that several other manufacturing census, such as the one for 1985, were not employed.

It should also be noted that the data shown in Table 1 are reported in 1995 constant prices, while the original manufacturing census is only reported in current prices. This means that an implicit deflator must have been employed; which one, however, is not clear. The other issue to note is that, probably as a result of employing a sub-industry specific deflator, the data set is no longer consistent. This can be attested in the last five rows of the table, where we sum the individual entries of each sub-industry for each size class and subtract the manufacturing totals shown at the top of the table. In the last row, it can be seen that even for the sum of all size classes, the sub-industries do not sum to total manufacturing.

Since we do not know what deflator Ntsika has employed, we use the TIPS South African Standardised Industry Database (see to construct a deflator for the relevant years and relevant sub-industries in order to arrive at current values. Since it is unlikely that our deflator is the same as the one used by Ntsika, value added and wages and salaries at current prices also turned out to be inconsistent. We enforce consistency with the South African Standardised Industry Database by employing the biproportionality method (see Miller and Blair, 1985: 276-294) to a matrix consisting of size class dimensions per sub-industry for each year in two rounds.

Starting with the variables in constant 1995 prices, we let the sub-industry totals add up to the relevant counterparts of the South African Standardised Industry Database, while maintaining as much as possible Ntsika's proportions across sub-industries and across size classes. We then apply the South African Standardised Industry Database deflators to reconstruct values at current prices, followed by another round of the biproportionality method. The end result is a set of value added and wages and salaries data points for the four selected years in current and constant prices (see Table 1).

  • Year 2003
  • Author(s) Dipak Mazumdar; Dirk van Seventer
  • Countries and Regions South Africa
Sunday, 01 December 2002

The Economics Of SMMES In South Africa


South Africa has, since 1994, been faced with the double challenges of re-integration into global markets as a global economy, while at the same time positioning itself to realise the high expectations of its populace regarding a successful transition towards a more democratic order. To achieve the objectives of economic growth through competitiveness on the one hand and employment generation and income redistribution as a result of this growth on the other, South Africa's small micro and medium sized enterprise (SMME) economy has been actively promoted since 1995. Despite voluminous research, however, there is still little clarity about the extent to which South Africa's SMMEs contribute to poverty alleviation, economic growth or international competitiveness.

SMMEs encompass a very broad range of firms, from established traditional family businesses employing over a hundred people (medium-sized enterprises), down to the survivalist self-employed from the poorest layers of the population (informal micro-enterprises). While the upper end of the range is comparable to the SME population of developed countries, statistics reveal that an immense majority of SMMEs are concentrated on the very lowest end. These are primarily black survivalist firms.


Against this background, the objectives of this study are twofold, namely the provision of a more comprehensive understanding of the challenges at stake, to give future SMME policies a firm grounding, and an explanation of the lack of the impact of policy thus far. It also puts forward some new suggestions on the direction that government policy should take.

In detail, this study attempts the following:

Revisit the rationale of SMME policies

While there is a general consensus on the importance of SMMEs in South Africa, their economic rationale has to date been neither well argued nor rigorously investigated. In particular, there is a lack of clarity on how SMMEs fit within the industrial policy framework and with regard to other objectives of government.

Propose some goals for policy

Optimising the SMMEs contribution to employment and economic development could be translated into the following broad objectives:

  • Raising the rate of formation of new SMMEs with growth potential (as these SMMEs will contribute to investment, employment, and income generation);
  • Encouraging new SMMEs arising from previously disadvantaged backgrounds (as these start-ups can contribute to a redistribution of economic ownership and income, as well as a more participatory economy);
  • Increasing the rate of graduation of the micro into the small or medium-sized enterprise categories (as only then will the legacy of apartheid be overcome);
  • Raising performance of existing SMMEs (with a view to increase both their competitiveness, and their ability to fulfil a role in society);
  • Decreasing the undesirable mortality rate of SMMEs that could be viable undertakings.

Main areas of intervention required

  • Achieving these broad objectives typically requires policies, which focus on:
  • Increasing the supply of entrepreneurial talent and opening opportunities,
  • Providing support to existing SMMEs, and micro-enterprises in particular, at no higher than its social opportunity costs,
  • Providing incentives to formalisation of enterprises, including cultural bridging; and
  • Assisting SMMEs (where necessary) to use resources as efficiently as possible.

Within the context of overall macro-economic performance, the ideal policy package for SMME support in South Africa should allow this sector to maximise its contribution to the economy's overall performance in terms of growth, employment and income distribution. This is likely to involve making more resources available to the sector as well as raising the efficiency with which it uses the resources already available to it.

Evaluation of policies to date

With policy initiatives already under way, the study aims to disentangle the reasons for modest SMME growth, and why it has not made a more significant contribution to employment and overall economic growth in South Africa. By doing so, the study aims to assist the Department of Trade and Industry (DTI) in reconsidering its current SMME policy as an integral part of its industrial development strategies.

  • Year 2002
  • Organisation TIPS
  • Author(s) Al Berry; Magali von Blottnitz
  • Countries and Regions South Africa
Published in Trade and Industry

South Africa's democratic transition now lies close to a decade in the past. The transition carried with it much by way of hopes in terms of greater access by its population, not only to an improved rights environment. It was envisaged that the political self-realization of all South African citizens would also bring with it access to improved economic well being. Employment, as well as rising per capita income, is an obvious indicator of progressive development for the population of a country.

In this paper, we consider the implications of evidence that has emerged over the past four years that carries insight into the growth and employment creation performance of the South African economy. The emphasis is explicitly on why limitations in the growth performance of the South African economy may have emerged. As such, the tone will have a tendency toward the gloomy. This should not obscure the considerable achievements on the economic policy front over the past decade. Success, particularly with regard to macroeconomic stabilization policy, is notable.

  • Year 2002
  • Organisation ERSA, University of the Witwatersrand
  • Author(s) Johannes Fedderke
  • Countries and Regions South Africa

High expectations exist about the possible contribution of SMMEs to economic growth and development in South Africa. It is recognized, however, that SMMEs are seriously constrained in many regards, amongst others, legal and institutional requirements, whereas the authorities do not have adequate capacity for enforcement. Non-compliance cannot therefore be effectively sanctioned. The same trend is observed regarding compliance with environmental legislation and the implementation of environmental management systems. It is suggested here, based on international evidence, that prudent environmental management should not be viewed only as a cost item or legal matter, but actually as a matter of good business. This necessitates a proper and well-implemented development support and communication system between science, industry and government.

  • Year 2002
  • Author(s) J.N. Blignaut; T Demana
  • Countries and Regions South Africa

Economic empowerment reflects the challenges, the changes and the strategies of a large part of the South African population to have entry into industries, business sectors where the ownership and the skills were located in the hands of a few South Africans. The attempts of the private and public sector to address these inequalities as well as the skewed workforce balance has been directed by the economic empowerment agenda. The process of change impacted both private sector firms as well as public sector organizations. The paper will evaluate social equity as a concept within the casino industry as well as the regulators role as a government support policy for the advancement of the economic empowerment process. This paper will particularly focus on the policies, practices of the regulatory environment that could assist in stimulating and supporting social equity development as an imperative. Furthermore, this paper will determine the key success factors for the operationalisation of such social equity beneficiaries within the gambling environment and the reasons why such initiatives should focus on the support of empowerment initiatives and the possible stimulation of small and medium enterprises as an economic viable strategy. The main methodological approach will be reflecting on the case of the Western Cape as a provincial regulator within the gambling environment, the impact of social equity as an instrument and its possible lessons learnt and to duplicated or avoided.

  • Year 2002
  • Author(s) Linda de Vries
  • Countries and Regions South Africa

The current economic setting in most Latin American countries suggests that if the small and medium enterprise sector does not perform well during the next couple of decades, overall economic performance will also be unsatisfactory, especially in the areas of employment creation and income distribution. No other major sector has the potential to generate a large amount of adequate-income jobs. Experience of other countries has proven that this sector can play a central contributing role under proper conditions and with adequate support. Various types of evidence from the countries of the region suggest that considerable potential is present in their SME sectors. But both experience elsewhere and economic logic imply that a strong and coherent support system will be necessary if that potential is to be reasonably fully reaped. Such a system has been notoriously absent in most Latin American countries in the past. Countries which fail to rectify this lack may suffer serious social and economic consequences. The marked parallels between the economy of South Africa and those of many Latin American countries, both in economic structure, recent growth performance and level of inequality, suggest that many of the conclusions applicable to Latin America are likely to be relevant to south Africa as well.

  • Year 2001
  • Organisation TIPS
  • Author(s) Al Berry
  • Countries and Regions Latin America

The aim of the paper is to demonstrate the ways in which EU competition policy and specifically Danish competition policy1, aim to protect the interests of not only private consumers, but also small and medium-sized enterprises (SMEs). As a point of departure it is useful to mention that the individual competition policy legislations of the member states of the EU now, after a period of adaptation stretching over many years, as an example of what might be termed voluntary harmonisation of policies, for all practical purposes although with certain noteworthy additions, consists of copies of the central competition rules of the EU. The provisions, that pertain to SMEs first and foremost, consist of articles 81 and 82 of the Treaty on the European Community (Treaty of Rome as amended by subsequent treaties, henceforth: the EC treaty).

  • Year 2001
  • Organisation Danish Federation of Small and Medium-sized Enterp...
  • Author(s) Peter L. Vesterdorf

In most African countries small and medium enterprises (SME) account for a significant share of production and employment and are therefore directly connected to poverty alleviation. While in many respects the South African economy is different to that of other countries in the continent, for the poor population in the rural areas SMEs are also very relevant for employment and as an income source. Especially in developing countries SMEs are challenged by the globalisation of production and the shift in the importance of the various determinants of competitiveness. Through the rapid spread of information and communication technologies (ICT) and ever decreasing prices for communication, markets in different parts of the world become more integrated. Therefore, one basic question of this study is whether the use of ICT (as production technology, as information processing technology or as information communication technology) can help them to cope with these new challenges. The spread of ICT has led several commentators to argue that these technologies are creating a new economy – an information economy – in which information is the critical resource and basis for competition in all sectors – manufacturing and probably even more in services. Generally, from the performance perspective, the competitiveness effect of ICTs derives from the impact that ICTs have upon the productivity of the factor inputs. In this regard, ICTs can improve efficiency and increase productivity by different ways including, improving efficiency in resource allocation, reducing transaction costs, and technical improvement, leading to the outward shifting of the production function.

It is argued that in remote regions, the disadvantages that arise with isolation can be significantly lessened through access to rapid and inexpensive communication. However, there are also more pessimistic views that assume that the digital divide will increase and therefore producers in developing countries and especially in rural areas will face even greater disadvantages relative to their competitors in developed countries. Although South Africa is much more developed and its ICT infrastructure is far more advanced than in most Sub-Saharan African countries, in remote areas with a poor population similar difficulties as in other African countries exist with respect to education, unemployment, ICT infrastructure and role of the SME sector and therefore the above questions are also relevant.

So far there is little empirical evidence of how the diffusion and application of information and communication technologies (ICTs) can be a catalyst for economic competitiveness and growth in developing countries. After a review of the macroeconomics of ICT diffusion and growth effects in this study, we therefore particularly focus on how micro-level competitiveness is influenced by ICTs using enterprise survey data from two East African countries: Tanzania and Kenya. In so doing, we also account for other factors that obviously influence competitiveness. Hence, the analysis incorporates also the influence of the enterprise resources in terms of factor inputs, because the performance is partly a function of the resources that are invested in such basic factor inputs as labour, physical capital, and production materials. Besides, the saliencies of African SMEs (e.g., relatively small size and young age by international comparisons, and human capital stock) are drawn into the analysis. As the food processing, textiles and tourism sector, where we have conducted our empirical analysis of East African SMEs, are also of considerable importance for South Africa, we can draw some conclusions and develop policy recommendations, that are relevant especially for rural South African SMEs.

  • Year 2001
  • Organisation Center for Development Research (ZEF Bonn)
  • Author(s) Susanna Wolf

South Africa’s recent integration into the world economy provokes the question about its potential for building competitive advantage and prosperity at the local level in the context of an increasingly globalised economy. The experience of prospering localities in industrialised countries, in particular Western Europe and Japan, suggests that the small and medium-sized enterprise (SME) sector is at the forefront of local economic development. SMEs are reported to resolve the persistent problems of insufficient employment growth while being highly efficient in flexibly serving increasingly segmented consumer markets.

The small firm discussion has been taken up in South Africa, where small, medium and microenterprises (SMMEs) hold a numeric majority. SMMEs are expected to function as a driving force in South Africa’s both social and economic transition if supported by supply-side measures targeting enterprise constraints. Research on South African SMMEs reveals, however, a mismatch between the reality and the model of the SMME sector used by South African policy makers: The South African SMME sector is far from homogenous and would require a fine-tuned set of interventions rather than the generic assistance currently provided. Only the few, more dynamic SMMEs show a potential to contribute to rapid employment creation, while survivalist activities (as a result of ‘enforced self-employment’) constitute the vast majority of the South African SMMEs economy and grow in numbers, but not in size. Moreover, small business performance seemingly depends not only on the removal of constraints by means of (supportive) public policies and regulations, but decisively on industrial and organisational structures, the adaptiveness of firms and, above all, the capabilities and aspirations of the entrepreneur.

This paper aims to contribute to the South African SMME discussion by drawing together
findings from recent surveys on established manufacturing SMMEs in three South African regions. The descriptive findings on their turnover and employment growth trajectories confirm unambiguously that the present manufacturing SMME economy as a whole is no vehicle to tackle the problem of employment growth. This argument is developed in seven sections. Section two and three shed light on the international experience regarding SMMEs and employment growth. Section four turns to South Africa, its SMME policies and the debate about the role SMMEs are able to play. Theoretical and methodological considerations of section five form the background to section six, which contains the research findings on employment growth in manufacturing SMMEs in three regions. These findings are summarised and interpreted in the final section.

  • Year 2000
  • Organisation TIPS
  • Author(s) Anna Kesper
  • Countries and Regions South Africa

The relationship between the size of an enterprise and other enterprise dynamics seems ambiguous. This paper highlights critical policy and research questions, with specific reference to the links between enterprise size, enterprise growth and the propensity to export. Preliminary findings suggest that the prevalence of some systematic gaps in size-class economic research may lead to a misguided policy framework for supporting small and medium enterprises. The paper articulates that public policy should encompass selective enterprise programs directed at enterprises of different size-classes, informed by a thorough comprehensive appreciation of the factors, systematic and unsystematic, involved in growth and exporting of small and medium enterprises. The tentative finding of this study imply that provision of finance, provision of information and training, ensuring an enabling environment, are the most important variables to take into account when crafting support framework for small and medium enterprises. It is therefore recommended that government should address high interest rates, high inflation, ameliorate access to information and markets, accelerate training of small and medium entrepreneurs, and most significantly embellish coordination and monitoring of units dealing with SME support. It is, however, argued that small enterprises should address certain constraints that are within their control. In addition to the issue of growth and exports of small enterprises, reference to employment and output trends of small enterprises is made, a theoretic model of possible relationships between enterprise export, employment and output is presented. This paper argues for a deeper examination of export processes and export success/ failure of small enterprises. To better understand the intricate dynamics of small enterprises, researchers should undertake comprehensive case studies, longitudinal studies and surveys on SME policy issues.

  • Year 2000
  • Author(s) Vusi Gumede

This paper seeks to provide a coherent definition of BEE, which has the empowerment of the people as its prime objective. In the first section, I examine how the concept of empowerment has been used in the field of development. In section two, I introduce and critique the minimalist approach that emphasises individual empowerment especially through the creation of a filthy rich black business class without addressing the extreme poverty experienced by majority of the black population. In section three, I discuss the maximalist approach, which emphasises collective empowerment, that is, uplifting the living conditions of the majority of the black population. In section four, I analyse one of the government initiatives to promote BEE with a view of highlighting which of the two approaches have dominated the state policy. 

  • Year 1999
  • Author(s) O'mano Emma Edigheji

This paper is concerned with informal clothing in the inner city of Johannesburg. This is done in the context of both the changing racial complexion of small enterprise development and of South Africa's economic heartland inner-city as an important incubator for emerging black manufacturers. This study builds on local research that has been carried out on various aspects of black businesses in the inner-city of Johannesburg. This study does not only confirm the importance of inner city as a hatchery for small manufacturers, it also investigates aspects that relate to sub-contracting and problems faced by clothing manufacturers. The results are presented from a survey of small black clothing manufacturers in the inner-city Johannesburg. Overall, the findings reiterates the importance of the inner-city as incubator.

  • Year 1998
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