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SMEs: an endangered species

Index sheds light on challenges faced by small businesses.

Small and medium enterprises (SMEs) are finding it difficult to prosper and have increasingly reverted to survival mode over the last year.

According to the SME Growth Index, of the 500 SMEs interviewed, 74% stated that the environment that they operate in has become more challenging. Only 7% of SMEs felt that it was easier to operate in South Africa.

One of the participants who took part in the survey even went so far as to say that “economic conditions, labour relations, labour policies are biased against employers and SMEs.”

Red tape, lack of support

The index, compiled by SBP, showed that red tape has a direct impact on the bottom line with anything between 3% and 6% of turnover being wasted on bureaucratic duties. This rands and cents impact hit smaller firms particularly hard, the report stated. “Those employing less than 21 people are paying more than double – proportionate to their turnover – than those employing more than 40.”

Despite the National Development Plan (NDP) stating that this sector will be responsible for up to 90% of new jobs, the survey found that there is currently not enough support for SMEs. It said that even though the government has launched numerous projects around SME development and support, this is not being translated into positive effects for small businesses.

The businesses which found it easy to operate said that this was because of their own actions and not because of external interventions.

Costs, labour challenges

At 27%, rising input costs topped the list as the biggest operational constraint. Electricity prices was also listed as a challenge to profitability with 14% of businesses saying that red tape had negatively affected their profitability.

Labour was also high on the list on challenges facing businesses with both ‘hard’ skills such as numeracy and literacy, and ‘soft’ skills such as communication and work ethic, lacking. There has also been a clear shift to temporary employment.

More than half (55%) of the respondents said that they would support the proposed youth wage subsidy. They added however that it would not displace current employees as these individuals had valuable skills that could not be replaced.

Nevertheless, 45% of the SMEs who took part in the survey said they were not hiring because there is not enough demand.

Factors which limit SME growth include municipal rates and services (38%) as a major issue, followed by red tape and regulation at 21% (please see graph below).

Local services were particularly important to manufacturing concerns as they need adequate infrastructure such as good roads and billing systems to function optimally.

The survey found that manufacturers are having a particularly tough time and 81% of manufacturers felt that it had become more difficult to do business in South Africa. Manufacturers, due to the nature of their businesses, were the hardest hit by rising input costs.

Neren Rau, South African Chamber of Commerce and (Sacci) CEO, said that SMEs play an important role in their communities, providing employment to others and sometimes making huge sacrifices to maintain their businesses; this he said was often ignored by unions for example.

Focussing on red tape and legislation, Rau said businesses usually do not have the intellectual capacity and time to follow the complex regulatory changes and that non-compliance was not intentional.

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