What small businesses see as their main obstacles to business growth

The SME Growth Index, the first and largest study of its kind in South Africa, has been released at the end of November and reveals what small businesses see as the main obstacles to business growth. Not surprisingly, inflexible labour legislation and black empowerment were some of the main frustrations small business owners highlighted in the survey. Small business owners work closely with their staff, and would like more flexibility in terms of how the employer and employee structure their working arrangements.  Some suggest for example that they would like to be able to pay their staff more and have them work longer hours during busy periods, but concerns about labour law infringements, or a backlash from the unions, prevent this. But restrictive labour legislation was just one of the four most pressing obstacles business owners mentioned. Top of the list for entrepreneurs is bad economic conditions and a slowdown in the economy. Almost 40% of the panelists in the survey cited this as their main reason for a decline in business. Their other concerns were financial constraints, like cash flow and unskilled labour. This survey has been done to address factors that could assist small businesses to grow. Smaller firms are the primary drivers of job growth and this fact is well supported by evidence from around the world. “However, South Africa is wasting a critical economic asset and source of job creation by failing to create an environment for the small and medium enterprise sector to flourish.” That’s according to Chris Darrol, CEO of SBP, the research company which compiled the survey. The headline report – Priming the soil: Small Business in South Africa –will run initially for three years, tracking the performance and experiences of a panel of 500 SMEs. These are firms that can make a big dent in unemployment – they have survived the first two years of operation, they currently employ between 10 and 50 employees, and they operate in sectors that government has prioritised for growth – manufacturing, business services and tourism. These firms represent a crucial subset of the business community. They contribute upwards of 50% to South Africa’s GDP and 77% of all private hiring. The Index found some good news. Just over half the firms surveyed plan to grow in the short term. SMEs in the business services sector in particular are confident of growth, but manufacturers and tourism firms are less so. Just over half of business services firms envisage expanding staff numbers, as do 35% of manufacturers and a fifth of tourism firms. The bad news however is that job creation in recent years has been slow. Less than half the firms on the panel have grown their staff numbers over the past five years. Less than a third created new positions in 2011. South Africa’s SMEs are simply not growing at the pace needed for large-scale wealth and job creation. Of the factors contributing to this, the economic climate, not unexpectedly, rates highest. The Index asked the 500 small business owners to identify the critical actions that government needs to take in order to support small business growth and employment generation.  These were some of the actions they would like to see taken: 1. Reduce the cost and complexity of regulatory compliance. 2. Improve administrative efficiency within government in order to reduce red tape. 3. Create a level playing field, ensuring that regulations are fairly and consistently enforced. 4. Develop more efficient and accessible financial instruments for the SME Sector. 5. Create tax incentives for small businesses to grow employee numbers. 6. Work with industry to facilitate the development of practical skills across the labour force. 7. Introduce more flexibility in respect of labour laws. 8. Rethink BEE. 9. Make government procurement opportunities more accessible to small businesses, streamline tender processes, improve transparency, and pay on time. 10. Create political stability, reduce the crime rate and address corruption in government, as preconditions for attracting investment. The full report available on www.smegrowthindex.co.za