Introduction to SMEs

The buzzword ‘growth’ is like a golden key for nations looking to advance into the upper frontiers of development. It is also a word that has been no stranger to South African politicians in recent times. It is widely believed by experts that to unlock the growth conundrum and in turn address the trisector of poverty, inequality and unemployment, investment in small to medium sized businesses (SMEs) is required. This will address the problem of unemployment by creating jobs, and growth of (especially black owned) businesses will go a long way towards reducing the poverty and inequality gap in South Africa.

So what does the SME landscape in South Africa currently look like? What are some of the things that government and other stakeholders can do with regards to SMEs to drive economic growth in the rainbow nation?

Data used for this article comes from market research conducted by SEDA:

Reference: SEDA (2016). THE SMALL, MEDIUM AND MICRO ENTERPRISE SECTOR OF SOUTH AFRICA.

Small businesses range from medium-sized enterprises, such as established traditional family businesses employing over a hundred people, to informal micro-enterprises.

However, there are several challenges which are faced by SMEs. These include:

  • Access to finance and credit
  • Poor infrastructure
  • Low levels of research and development (R&D)
  • Onerous labour laws
  • An inadequately educated workforce
  • High levels of crime
  • Lack of access to markets

SMEs can be broken down into employers and own account workers. An employer is an SME that employs 1 or more people to do their job, and an own account worker is an individual who is the sole owner of the business and doesn’t hire others.

The numbers

In 2016, the total number of SMEs in South Africa was 2 182 283. These were split into 795 428 (35.33%), where the rest were made up of own account workers. A total of 9.1 million people employed by SMEs.

The percentage of SMEs by industry were as follows:

Construction – 12%

Manufacturing – 9%

Agriculture – 3%

Transport and communication – 7%

Trade and accommodation – 43%

Other – 26%

Furthermore, SMEs were distributed by province in the following ways:

Western Cape: (11.9%)

Gauteng: (30.6%)

Northern Cape: (0.7%)

Eastern Cape: (8.5%)

Free State: (4.9%)

KZN: (14.4%)

North West: (5.6%)

Mpumalanga: (9.6%)

Limpopo: (13.9%)

We can thus depict this data in the following way to show the distribution of SMEs by industry and province:

Relevant industry/province WC GP NC EC FS KZN NW MP LP
Construction 10.1% 11.7% 11.0% 16.57% 13.20% 10.02% 6.04% (13.61%) 16.24%
Manufacturing 11.45% 9.27% 8.96% 6.06% 6.70% 11.02% 8.66% (8.71%) 10.70%
Agriculture 2.64% 0.85% 19.33% 2.13% 4.19% 3.11% 5.07% (3.00%) 3.94%
Transport and comms 8.22% 7.21% 4.15% 10.23% 7.78% 5.00% 10.83% (4.11%) 5.10%
Trade and accom 30.1% 38.14% 33.9% 49.45% 50.91 45.37% 47.64% 47.86% 47.96%

Employment by SMEs

(Amra, Hlatshwayo and McMillan, 2013) show that 37.05% of firms hire 0-9 employees, 12.88% of firms hire 10-19 employees, 15.21% of firms hire 20-49 employees and 34.87% of firms hire 50+ employees

Messages from the data

We see that in terms of quantity, SMEs are most represented in the provinces of Gauteng and Western Cape. Larger sectors are those of construction, manufacturing and trade, who also employ the majority of people among SMEs. The informal sector mainly consists of SMEs that hire 0-9 staff, where formal sector SMEs are more likely to have a larger staff compliment.

This article provides a surface level representation of the SME landscape in South Africa. It is apparent that SMEs play an important role in the South African economy. Policy implications based on these data will be addressed in future articles.

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