Has the contribution of South Africa's small, medium and micro sector really contracted by six percentage points within a year, or is it down to errors by statisticians and researchers?
The latest quarterly financial statistics from the country's statistics body, Statistics SA, contain estimates for small, medium and large enterprises by industry.
These reveal that SMEs contributed 36% (9% by medium-sized firms and 27% by small firms) of the R2.1 trillion ($30bn) generated by the private sector in the last quarter of 2015.
This is down significantly from the 42% of value-add that the sector generated in the first quarter last year (9% by medium-sized firms and 33% by small ones), according to a survey by the Stellenbosch University’s Bureau of Economic Research (BER) in January.
If the calculations of the BER report as well as those of the Statistics SA's are correct, it would mean that the SME sector has contracted and is close to the 33% of value-add calculated by BER for the last quarter of 2010.
In January BER economist Nicolaas van der Wath, who worked on the BER report, was unable to explain how the small business sector had grown so fast. He added that most of the growth appeared to have been in 2014.
While the dive could be related to statistical errors (the BER report did contain some initial errors - see this earlier post), one hint at what is going on is that the SA Revenue Service recently reported that tax contributions from small businesses increased in 2015.
Because the data for value-add is calculated from declarations made by firms to the tax agency, this could explain the apparent increase in SME's contribution between 2010 and 2014. Yet it does not account for the drop of six percentage points within the same year.
This aside, the most interesting is that the latest quarterly financial statistics reveal the contribution of small businesses per sector (see the graphic above).
While SME definitions differ slightly for each country (in terms of turnovers eased to define firm size), it is interesting to note that in South Africa's manufacturing sector SME contributes less per total value-add in the sector (31%) than in India (37%), Malaysia (34%) and Brazil (45%), but more than Chile (11%) and Georgia (14%).
In the commerce sector SMEs account for 43% of value-add in South Africa - smaller than in Brazil where SMEs account for 63% of value-add, but again significantly more than in Chile (27%) and Georgia (21%).
Small and medium-sized firms dominate the services sector in South Africa, where they account for between 41% (personal services) and 57% (business services) of value-add, compared to between 33% (business) and 36% (personal services) in Chile. The SA figures are at a similar level to Brazil (44% in all), but higher than the 39% contribution in Malaysia.
The figures in the estimates for small, medium and large enterprises by industry also reveal that small and medium-sized firms appear on the whole to be doing a lot better than larger firms.
Of the R550bn small firms expended in the fourth quarter of last year, they returned a profit before tax of R45.5bn - giving them a profit margin of 7.6% - slightly more than the 7.2% medium-sized firms returned and well ahead of the 4.3% of large companies.
What this reveals is that SMEs in South Africa might not be performing as badly as some pundits may assume - at least in the formal sector. What is missing however is more firms and far more South Africans starting businesses.
Statistics from Malaysia were drawn from a page on the Department of Statistics. Those from Chile were taken from a 2014 report. In Georgia figures were drawn from a 2014 publication, while those from Brazil were taken from a 2014 report and those from India from a 2015 annual report.
Stephen Timm is a