Between 2010 and 2015 the number of those employed by small businesses grew at half the pace as those who work in medium and large companies, a new report has found.
The report, by Trade and Industrial Policy Strategies (TIPS), found that the number of jobs in small formal business declined from 2008 to 2015 (see graph below).
Small business, it said, accounted for virtually all the positions lost by the private formal sector in the global financial crisis, with its employment falling 14%.
Workers and employers who said they worked in small business increased by a total of 7% from 2010 to 2015, while those who said they worked in medium and large companies climbed by 15% (the working-age population rose by 9% in this period)
The employment share of formal-sector firms employing fewer than 50 employees having fallen from 64% to 55% between 2008 and 2015. Informal employment fell from 18% of total private employment (including domestic work) to 17% in the same period, it said.
Fall in number of small firms
In addition the number of small formal businesses fell from 710,000 in 2008 to 630,000 in 2010, and then recovered to reach 670,000 in 2015.
The report said in 2015, there were 670,000 small formal business owners who employed a total of 4.3 million people.
In contrast, large companies (with 50 or more employees each) employed 3.6 million people. In addition, a total of 1.5 million people worked in the informal sector, of whom 1.2 million were self-employed, 300,000 were employers, and 1.1 million were employees.
Contribution could be lower
Yet as the report uses at times problematic Statistics SA data drawn from Labour Force Surveys, the employment contribution for firms with fewer than 50 employees could be overstated.
Workers could mistakenly believe they work for a small firm, when they actually work for a branch of a larger firm. In addition the data doesn’t consider turnover, but only the number of employees to define the firm size (see this post for more).
Low number of employed, self-employed
The report reveals that over the past 10 years, however, the number of employers and self-employed people has "barely budged", while the numbers they employ, their incomes and the structure of production have stagnated.
It points to a key problem in that in South Africa, less than 20% of all employed people are self-employed or employers. In contrast, the norm for upper middle-income economies, excluding China, is around 40%, it says.
“In short, the low share of self-employment in South Africa appears to be a significant factor behind persistently low levels of employment overall. In other developing economies, a substantial share of the population earns a livelihood from family businesses in agriculture and retail.
Slow job creation
It said the limited scope of small business in South Africa resulted from draconian apartheid legislation, which shaped exclusionary systems across the economy. But those laws were ended more than two decades ago.
A key question it said is why small business since then has grown so slowly, and remains far behind the level found in peer economies.
It said the findings suggest that formal small business is growing more slowly than large-scale companies, which contributes to slower job creation and likely limits diversification and innovation; and that informal business has grown more rapidly, but remains low-income and mainly survivalist.
Looking at race and gender, the report notes that whole ownership of small formal business has become more representative (the percentage of black-owned formal small business grew from 38% of such firms in 2002, to 49% in 2015) it still lags far behind the national population (where black people make up 92% of South Africans)
“That in itself makes it more difficult to develop and implement strong policies to support small business,” says the report.
Yet if the country is to create the millions of jobs it needs more must be done to grow the small business sector.
Timm is a South African who writes on small business in emerging economies. Follow Small Business Insight on Twitter at @Smallbinsight and on Facebook.
Stephen Timm is a