The number of small, medium and micro enterprises (SMMEs) in South Africa increased by a mere three percent in the last seven years, far less than the 14% by which the economy expanded in the same period, if a recent report is anything to go by.
The report, another in a long line of reports to estimate the contribution of small business, was released in January by Stellenbosch University’s Bureau of Economic Research (BER) and commissioned by the Small Enterprise Development Agency (Seda)
It essentially is an update of a comprehensive report on the SMME sector of South Africa published by the Department of Trade and Industry in 2008. The last time Seda published statistics on the sector was in 2007.
The report says the number of SMMEs in South Africa rose from 2.18 million in the first quarter of 2008 to 2.25 million in the second quarter of 2015.
BER’s figures as of the second quarter in 2015 show that of the 2.25 million SMMEs in South Africa, 667,433 operate in the formal sector and 1.5 million are in the informal sector.
The number of firms in the formal sector hardly grew - it was at 666,501 in the first quarter of 2008.
Only the financial and business services and the electricity, gas and water industries are there more small firms in the formal sector than in the informal one.
Mystery growth spurt
However the BER says over the same period that the sector’s contribution to gross value add (GVA) among private-sector firms increased from 33% in the fourth quarter of 2010 to 42% in the first quarter last year.
While the GVA for small businesses increased by a mammoth 76% over the same period, it was up just 10% for large firms and 32% for medium-sized firms.
The contribution of SMMEs was drawn from Statistic SA’s Quarterly Financial Survey data by adding up the combined salaries paid, profits and depreciation.
Yet BER economist Nicolaas van der Wath, who worked on the 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.
Last month BER amended parts of the report after Financial Mail questioned several of its calculations on employment contribution and the economic contribution of small firms (see this earlier post).
Unlike a number of other emerging economies, South Africa does not have a regular census (as India and Malaysia have) or periodic survey (as Chile and Brazil have) that tracks the performance of the sector.
The dearth of data has led to wide-ranging estimates on the sector’s contribution to gross domestic product (GDP) and employment.
When asked about the different figures, head of information and research support at Finmark Trust, Kingstone Mutsomziwa, said it came down to what methodology surveyors choose to use to count small businesses. “Are they also looking at someone at the side of the road (selling vegetables)?” he asks.
BER notes in its report that other researchers have arrived at different SMME population sizes when estimating the magnitude of the sector.
“In most cases, the results differ mainly due to the challenges inherent in using South African labour statistics and, or estimates of the informal economy,” it says.
Meanwhile two positive trends that the report shows are that business owners are becoming more educated and that black Africans now account for proportionally more business owners in the formal sector than seven years ago.
Though white people still own the largest portion of small firms in the formal sector, their share has declined – from 57% in 2008 to 51% in 2015.
Black Africans improved their share from 30% in 2008 to 34% in 2015. The share of coloureds declined along with that of whites, while Indian ownership improved from 7% to 10%. Black Africans are by far the largest group among informal-sector firms (89%).
In total the majority of business owners however are black Africans (71%), followed by whites (20%). The Finscope 2010 survey however has this figure as black Africans accounting for 83.5% of business owners and whites accounting for 7.7% of owners, with over 5.5 million business owners in total.
The BER survey also found that the number of business owners with tertiary education increased by 20%, while those who completed high school also increased by 20%.
Most SA business owners have some secondary education (60%), and a substantial number have a tertiary education (19%), while only 4% have no schooling.
Yet most alarmingly however is that the survey also indicates that the number of employers has been shrinking since 2002, going on StatsSA data. The number of employers was 776,000 in 2015, down from 839,000 in 2008.
In addition the percentage of business owners and self-employed together as a proportion of the workforce, edged down from 15% in 2008 to 14% in 2015.
While some will doubt the accuracy of many of the figures in the report, it does point to the small number of registered firms and the shrinking number of employers. South Africa should grow these if it's to create the millions of jobs the country needs.
Timm is a South African who writes on small business. Follow him on Twitter at @Smallbinsight. Click here to download the BER survey.
Stephen Timm is a