Trade and Industry

Thursday, 15 June 2000

Failing or Not Aiming to Grow? Manufacturing SMMEs and their Contribution to Employment Growth in South Africa

  • Year: 2000
  • Organisation: TIPS
  • Author(s): Anna Kesper
  • Countries and Regions: South Africa

South Africa’s recent integration into the world economy provokes the question about its potential for building competitive advantage and prosperity at the local level in the context of an increasingly globalised economy. The experience of prospering localities in industrialised countries, in particular Western Europe and Japan, suggests that the small and medium-sized enterprise (SME) sector is at the forefront of local economic development. SMEs are reported to resolve the persistent problems of insufficient employment growth while being highly efficient in flexibly serving increasingly segmented consumer markets.

The small firm discussion has been taken up in South Africa, where small, medium and microenterprises (SMMEs) hold a numeric majority. SMMEs are expected to function as a driving force in South Africa’s both social and economic transition if supported by supply-side measures targeting enterprise constraints. Research on South African SMMEs reveals, however, a mismatch between the reality and the model of the SMME sector used by South African policy makers: The South African SMME sector is far from homogenous and would require a fine-tuned set of interventions rather than the generic assistance currently provided. Only the few, more dynamic SMMEs show a potential to contribute to rapid employment creation, while survivalist activities (as a result of ‘enforced self-employment’) constitute the vast majority of the South African SMMEs economy and grow in numbers, but not in size. Moreover, small business performance seemingly depends not only on the removal of constraints by means of (supportive) public policies and regulations, but decisively on industrial and organisational structures, the adaptiveness of firms and, above all, the capabilities and aspirations of the entrepreneur.

This paper aims to contribute to the South African SMME discussion by drawing together
findings from recent surveys on established manufacturing SMMEs in three South African regions. The descriptive findings on their turnover and employment growth trajectories confirm unambiguously that the present manufacturing SMME economy as a whole is no vehicle to tackle the problem of employment growth. This argument is developed in seven sections. Section two and three shed light on the international experience regarding SMMEs and employment growth. Section four turns to South Africa, its SMME policies and the debate about the role SMMEs are able to play. Theoretical and methodological considerations of section five form the background to section six, which contains the research findings on employment growth in manufacturing SMMEs in three regions. These findings are summarised and interpreted in the final section.