Promoting the participation of small businesses in the market : how conducive is the South African economy?

Abstract

The importance of micro and small enterprises (MSEs) is increasingly being recognized in many countries including South Africa after many years of market domination by large enterprises. Several initiatives are now being taken in South Africa to redress past discrimination and improve MSE development. However, MSE participation in markets is still low as shown by their market share and contribution to Gross Domestic Product. This is due to barriers they experience when attempting to participate in markets. These barriers may be due to the size of the enterprises, characteristics of the owners or managers and the environment in which they operate. The creation of a conducive environment to MSE market participation is essential to improve their participation in markets. This conducive environment will have few or no barriers to MSE market participation. Few studies have evaluated the institutional environment surrounding small businesses. Little research has been carried out to assess the conduciveness of the South African economy to MSE market participation. The general objective of this study is to assess the conduciveness of the South African economy to MSE market participation. The study analyzes policies and programmes that have been implemented to promote small business development. Factors influencing MSE market participation are identified and used to measure the conduciveness of the South African economy to these enterprises’ participation in markets. The factors are technology, finance, infrastructure, human resource development, strategic alliances, information and the regulatory environment. For each factor, South Africa is allocated a score out of ten, using data obtained from the World Economic Forum (WEF) survey carried out between 2003 and 2004. An analysis of policies and programmes such as the Broad-Based Black Economic Empowerment Act (2003), the Microeconomic Reform Strategy (2001) and the White Paper on Promotion of small businesses in South Africa (1995) indicates that they have helped to provide a conducive environment for MSE market participation. Policies and programmes such as the Rural Development Programme (1994), Growth and Employment Redistribution (1995) and the Green Paper on Public Sector Procurement Reform (1997) have not helped much to improve the conduciveness of the South African economy to the participation of MSEs in markets. The overall score for the conduciveness of the South African economy to MSE market participation is 6.6. This means that the South African economy is conducive to MSE market participation. Factors like finance, strategic alliances and the regulatory environment that have an average score of 7.6, make the South African economy more conducive to MSE market participation than factors like human resource development, infrastructure and technology which have an average score of 5.6. Access to information has the lowest score which is less than five. Regarding access to information by MSEs, the South African economy is not conducive to MSE market participation. The study makes recommendations on how to improve the South African economy’s conduciveness to MSE participation in markets. These suggestions include improving infrastructure and access to information, reducing credit constraints facing MSEs, appropriate technology, eliminating unnecessary bureaucracy and red tape and finding ways to increase the participation of MSE operators in training programmes.