Macroeconomic shocks and SMME’s employment in South Africa : evidence from ARDL and ECM approaches

Abstract

Small and medium enterprises (SMMEs) play a significant role in any country’s economy and specifically in job creation. However, the potency of SMMEs depends on various factors that include macroeconomic factors such as fuel or petroleum price, interest rate, and exchange rate fluctuations. The current study aims to investigate macroeconomic shocks and SMME’s employment in South Africa. To achieve this objective, the Autoregressive Distributed Lag (ARDL) and Error-Correction Models were applied to time series data spanning from 2009 to 2022. The study findings revealed that petrol price and interest rate negatively influence SMME’s employment in both the long-run and the short-run. However, the exchange rate was found to have a positive effect on employment in the long-run as well as the short-run. Consequently, the study for the South African SMME employment growth The study recommends that the South African government adopt “Sustainable Energy and Economic Growth Policy” as this policy could assist in stabilising energy costs, reducing fuel price volatility through strategic reserves or subsidies, and implementing inflation-control measures such as improving supply chains and promoting local production. By addressing high energy costs and inflation, the policy would create a favourable environment for SMMEs to thrive, invest, expand, and generate employment, leading to overall economic growth