red tape study 5th version 06 september 2012
TRANSCRIPT
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The environment of small business in KwaZulu-Natal
THE ENVIRONMENT OF SMALL BUSINESS IN THE
KWAZULU-NATAL PROVINCE
R.G. Taylor
September 2012
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The environment of small business in KwaZulu-Natal
THE ENVIRONMENT OF SMALL BUSINESS IN THE
KWAZULU-NATAL PROVINCE
TABLE OF CONTENTS
REPORT SUMMARY 5
1. RESEARCH BACKGROUND AND PURPOSE 10
2. SURVEY METHOD AND SAMPLE 14
3. EMPLOYMENT AND SKILLS PROFILE 20
4. BUSINESS PERFORMANCE AND FACTORS OF INFLUENCE 26
5. REGULATIONS, REGULATORY FRAMEWORKS AND REGULATORS 37
6. OVERVIEW AND INTERIM CONCLUSIONS 447. REFERENCES 50
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LIST OF FIGURES
2.1 SAMPLE LOCATIONS 15
2.2 SECTOR LOCATIONS 17
2.3 BUSINESS FORMS 18
2.4 SECTOR BUSINESS FORMS 18
2.5 AGE PROFILE BY SECTOR 20
3.1 EMPLOYEES BY SECTOR 21
3.2 HISTORIC EMPLOYEE CHANGES BY SECTOR 22
3.3 FUTURE EMPLOYMENT PLANS 22
3.4 EMPLOYMENT PLANS BY LOCATION AND SECTOR 23
3.5 FACTORS AFFECTING EMPLOYMENT DECISIONS 25
4.1 TURNOVER CHANGES BY SECTOR 26
4.2 TURNOVER BY LOCATION AND SECTOR 27
4.3 BUSINESS PROSPECTS BY LOCATION AND SECTOR 28
4.4 FUTURE FINANCIAL PROSPECTS BY LOCATION AND SECTOR 29
4.5 EXPECTED SIGNIFICANT CHANGES AFFECTING BUSINESS 30
4.6 PERCEIVED PROBLEMS AFFECTING SMALL BUSINESS 31
4.7 FINANCIAL SUPPORT FOR SMALL BUSINESS 34
4.8 FACTORS OF IMPORTANCE FOR LOCAL GOVERNMENT 35
5.1 QUALITY OF GOVERNMENT INFORMATION 39
5.2 QUALITY OF GOVERNMENT SERVICES 40
5.3 KEY ISSUES FOR ATTENTION OF GOVERNMENT 41
5.4 REQUIRED TRAINING PROGRAMMES 41
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LIST OF TABLES
2.1 SECTOR CLUSTERS 16
4.1 STRATEGIES FOR NEXT 12 MONTHS 32
4.2 RESPONSE TO STATEMENTS ON BUSINESS CONCERNS 36
5.1 REPORTED FREQUENCY OF ENGAGEMENT IN KEY
AREAS 37
5.2 REGULATIONS INTERMS OF DIFFICULTY 38
5.3 PROFILE OF SECTORAL ENGAGEMENT WITH REGULATIONS 39
6.1 SUMMARY OF RECOMMENDATIONS AND PROPOSED ACTIONS 48/49
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The environment of small business in KwaZulu-Natal
is a strong sense that small businesses understand most of the rationale for regulation
but have considerable difficulty with the way in which it is enacted. Instruments such as
the Standard Cost Model (UK) are invaluable in assessing the cost implications of new
legislation. They do not, however, necessarily cover those experiences of poor
information flows and poor service that can attend engagement with state authorities
and which add to costs and inconvenience for businesses.
The systemic nature of regulation and its implementation has to be recognized. South
African research completed in 2006 places considerable emphasis on the need to adopt
an holistic approach to the development, understanding and implementation of
regulations. A more inclusive and systemically sensitive approach to the total process of
regulatory enactment would go some way to streamlining the experience, making it
more cost effective and sensitive to the real needs of business without compromising
the obligations of neither the civil service nor the public interest.
Different sectors are understood to have different public risk profiles. For example
manufacturing and tourism, both of which have been focal in recent work (2011) and
earlier work (2008), are particularly heavily encumbered by legislation emanating from
all levels of government. The nature of both manufacturing and tourism relative to the
numbers of points of risk exposure set these sectors apart to a significant extent that
would lend credence to the fact that they are heavily burdened by the requirements of
the law. In brief, cognizance of these sectoral differences is essential in any evaluation
of the regulatory environment.
Recent work in the United Kingdom and South Africa (both completed in 2011)
indicates the value of longitudinal studies in the assessment of the development of
small business and in the creation of a favourable business climate for small business.
Studies, such as this one that provide a snapshot at a point in time are useful but do
not portray trends that reveal the manner and direction in which changes are occurring
The survey was intended to solicit the views of a representative sample of small
businesses in five KwaZulu-Natal towns. Collectively, these towns were known to
represent 80% of the provincial economy and were therefore considered to be an
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The environment of small business in KwaZulu-Natal
adequate representation of the prevailing circumstances of small businesses in the
province. The selected towns/metropolitan authority areas which were targeted were
Pietermaritzburg, Durban, Newcastle, Empangeni/Richards Bay and Port Shepstone. A
total of 1934 valid returns were received.
In employment terms the small businesses surveyed are really small. 97% employ less
than 50 persons with limited to non-existent intention to increase numbers of employees
in the short term future. The average number of employees per business is 2,4 persons
excluding the owner. Although only 71% of respondents addressed this question, the
overall sense is that the small businesses are really small in employment terms and
intend to stay that way.
There is little doubt that issues surrounding labour and employment are emotive issues
but are also regarded as a major limitation to the potential of small businesses to create
desirable new employment. The inherent flexibility that typifies employment relationship
in small business context is perceived to be under threat from the requirements to adopt
minimum wage regimes, along with the potential for growing enterprises to become
immersed in industry-wide industrial action that most small businesses can ill afford.
In a ranking of factors that were seen to be most significant for business success, those
surveyed unambiguously, but not surprisingly, identified the state of the economy, cash
flow and local competition as the most significant influences on business success.
Finance and access to finance were of lesser importance. This is mostly because small
businesses in general use private means to fund their operations. This survey confirmed
this.
The quality of municipal services, rates charges, roads, cleaning of public spaces and
the reliability of supply and the costs of electricity and water were very prominent as
factors impacting the performance and prospects for small businesses.
It is evident that taxation and regulations associated with labour administration are the
most bothersome and time consuming/costly for small business owners. A study
completed in 2005 and subsequent studies would agree with this finding. It is also
improbable that the situation regarding regulations and compliance will significantly
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The environment of small business in KwaZulu-Natal
improve in spite of recent attempts by government to simplify and streamline some
processes especially with regard to taxation. It is, for example generally anticipated that
a raft of new labour legislation is expected to be enacted soon. Not only is this thought
to hold cost implications for small businesses but it is also likely to increase the
incentives for mechanization to the detriment of labour.
Related to the matter of regulatory compliance, and seen to be part of it is the capacity
of, and manner of engagement with, the various levels of government. It is clear that
respondents do not enjoy a totally satisfactory relationship with government agencies
and departments. For the most part this was put down to a poor service culture and a
need for a greater customer focus in the activities of government. Issues of capacity and
competence were regularly foregrounded in addition to allegations about corruption in a
variety of guises within the civil service and amongst elected officials. In essence,
therefore red tape and bureaucracy are unlikely to go away, but it is possible and
desirable to make the experience of it and the administration of it considerably more
efficient and cost effective for all concerned.
The following recommendations are made:
That there is recognition of the complexity of the small business environment,
within which red tape and regulation are framing conditions that comprise only
one part of a situation that ideally requires broader systemic consideration and
an engagement on that basis if improvement is to occur;
That the role of anti-social behaviour, such as manifested by various forms of
crime, be understood to be a major limitation on small business survival and
growth, including customer flight;
That planning delays and poor servicing of (and absent) infrastructure represent
backlogs and lost potential;
That the concept of red tape clearly also includes administrative attitudes,
information quality and capacity that generates costs for small businesses;
That labour legislation is almost certainly hampering the willingness of small
businesses to grow and offer additional work opportunities;
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The environment of small business in KwaZulu-Natal
That corruption and discrimination are seen to be real and are perceived to be
impacting not only the award of work opportunities but also rentals in the private
sector;
That trends are more meaningful in studies of this nature than once off
snapshots with no interventions to improve;
That difference between locations appears, at this time, to be relatively less
important but that interrogation of potential differences should be undertaken.
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THE ENVIRONMENT OF SMALL BUSINESS IN THE
KWAZULU-NATAL PROVINCE
1. Research Background and Purpose
1.1 This survey is similar to others that have gone before where attempts have been
made to understand and facilitate the development and growth of small
businesses. Previous international, national and regional studies have (perhaps
unsurprisingly) drawn very similar conclusions regarding the impediments to
small businesses which seemingly remain relatively misunderstood as a
distinctive business form that holds distinctive characteristics. It is also readily
evident that there is considerable common ground amongst global small
businesses with respect to the issues that are surfaced when surveys are
conducted amongst them. The OECD (2004) report that outlines potential
strategic policy and practice approaches for the support of small businesses is
perhaps the most comprehensive set of recommendations for the review of policy
frameworks for small business. The report also recognizes the challenges that
appear to be global experience of small businesses.
1.2 The recently published Headline Report of Strategic Partnerships for Business
Growth in South Africas (SPBs) Growth Index (SPB, 2011), reinforces the
challenges that confront South Africa in attempting to stimulate the development
and growth of small businesses. For example, the aspiration of government to
create five million jobs over the next ten years can be simply translated into13600 new manufacturing businesses and a total of 100000 new businesses
overall (SPB,2011:3). It could be noted that less than 4% of startup businesses
take on new employees and that for every 100 new businesses an average of 10
jobs are created (GEM, 2005). Established businesses average 3.1 3.2
employees. The requirement to create employment through the medium of small
businesses will require a paradigm shift in thinking and practices relative to small
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The environment of small business in KwaZulu-Natal
business development. A focus on the red tape and bureaucracy alone will not
achieve this scale change in the rate of creation and survival of small
businesses.
1.3 It is typically common cause internationally that small and medium sized
enterprises hold greater potential for employment creation than do large
enterprises. A review of the potential of characteristics of small businesses that
was conducted in the USA demonstrates that the absorptive capacity of small
business as creators of new employment opportunities has significantly
exceeded that of large businesses in every year in the period 1990-2003(Edmiston, 2007:78). From a perspective of employment in South Africa, the
Global Entrepreneurship Monitor (GEM) records that 73% of employment occurs
in firms that are have fewer than 50 employees; 45% are employed in firms of
less than 10 employees (GEM, 2010). The same report further records that, in
the period 1985-2005 only 10% of new jobs were created in large, established
firms in a national environment where the rate of entrepreneurial activity is two to
three times lower than desired. From a perspective of employment creation
alone, the challenge to create a business climate that is conducive to facilitating
new business formation and support is a formidable one. South African research
completed in 2006 (GTZ, 2006) makes the case for improvements built upon a
foundation of a better public/private dialogue that addresses key dimensions of
the business climate that includes processes of governance, policy and
regulation, government capacity development and access to business services
and infrastructure. The need is urgent.
1.4 Although this study was framed to address itself to the matter of red tape and
its effects on small business, it was soon recognized that this had been a focal
issue for previous surveys that had been completed all with similar results (e.g.
Department of Economic Development & Tourism [DEDT], 2010; DEDT 2010).
The most referenced national survey on the cost impacts of compliance was
completed by Strategic Partnerships for Business Growth in Africa (SPB) in
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The environment of small business in KwaZulu-Natal
2004. At that time the estimated total costs of compliance in South Africa was
said to be some 6,5% of GDP, a number that compares unfavourably with other
countries. In their 2011 Report on small businesses in selected sectors, SPB
restated this figure. It is therefore believe to have contemporary validity. This
serves also to make the case for a comprehensive process, (such as has been
instituted in the UK) for the assessment of the compliance cost implications of
proposed legislation before it is enacted (Better Regulation Executive (BRE),
2005). All indications are that the compliance processes in South Africa have
become more burdensome, given the advent of a number of legislative measures
that have arisen as part of the transformation agenda of government. The costburden of regulation, as a proportion of operating expenses, falls more heavily on
small businesses rather than large ones, mostly because of the uniformity of
legislation as applicable to most business types and sizes.
1.5 The reported concerns with anti-social behaviours, including perceived
corruption and crime are also noteworthy additions to the burdens carried by
small businesses that also fall within the remit of government (SPB,2008). It is
worth noting that crime is recorded to be the third most problematic element for
doing business in South Africa; corruption ranks fifth (GEM, 2010). The record
shows that in 2009, 70% of robberies were perpetrated against small business.
1.6 Red tape is an ambiguous term because it is widely documented that for many
businesses it embraces the entire experience of engagement with government.
Compliance processes involve understanding the purpose and processes of the
legislation, obtaining relevant and correct information, waiting periods, courtesy
of staff, and the general sense of fair and equitable treatment - in addition to
compliance. There is a strong sense that small businesses understand most of
the rationale for regulation but have considerable difficulty with the way in which
it is enacted. Instruments such as the Standard Cost Model (UK) are invaluable
in assessing the cost implications of new legislation. They do not, however,
necessarily cover those experiences of poor information flows and poor service
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that can attend engagement with state authorities and which add to costs and
inconvenience for businesses.
1.7 The systemic nature of regulation and its implementation has to be recognized.
South African research completed in 2006 (GTZ, 2006) places considerable
emphasis on the need to adopt an holistic approach to the development,
understanding and implementation of regulations. A more inclusive and
systemically sensitive approach to the total process of regulatory enactment
would go some way to streamlining the experience, making it more cost effective
and sensitive to the real needs of business without compromising the obligationsof neither the civil service nor the public interest.
1.8 Different sectors are understood to have different dynamics, regional needs and
public risk profiles. For example manufacturing and tourism, both of which have
been focal in recent work (SPB, 2011) and earlier work (SPB, 2008), are
particularly heavily encumbered by legislation emanating from all levels of
government. The nature of both manufacturing and tourism relative to the
numbers of points of risk exposure set these sectors apart to a significant extent
that would lend credence to the fact that they are relatively more heavily
burdened by the requirements of the law. In brief, cognizance of these sectoral
differences is essential in any evaluation of the regulatory environment.
1.9 Recent work in the United Kingdom (BIS Small Business Survey 2011) and
South Africa (SPB, 2011) indicates the value of longitudinal studies in the
assessment of the development of small business and in the creation of afavourable business climate for small business. Studies, such as this one that
provide a snapshot at a point in time are useful but do not portray trends that
reveal the manner and direction in which changes are occurring other than in the
very short term.
1.10 The aim of the study therefore was to profile small businesses in various sectors in
the KwaZulu-Natal Province with a view to determining the distribution of these
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The original target of 2500 was not achieved in spite of an extended survey periodand strenuous efforts to improve the output of survey team members. This reduced
sample size does not compromise the validity of the major findings of the survey.
2.2 The survey was conducted using a structured questionnaire that was formulated so
as to profile the concerns and the performance of small businesses across a range
of sectors. It was clear at the outset that previous, relatively recent work (DEDT,
2010, 2011) had already attempted to address the costs to small businesses of
compliance requirements. This survey therefore sought, in addition, to establish asmany significant factors as possible that small businesses found to be impediments
to their growth and progress.
2.3 A survey team comprising 22 interns from KZN Provincial Government was
designated to administer the survey in the five sites. This team had very changeable
membership over the life of the survey and never numbered more that 15 at any one
time. The survey commenced at the end of June 2011, was scheduled for
completion in August 2011 but was attended by slow delivery of results, leading toan extended survey period until the end of November 2011. The survey was
supported by six interviews with city officials and business chambers in Durban and
Pietermaritzburg as well as business development agencies that provided invaluable
insights into the small business environment.
2.4 In view of the experience of slow delivery, and attendant complications associated
with a need for a more direct approach to the management of the survey team, the
initial intention to stratify the sample to reflect the profile of sectoral activities in each
town was not pursued as a priority. It must, therefore, be recorded that the
distribution of the total sample to sectors was conditioned by the random nature of
the survey teams activities that tended to focus on urban, relatively accessible and
centralized locations. This would have an influence on the sample mix and indeed
some aspects of the results; although the overall meaning of the results is not
believed to be unduly contaminated. The survey, albeit conducted on a relatively
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random basis, did produce a good, though not unexpected, mix of sectors. In order
to simplify some aspects of analysis but also to reconcile this work with that
previously done, it was decided to adopt the sectoral clustering that had been used
by the Global Entrepreneurship Monitor (GEM, 2010). This resulted in four sector
clusters being used as the basis for further data analysis as displayed in Table 2
which also defines the component elements that comprise each cluster.
TABLE 2.1: SECTOR CLUSTERS
SECTOR
(NUMBER OF
RESPONSES)
EXTRACTIVE
(33)
TRANSFORMATIVE
(518)
CONSUMER
SERVICES
(900)
BUSINESS
SERVICES
(319)
Sector
Constituents
Agriculture
Forestry
Fishing
Mining
Construction
Manufacturing
Transport
Communications
Utilities
Wholesale
Retail
Motor
Vehicle
Hospitality
Personal
Education
Recreation
Finance
Insurance
Real Estate
The distribution of these sectors to the five towns is shown in Figure 2.2.
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Unsurprisingly, the dominance of the consumer services sector is evident at all
locations. This reconciles with previous work that confirms that a significant majority
(67%) of small businesses are typically located in the consumer services (mostly
retail) sector. This is attributed to low barriers to entry but also makes this a sector of
low profit margins, and an over-traded sector that is vulnerable to economic
slowdown. It is also a sector that does not hold great potential for employment
creation to the extent, for example, that the transformative sector could. Greater
openness to new markets could, however, improve prospects for new employment in
the consumer services sector but requires new investment and capacity building in
local operations.
2.5 Perhaps also unsurprisingly, the survey indicates a relativelygreater proportion of
transformative and business services activity in Durban (57%) compared with other
sites. The transformative sector, principally manufacturing, holds greatest potential
for employment generation, although monopoly interests, limited energy access and
growing inflexibility in the local labour market are acknowledged factors that
potentially limit the sector.
0%
10%
20%
30%
40%
50%
60%70%
Figure 2.2: Sector Locations
Extractive
Transformative
Consumer Services
Business Services
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The environment of small business in KwaZulu-Natal
2.6 85% of those surveyed operated from one site only but 413 (20%) of those surveyed
did express the wish to open up at another location in addition.
The dominant business forms (see Figures 2.3 and 2.4) are the close corporation
(46%) and sole proprietorships (29%). Family businesses and partnerships account
for 7% and 6% respectively of the balance and limited liability companies [(Pty) Ltd]
29%
7% 6%
46%
10%
1%
Sole
Proprietor
Family
Business
Partnership Close
Corporation
Pty(Ltd) NPO
Fig. 2.3: Business Forms
0%
10%
20%
30%
40%
50%
60%
Extractive Tranformative Consumer Services Business Services
Fig 2.4: Sector Business Forms
Sole Prop. Family Bus. Partnership CC Pty ltd NPO
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The environment of small business in KwaZulu-Natal
comprise 10% of those surveyed. Non-profit entities and others make up the
remaining 1% of the total sample. The predominance of the close corporation is not
surprising but the recent demise of this business form will afford future interest as
small businesses adjust to the revised legal frameworks that have recently been
enacted.
2.6 New businesses (less than 1 year old) comprised 11% of the sample. 17% were
less than 3 years old; 19% were less than 5 years old and the remaining 53% were
more than 5 years old, including some 37% which were over 10 years old and
therefore well-established enterprises. The disaggregation of the sample into sectors
(see Figure 2.5) reveals that the majority of those businesses surveyed in all sectors
is more than three years old and would therefore be regarded as relatively mature,
established enterprises. The phenomenon of a significantly large proportion of
mature businesses relative to start ups represents both an anomaly as well as a
challenge because it is an inversion of that which is the conventional norm for small
businesses i.e. many startups with relatively fewer survivors. For example, in
South Africa, the propensity for new businesses to be established compares well
with international norms. A report released in 2010 (GEM, 2010) indicates that 8,9%
of South Africans are involved in early stage entrepreneurial activity. This places
South Africans in the middle range of achievement by international standards,
although it is also noted that there is a dominance of White and Indian citizens
involved in small business formation (First National Bank, 2010). For the country as
a whole, the prevalence of persons engaged in small businesses older than 42
months falls to 2,1%. The reasons for this drop are clearly varied but the statistic
compares unfavourably with comparable developing economies, such as those
located in South East Asia and South America. The sample that comprises this
survey indicates many mature businesses and fewer startups hence the anomaly
but also a concern that is largely self-evident. The seeming lack of new enterprise
formation in the survey area is alarming in the sense that it does not bode well for
the achievement of the employment policy objectives that are heavily reliant on new
sustainable small businesses. It also begs the question as to what factors are
influencing the maintenance of an aging group of established businesses (that also
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The environment of small business in KwaZulu-Natal
require enabling support) but which are unlikely to provide the type of growth and
employment opportunity that requires very large numbers of new enterprises as
indicated under 1.2 (above).
3. Employment and Skills Profile.
3.1 In employment terms the small businesses surveyed are really small. 97% employless than 50 persons (see Figure 3.1) with limited to non-existent intention to
increase numbers of employees in the short term future.
15%
11% 12%
8%
15% 14%
18%19%
18%
21%
18%
22%
18%
14%
17%
20%
35%
40%
37%
32%
Extractive Transformative Consumer Services Business Services
Fig 2.5: Age Profile by Sector (Years)
0-1 0-3 0-5 0-10 >10
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The environment of small business in KwaZulu-Natal
The predominant business forms defined in 2.6 above makes this an unsurprising
result but it also means that the expectations of small businesses as a vehicle for
creating employment could be overstated. There was also very little reported
tendency to employ seasonal workers, even within the hospitality sector where
general economic stringency is curtailing retail activity, lengths of stay and holiday
expenditure, even in traditional holiday destination areas (e.g. Port Shepstone).
Whilst the position of small business as that business area that is best placed to
create opportunity is understood to have some credence, the established reality
arising from research completed in the UK, USA and Australia is that existing small
businesses may not generate the employment on the scale that policy makers
anticipate. New small businesses may hold potential but also have dubious survival
potential unless adequately and appropriately enabled.
69%62%
80%72%
28%34%
19%24%
3% 4% 2% 4%
Extractive Transformative Consumer Services Business Services
Fig 3.1: Employees By Sector
0-9 Employees 10-49 Employees 50-100 Employees
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The environment of small business in KwaZulu-Natal
3.2 The average number of employees per business is 2,4 persons excluding the
owner. Although only 71% of respondents addressed this question, the overall sense
is that the small businesses are really small in employment terms and intend to stay
that way. Of 1642 responses, 78% of respondents had either not changed or had
decreased the number of employees in the previous twelve months; 22% had
increased their employee numbers but generally by less than 5 employees and
typically only by 1 or 2 persons. Plans for the next 12 months were similar 27%
22% 23%19%
33%
11%14% 14% 12%
67%63%
67%
55%
Extractive Transformative Consumer Services Business Services
Fig 3.2: Historic
Employment Changes by Sector
Increase Decrease No Change
13%
31%
22%
36%
4% 5% 4% 4%
83%
64%
74%
59%
Extractive Transformative Consumer Services Business Services
Fig 3.3: Future Employment Plans
Increase Decrease No Change
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The environment of small business in KwaZulu-Natal
planned to slightly increase their workforce (typically less than 5 additional persons)
while most (73% either anticipated no change or a decrease). Significantly, the
planned future decreases were low, comprising only a 4% reduction which was
some improvement on the 13% reported decrease in the previous 12 month period.
Figures 3.2 and 3.3 speak to this. Figure 3.2 provides an indication of the historic
situation in the 12 month period preceding the survey while Figures 3.3 and 3.4
provide a projection of employment intentions for the next twelve month period.
Although not conclusive, a comparative view of Figures 3.2 and 3.3 speaks to a
modest stabilization in intention. The proportion of businesses intending to decrease
staff has reduced; those intended to increase have grown and those maintaining thestatus quo have increased.
3.3 While exact numbers would require further investigation, the skills profile across all
areas and sectors is predominantly either skilled (40%) or semi-skilled (37%). A 22%
0%
20%
40%
60%
80%
100%
120%
Extractive
Transformative
ConsumerServices
BusinessServices
Extractive
Transformative
ConsumerServices
BusinessServices
Extractive
Transformative
ConsumerServices
BusinessServices
Extractive
Transformative
ConsumerServices
BusinessServices
Extractive
Transformative
ConsumerServices
BusinessServices
Pietermaritzburg Durban Newcastle Empangeni Port Shepstone
Fig 3.4: Employment Plans By Location and Sector
Increase Decrease Unchanged
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The environment of small business in KwaZulu-Natal
balance is unskilled. Opportunity for unskilled work amongst those surveyed appears
to be limited the demand for new employees is primarily associated with skilled
work. This also militates against the capacity of local small businesses to provide
significant work opportunities for unskilled persons which is arguably the area in
which the greatest needs lie. A reluctance to employ additional staff resides, in
addition, in the impact of existing (and proposed) labour legislation which
respondents cited as a consideration when reviewing their employment decisions.
The GEM (2010) report records, for example, that South Africa ranks 135 th out of
139 countries in terms of inflexible hiring and firing policies. In a similar vein, the
SPB (2011) dialogue records the reluctance of small business to absorb labour andin some cases to constrain employment growth in order to remain outside the scope
of some legislated provisions.
3.4 Race and gender profiling shows that 52% of small business employees are drawn
from the African community (28% male; 24% female) with the White and Asian
ethnic groups approximating 20% each and Coloured persons making up the
balance of 7%.
3.5 While the profile of the sample in terms of the skills, race and gender is useful, of
more use are the factors that small businesses claim to affect their employment
decisions if and when they would exercise that decision (see Figure 3.5). Amongst
an array of possible factors, the least significant (9%) was the view that
management capacity would constrain any decision to increase employee numbers.
Of greatest significance for most small businesses were the existing plans for the
business (44%) that could also include deliberate decisions/choices regarding size
relative to tax and employment equity thresholds. While this is somewhat
speculative, there is evidence from previous recent work (SPB, 2011) in South Africa
that these thresholds are known to be held in mind by businesses when they
consider their future development and growth. Aside of plans for the business, the
issue most fore-grounded by those surveyed was the cost of labour (40%) and the
legislation surrounding labour in general (19%). Skills shortages (27%) and the
associated phenomenon of poor productivity (28%) were also identified as significant
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determinants of the propensity to increase the size of the workforce. Technological
changes and the challenges associated with that were identified by 21% of
respondents to be significant factors of influence in determining the size of their
labour requirements. Inevitably, the overall demand for their products and services
would determine the business needs, according to 32% of respondents.
3.6 There is little doubt that issues surrounding labour and employment are emotive
issues but are also regarded as a major limitation to the potential of small
businesses to create desirable new employment. The inherent flexibility that typifies
employment relationship in the small business context is perceived to be under
threat from the requirements to adopt minimum wage regimes, along with thepotential for growing enterprises to become immersed in industry-wide industrial
action that most small businesses can ill afford. It is recorded that South Africa ranks
135th out of 139 countries in terms of problematic hiring and firing policies and
practices (GEM, 2010) which serves as a disincentive to potential employers.
3.7 The small average size of those businesses surveyed speaks to the essential nature
of small businesses i.e. that they are mostly family funded, managed and operated
44%
19%
28% 27%
40%
32%
9%
22%
Fig 3.5: Factors Affecting Employment Decisions
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The environment of small business in KwaZulu-Natal
and exist to benefit individual family units and close associates. This creates an
operating dynamic and forms of behaviour which are founded on personal
relationships that are not typically present in large businesses. It also means that
small businesses are a distinctive organisational form that is not typically well
understood or accommodated by legislation.
4. Business Performance and Factors of Influence.
4.1 For 62% of those surveyed, their turnover performance over the previous 12 months
had either decreased (34%) or stayed the same (28%). This means that 38% had
improved their turnover performance. Figures 4.1 and 4.2 further develop this overallpicture by sector cluster and location. The relatively larger decrease in turnover in
the consumer services sector is noteworthy but not surprising, given the incidence of
this study at the time of general economic downturn. The location that differs from
this overall trend is Port Shepstone.
32%35%
29%
36%
24%
35%
40%
31%
44%
30% 31%34%
Extractive Transformative Consumer Services Business Services
Fig 4.1: Turnover Change by SectorIncrease Decrease No Change
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4.2 Business prospects for the entire sample in all locations for the next 12 months were
felt by 44% to be better, while 22% and 32% felt that business prospects would be
worse or unchanging, respectively. Figure 4.2 shows this as mediated by locationwhere a relative consistency of expectation across locations and sectors is evident.
0%
10%
20%
30%
40%
50%
60%
70%
Extractive
Tranformative
ConsumerServices
BusinessServices
Extractive
Tranformative
ConsumerServices
BusinessServices
Extractive
Tranformative
ConsumerServices
BusinessServices
Extractive
Tranformative
ConsumerServices
BusinessServices
Extractive
Tranformative
ConsumerServices
BusinessServices
Pietermaritzburg Durban Newcastle Empangeni Port Shepstone
Fig 4.2: Turnover Change by Location and Sector
Increased Decreased Unchanged
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4.3 As a assessment of financial confidence in the future, 56% were confident, 18%
were not and 25% did not know (or were uncertain). (See Figure 4.4 for details of
this). Cross-tabulation of changes in turnover performance (which are generally
unchanged or negative) with expression of confidence in the future shows some
ambiguity in the assessments of small businesses that express future confidence but
financial uncertainty, almost at the same time.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Extractive
Transfo
rmative
Consumer
Services
Business
Services
Extractive
Transfo
rmative
Consumer
Services
Business
Services
Extractive
Transfo
rmative
Consumer
Services
Business
Services
Extractive
Transfo
rmative
Consumer
Services
Business
Services
Extractive
Transfo
rmative
Consumer
Services
Business
Services
Pietermaritzburg Durban Newcastle Empangeni Port Shepstone
Fig 4.3: Business Prospects by Location and Sector
Better
Worse
Unchanging
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Figure 4.5 illustrates the stated strong intention of those surveyed to grow their
businesses over the next five years that is also typical of small businesses that are
almost bound to be optimistic in their own interests. This perhaps also underscores
the reality of the very uncertain trading environment for small businesses, offset
against the known optimism that has been found to typify the entrepreneurial spirit,
such as is found in small businesses. Actual figures for percentage changed
turnover performances provided are thought to be unreliable, given a poor or
seemingly confused response to this item. Changes in profitability as reported arelikewise confused and cannot be reliably reported on here without further
investigation. At best, it appears that, with few exceptions, profits have not improved
over the previous 12 months, irrespective of reported changes in turnover.
0%
10%
20%
30%
40%
50%
60%
70%
80%
Extra
ctive
Transformative
ConsumerServices
BusinessServices
Extra
ctive
Transformative
ConsumerServices
BusinessServices
Extra
ctive
Transformative
ConsumerServices
BusinessServices
Extra
ctive
Transformative
ConsumerServices
BusinessServices
Extra
ctive
Transformative
ConsumerServices
BusinessServices
Pietermaritzburg Durban Newcastle Empangeni Port Shepstone
Fig 4.4: Future Financial Prospects by Location and Sector
Confident Not Confident Do Not Know
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4.3 The predominant factor of influence relative to changing turnover performance is
economic recession where 60% of respondents recorded this as being the issue of
most significance that also impacted their propensity to grow their labour force. The
second most significant factor (29%) was related to local competition. This factor is
complicated by the statements made by respondents who were concerned about the
phenomenon of informal street traders whose business was eroding their custom.
There was also a concern about the presence of foreign traders, meaning mostly
Asian persons and imported goods. These are not new issues. The conflict between
those who trade within the law and those who do not is a well documented factor.
Informal traders and the existence of cheap foreign goods are substantially
unregulated, leading to a sense of disadvantage for legitimized, compliant
businesses and resentment directed at the authorities because of their inability orunwillingness to exercise control. Figure 4.6 depicts the outcomes arising from
giving the respondents opportunity to freely express their views regarding problems
as they perceive them also illustrates the concern that respondents have regarding
the existence of illegal traders amongst other factors that will be further elaborated
later.
42%
13%4%
10% 8% 7% 10% 7%
Fig 4.5: Expected Significant Changes in Next
Five Years
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The environment of small business in KwaZulu-Natal
4.4 Other issues of relative concern to respondents regarding turnover performance
were cash flow (22%) - including slow processing of payments especially by
government departments, access to new markets (16%), unfair competition (16%)
meaning also issues relative to lack of monitoring of informal traders and imported
goods as well as perceived discrimination and malpractices in tender awards, rand
strength (15%), and crime (15%). These findings coincide with the findings of a 2011
survey by SPB which also found that the factors highlighted in 4.3 and 4.4 were
those that most impacted small businesses, as reported by small businesses.
4.4 Although only 15% of respondents marked crime as a factor affecting their turnover,
subsequent opportunity to state issues of concern, highlighted crime as a
preoccupation of the small businesses that were surveyed. This was also an issue
raised in interviews with city officials in both Durban and Pietermaritzburg. The
systemic consequences of criminal activity are profound. A report completed in 2008
has dealt in detail with the detrimental effects of crime on business in general (SPB,
2008). Whilst forms of crime vary and location of businesses is significant, evidence
presented is that small, newly established businesses are particularly vulnerable
with crime accounting for 20% of turnover. Customer flight from central urban
19%
6%7%
27%
21%
5% 4%
10%
Fig 4.6: Perceived Problems Affecting Small
Business
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The environment of small business in KwaZulu-Natal
locations is also prevalent, leading in turn to deteriorating trading conditions for
businesses in general and overall decline of inner city neighbourhoods in particular.
4.5 Respondents identified increased market share as that which defined their primary
strategy for the next 12 months as Table 4.1 indicates. Of 1929 responses that
requested identification of the strategy or combination of strategies to be employed
in the twelve months ahead, there is relatively clear indication of a quest to expand
market share and to pursue new markets and new products in general which
appears also to imply recognition of the need to upgrade employee skills. This
appears to validate the views of business chamber interviewees who felt that the
real growth needs of small businesses lay in the expansion to new markets and the
commensurate development of the skills base. In support of this contention, the view
that at least some business support resources are misallocated and could be
redirected towards more effective marketing and/or skills upgrading appears to have
validity.
Table 4.1: Declared strategies of Respondents for next 12 months
Intended Strategy Percentage of Respondents
Improve share of existing markets 40
Access to new local markets 33
Access to export opportunities 9
Opening additional business site(s) 21
Forming alliances or joint ventures 12
New product development 29
New process development 13Increased number of employees 20
Employee skills upgrading 26
Expansion of existing facilities 20
Relocation to new site 15
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4.6 In a ranking of factors that were seen to be most significant for business
success, those surveyed unambiguously, but not surprisingly, identified the state
of the economy, cash flow and local competition as the most significant
influences on business success. Finance and access to finance were of lesser
importance. This is possibly explained by the general tendency of small
businesses to be funded from private reserves and family resources rather than
by accessing loan finance, other than mortgage re-advances. Although there
was considerable written feedback regarding the stringency of requirements for
acquisition of finance and the inefficiencies in the agencies that are charged with
business funding, 67% of respondents were happy with the range of bankingservices provided. Very few (15%) had successfully applied for venture finance;
more (21%) had applied without success and 64% had never sought such
support. This scenario correlates well with the recent findings of the SPB which
has recorded that 60% of small businesses use their own resources (SPB, 2011).
They also note that only 2% access funding from institutions like the Industrial
Development Corporation; 8% used banks and 6% obtained funds from private
investors or shareholders. These statistics, that confirm the tendency to use
private funding sources, probably serve to validate the contentment expressed by
the respondents regarding banking services if your use is limited; there is little
cause for discontent. Figure 4.7 does, however, provide a response to a range of
issues associated with financial support. In essence, the very limited extent to
which small businesses are utilizing publicly-funded agencies as a vehicle for the
initiation and operation of their businesses indicates a need for a review of the
policies and practices of these agencies whose functions appear to lack
significant impact. It is in this context that the 33% appeal for further government
support comes to have meaning, as indeed does the 26% who believe that
banking services are excessively expensive and may justify government
intervention.
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The environment of small business in KwaZulu-Natal
4.7 In the further ranking of factors that were seen to impact business success,
taxation and other government regulations were seen to be significant but only
moderately so. The impact of poor municipal services were highly ranked as a
factor of great significance (see Figure 4.8) This concern is validated in that,
when asked to comment on the quality of municipal services, rates charges,
roads, cleaning of public spaces and the reliability of supply and the costs ofelectricity and water were very prominent as factors impacting the performance
and prospects for small businesses. In the case of Newcastle, a very consistent
plea for improvements in access to Gauteng was strongly evident including
carriage of goods in and out, as well as improved transport for people.
33%
19%
16%
26%
7%
More
Government
Support
Strict Lending
Criteria
Insufficient
Support
High Bank
Charges
More
Awareness
Needed
Fig 4.7: Financial Support for Small Business
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The environment of small business in KwaZulu-Natal
4.8 Table 4.2 indicates the pattern of responses from 1742 of the total sample. It
appears from the above that the issue of market access (item D5.2) is differentially
reported on, but there is significant number who find difficulty with access to new
markets, thus adding credibility to the earlier reported finding that market access is
problematic for some but there is an assertion (D5.14) that new products areregularly brought to market but that export opportunities (D5.12) are not very
important; access to government information and services (D5.7 and D5.13) are
highlighted as a difficulty for most and that the regulatory frameworks (D5.8) may be
a problem for some. Labour legislation (D5.9), contrary to earlier research findings
and to the findings elsewhere in this study is reported to be well understood and
practiced and that people development is significantly attended to (D5.15). This
latter finding would concur with earlier work that identifies a preference for small
businesses (including South African) to develop new skills in existing employees
rather than take on new staff. (e.g. SPB, 2011) The apparent contradictions require
deeper examination as some respondents may be sensitised to the origins of this
study that could have influenced some responses and created apparent ambiguities.
58%
3%
9%
16%13%
Service Delivery Policing Corruption SMME support Political Factors
Fig 4.8: Factors for Improvement in Local
Government Practices
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The environment of small business in KwaZulu-Natal
Table 4.2: Summary Respondent Statements (n=1742)
StatementStrongly
Agree(1)
Agree
(2)
Do notknow
(3)
Disagree
(4)
StronglyDisagree
(5)
D5.1 Our business is good at developing andimplementing business plans and strategies
26% 55% 9% 5% 7%
D5.2 Our business has difficulty in developingmarket knowledge and entering new markets
9% 30% 12% 34% 9%
D5.3 Our business is well supplied withinformation regarding tax and regulationchanges
17%48% 9% 17% 4%
D5.4 Our business manages its cash flow well
and rarely experiences financial crises relatedto cash flow
18% 47% 11% 16% 3%
D5.5 Our business has good networks withother businesses in our region
20% 51% 9% 12% 2%
D5.6 We are usually aware of new businessopportunities and are able to benefit fromthese
11% 40% 16% 21% 5%
D5.7 Government services are easilyaccessible to our business
5% 22% 19% 35% 1%
D5.8 The regulatory framework within whichwe operate does not place excessive burdenson our operations.
6% 36% 25% 18% 5%
D5.9 Labour regulations are well understood
and practiced by our business 18% 51% 10% 10% 3%D5.10 In our business we have many problemswith recruiting appropriately skilled labour
9% 30% 11% 32% 8%
D5.11 Electricity and water supply is not afactor in our business decision making andplanning
12% 33% 6% 27% 15%
D5.12 We have no need for knowledge aboutexport opportunities for our products
13% 34% 11% 22% 10%
D5.13 We would like government support todevelop our business but struggle to find outwhat is available.
26% 40% 12% 12% 3%
D5.14 Our business regularly brings newproducts to market
14% 43% 9 22% 2%
D5.15 Our business spends significant timeon developing its people and management
21% 46% 11% 14% 2%
5. Regulations, regulatory framework and regulators
5.1 As identified in Section 1.4 of this report, previous reports (DEDT, 2010 and 2011)
have dealt extensively with the matter of regulatory costs of compliance and
therefore the costs of compliance have not been extensively dealt with in this report.
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Respondents were, however, asked to identify the areas in which they are required
to report regularly and then to indicate which they found to be most burdensome.
Table 5.1 is indicative of the areas of typical engagement while Table 5.2 indicates
the types of difficulty that small businesses have in terms of their compliance. It is
evident that taxation and regulations associated with labour administration are the
most bothersome and time consuming/costly for small business owners. A study
completed in 2005 and subsequent studies (DEDT 2010, 2011) would agree with
this finding. It is also improbable that the situation regarding regulations and
compliance will significantly improve in spite of recent attempts by government to
simplify and streamline some processes especially with regard to taxation. It is, forexample generally anticipated that a raft of new labour legislation is expected to be
enacted soon. Not only is this thought to hold cost implications for small businesses
but it is also likely to increase the incentives for mechanization to the detriment of
labour.
Table 5.1: Reported proportion of respondents in terms of relative frequency
engagement with regulatory authorities in key areas
Regulatory
Framework
Reported Engagement (AllSectors)
Health andSafety
51%
Labour Laws 57%
EmploymentEquity
43%
Planning &Development
32%
Environmental 30%
Taxation 79%
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The environment of small business in KwaZulu-Natal
Table 5.1 as it stands is only useful to the extent that it exposes the areas in which
most engagement occurs. As such it represents a perspective that is relative only
across all sectors but does nevertheless highlight the incidence of taxation as the
most significant area of engagement for most SMEs in the sample. Labour Laws
and Employment Equity are the next most significant but have differential impacts
according to sector as Table 5.3 shows.
Table 5.2 offers some explanation as to why the engagement profile in Figure 5.1 is
as it is. The relative time and costs associated with taxation and labour
administration in general speak to the idea that the legislation is reasonably well
understood but not necessarily easy to enact. This, however, is a speculative
conclusion that would require more exploration within the sample itself.
Table 5.2: Regulations with which respondents regularly engage according to
their assessment of compliance difficulties (n=1057 or 54%)
Regulation Poorly
Understood/Confusing
Time
Consuming
Costly
Compliance
Requirements
Health andSafety
15% 18% 14%
Labour Laws 13% 21% 20%
Employment
Equity11% 18% 13%
Planning &
Development11% 14% 12%
Environmental 10% 13% 10%
Taxation 15% 17% 35%
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The environment of small business in KwaZulu-Natal
Tables 5.3 Regulation fields in which respondents are required to make regular reports
Regulatory Field and
Sector National Government
Provincial Government Local Government Total
Health and Safety
Transformative
Consumer Services
Business Services
31%
10,7%
14,4%
5,9%
17,7%
5,2%
9,0%
3,5%
16,3%
16,3%
29%
6%
100%
32,2%
52,4%
15,4%
Labour Laws
Transformative
Consumer Services
Business Services
36,8%
10,9%
18,1%
7,8%
22,6%
6,3%
12,1%
4,2%
40,6%
13,5%
22.0%
5,1%
100%
30,7%
52,2%
17,1%
Employment Equity
Transformative
Consumer Services
Business Services
36,1%
10,5%
17,2%
8,4%
23,4%
6,2%
12,4%
4,8%
40,5%
15%
20,9%
4,6%
100%
31,7%
50,5%
17,8%
Planning
Transformative
Consumer Services
Business Services
20,4%
5,8%
11,1%
3,5%
24,4%
7,6%
13,2%
3,7%
55,2%
19,6%
28,4%
7,2%
100%
33,0%
52,7%
14,3%
Environmental
Transformative
Consumer Services
Business Services
18,7%
5,9%
8,1%
4,7%
21,1%
6,1%
12,5%
2,5%
60,2%
22,8%
29,3%
8,1%
100%
34,8%
49,9%
15,3%
Taxation
Transformative
Consumer Services
Business Services
59,2%
18,6%
28,7%
11,9%
13,0%
4,5%
6,9%
1,6%
27,8%
7,1%
16,6%
4,1%
100%
30,1%
52,3%
17,6%
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Table 5.3 represents a more detailed analysis of the responses on three of the
summary sectors regarding the impact legislation. It is clear that there is confusion and
probably speaks to uncertainty and confusion in the minds of small businesses that is
possibly also driven by the incorporation of labour and equity provisions in tendering
and other government processes at all levels of government.
Of significance, however, is the generally greater impact of legislation in the
transformative and consumer services areas. This is not surprising, given the
incorporation of manufacturing and tourism activities (respectively) in these areas. The
actual measure of impact in cost/time terms would require the generation of a
considerable data base with focal consideration of key areas of concern for small
businesses. The DEDT (2011) report has gone some way to identifying the legislation in
overall terms. This need to be rationalized into key focal areas for further exploration.
5.2 It is readily recognized that a great deal of legislation that affects small businesses
is enacted nationally but implemented locally. It is also readily recognized that
legislation emanates from a number of different departments of government and is often
driven by conflicting agendas that do not facilitate systemic effectiveness. In brief, the
overall ideological positioning of government and its translation into policy can, and
often is, differentially driven by a number of departments working in isolation from one
another. While the setting of frameworks nationally provides some measure of
consistency, previous research (OECD, 2004; GTZ, 2006) argues for a process of local
empowerment and inclusion. This would include the development and support of local
development agencies and systems of finance and an inclusive process of decision
making regarding the implementation of regulations at local level. The creation of an
inclusive strategic agenda for the development of small businesses and the building of a
civil service culture that understands the importance of small business in social and
economic terms would go some way to creating a climate in which small businesses
can develop.
5.3 Related to the matter of regulatory compliance, and seen to be part of it is the
capacity of, and manner of engagement with, the various levels of government. It is
clear that respondents do not enjoy a totally satisfactory relationship with government
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The environment of small business in KwaZulu-Natal
agencies and departments. Some (11%) of the respondents were satisfied with the
quality of information received from government, 36% felt that it was adequate, 41% felt
it was poor and 12% said that it was not needed. Figure 5.1 provides a breakdown of
the respondent views relative to government information in the various survey sites.
Other than Empangeni where service quality was deemed to be poor but information
availability relatively better, the overall opinion of government information services is not
good. Significantly, respondents suggested that the use of information technology and
online systems was seemingly unfamiliar territory for most public authorities. It is an
area that warrants further investigation.
Some elaboration of this through written responses revealed that major issues are
difficulty in obtaining information, being given inaccurate or wrong information, under-
qualified staff, poor use of internet potential and general failure to communicate on the
part of government. Service quality by government was also not favourably reported on.Overall, 10% of respondents were content, 31% felt that service was adequate, 50%
thought that it was poor and 10% said they had no need for it (see Figure 5.2). For the
most part this was put down to a poor service culture and a need for a greater customer
focus in the activities of government. Issues of capacity and competence were regularly
foregrounded in addition to allegations about corruption in a variety of guises within the
civil service and amongst elected officials. In essence, therefore red tape and
7%10%
16%
22%
6%
36% 35%33%
41%38%
47%44%
36%
23%
44%
10% 11%
15% 14%
12%
Pietermaritzburg Durban Newcastle Empangeni Port Shepstone
Fig 5.1: Quality of Government Information
Good Adequate Poor Not Needed
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The environment of small business in KwaZulu-Natal
12%
56%
11%
6%
15%
Corruption SMME Support
Services
Service Delivery Crime Red Tape (esp.
labour)
Fig 5.3:Key Issues for Attention of Government
7%
17%
42%
23%
12%
Training
Municipal Staff
Municipal
Attitudes
Enterprise
Training
Management
Training
Improve
Availability
Fig 5.4: Required Training Programmes
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6. Overview and Interim Recommendations
6.1The findings of this study require further validation. The study and the supportinginterviews (although limited) that were conducted indicate a more complex set of
circumstances than simply an evaluation of red tape as an impediment to small
business development. South Africa shares the burdens that are common in many
African countries, such as an education and training system that lacks a
developmental orientation, non-coherent government policies in terms of achieving
focal objectives, misallocated or inaccessible finance. In addition South Africa
carries the burden of its political history followed by redress programmes that are
perceived by many to be diluting the energy that might otherwise be mobilized.
Recommendation: Promotion of entrepreneurship education within the
education system in general, framed within the context of redress; a black
economic empowerment agenda that includes greater emphasis on dialogue
with (and amongst) small businesses; a further, related dialogue that focuses
on entrepreneurship development (ED) as a key element in the relationship
between small businesses and larger businesses.
6.2 The overwhelming number of small businesses that comprised this survey are
very small indeed (average of 2.4 employees per business) and intend to remain
small. As is typical of small businesses internationally and locally, they are mostly
privately funded and exist to serve the interests and aspirations of the owner,
immediate family and associates (and very few others). This means that placing
emphasis on existing small businesses as vehicles for employment creation may be
misplaced. A further related finding is that, contrary to the findings of other similar
studies, there was relatively few start up businesses. Many mature businesses made
up the sample. This translates into a business development pipeline with limited
potential for development
Recommendation: That the process of small business creation and growth be
investigated further not only to validate this finding but also to establish the
reasons for the apparent absence of incentive to start new businesses and to
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grow existing ones; that the whole mechanism of public funding provisions
for the support and growth of small businesses be examined in order to
develop frameworks for the more effective use of available resources.
6.3 There is recognition of the complexity of the small business environment, within
which red tape and regulation are framing conditions that comprise only one part of
a situation that ideally requires broader systemic consideration and an engagement
on that basis if improvement is to occur. The plea for locally-sensitive and locally-
constructed solutions to the issues of regulation specific to small businesses is not
new, including means of access to services and effective means for rapid dispute
resolution. The scope for facilitated engagement of public and private sector
interests in the processes of regulation development and implementation exists but
remains substantially unexplored. Differences between locations appear, at this time
to be less significant than shared concerns amongst the small business community
but focal discussions with stakeholders in each location could reveal differing issues
at each location.
Recommendation: An approach to regulatory frameworks development that is
founded on a systems approach; the establishment of locally representative,
inclusive bodies to determine processes for enactment of regulations
affecting small businesses; development for mechanisms for speedy dispute
resolutions.
6.4The role of anti-social behaviour, such as manifested by various forms of crime,
be understood to be a limitation on small business survival and growth, including
customer flight. This can be taken to include allegations of corrupt practices and
discrimination or unfair trading practices that seemingly are supported and condoned
by the public authorities. The policing of illegal trading is understood to be
inadequately engaged, including foreign trader activities and informal business
activities.
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Recommendation: Improved monitoring of illegal trading and unfair practices;
greater awareness and engagement with the impact of crime on small
businesses.
6.5 That planning delays and poor servicing of (and absent) infrastructure represent
backlogs and lost potential that is seen against a backdrop of ever increasing tariffs
for utility services and municipal rates. The impact of significant cost increases for
the operation of businesses is certainly a factor of note.
Recommendation: The need for improved maintenance and new infrastructure
is a known general problem; the levying of tariffs on small businessesrequires review.
6.6 That the concept of red tape clearly also includes administrative attitudes,
information quality and capacity that generates costs for small businesses. The
quality of service and the overall experiences of small businesses in their
engagement with government are mostly negative and therefore indicates the need
to develop capacity in government, including customer relations.
Recommendation: The development of a culture of customer service in
government and the additional engagement of on-line services to limit time
required to attend to administrative issues; the orientation of civil servants,
especially at local government level, to be supportive and understanding of
the significance of small business as a distinctive business form.
6.7 Labour legislation in its various forms is hampering the willingness of small
businesses to grow and offer additional work opportunities. The achievement of
social and political objectives is seen to be creating a dilution of focus. Although
laudable, the various thrusts of government are thought to be in conflict with one
another. For example, job creation through small businesses and the existence of
inflexible labour markets are not mutually supportive.
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Recommendation: That a systemic review be undertaken of the interaction and
counteraction of various forms of legislation impacting labour and job
creation through small businesses
6.8 That trends are more meaningful in studies of this nature than once off
snapshots.
Recommendation: That studies to determine developments in the small
business environment in the Province be undertaken at regular intervals to
determine trends and improvements in the light of specific, defined actions;
that these be supported by local interventions and further informing work thatintends to improve the identified issues; that a systemic, dynamic modeling
exercise/analysis be done to create a framework for assessing proposed
improvement programmes
The above recommendations are summarized in Table 6.1 below with the inclusion of
possible action steps for consideration.
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Table 6.1 Summary of Recommendations and Potential Action Steps
Recommendation Potential Action Steps 6.1 COHERENCE OF POLICY OBJECTIVES
REQUIRED
Clarity of priorities in government to
minimize unintended negative
consequences of enactments on SME
development and plans for SMEs.
Development of specific frameworks for
the support of SME development as a
distinctive business form.
6.1 ENTREPRENEURSHIP SUPPORT IN
EDUCATION SYSTEM
Introduction of entrepreneurship
competencies within the broader
education system.
Establishment of peer-support dialogue
forums for SMEs with public sectorparticipation.
6.1 ENTERPRISE DEVELOPMENT AS
HIGHER PRIORITY IN BEE AGENDA
Elevation of Enterprise Development as a
higher priority area on the BEE scorecard.
Public sector facilitation/encouragement
of supply chain engagement of SMEs and
their development/growth.
6.2 INVESTIGATION INTO LOW NUMBERS
OF START-UPS AND PUBLIC FUNDING
MECHANISMS
Validation and review of reasons for low
number of new/emerging enterprises and
relationship of this to legislated support
frameworks in general.
Assessment of the performance of public-funded institutions in terms of apparent
procedural difficulties in gaining access to
funding.
Assessment of the prioritization of use of
public funds in areas of real needs e.g.
expansion into new markets.
6.3 LOCAL STRUCTURES ESTABLISHED TO
ENACT REGULATIONS AND RESOLVE
DISPUTES
Review of dispute resolution mechanisms
especially in local government.
Establishment of recognised inclusive
private/public local structures to develop
mechanisms for avoiding potentialdisputes and for rapid resolution.
6.4 MONITORING OF ILLEGAL TRADING,
CRIME AND CORRUPT PRACTICES
Ensuring equity and fairness in trading
conditions for all.
Creating an environment whereby
essential legislated procedures are fairly
and justly administered.
6.5 SERVICE DELIVERY IMPROVEMENTS Engagement with SMEs on the costs and
problems associated with service delivery
failures against rising service charges.
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Recommendation Potential Action Steps 6.6 CULTURE OF CUSTOMER SERVICE AND
UNDERSTANDING OF SMALL BUSINESSES
Training of local government personnel in
particular in the area of SME
characteristics and importance.
Developing a culture of customer service
in local government to facilitate urgency in
the need to expedite approvals processes.
Joint private/public engagement to
streamline approval processes and avoid
negative consequences and save costs
through time delays
Significantly increased use of IT and the
internet as a means for improving
customer service and saving time.
6.7 UNDERSTAND UNINTENDED
SYSTEMIC CONSEQUENCES OF LABOUR
AND INSITUTIONAL LEGISLATION
Developing a framework for theassessment of new legislation in terms of
cost/time consequences for all concerned.
Creating models for understanding the
unintended conflicts in the legislated
provision of government and how these
impact SMEs.
Adoption of a systems approach to the
evaluation and implementation of new
and existing legislation.
Consider developing a relevant Standard
Cost Model framework especially focusedon SME impacts.
6.7/6.8 RECOGNISE THE NEED TO DEAL
WITH SMALL BUSINESSES AS A
DISTINCTIVE BUSINESS FORM
Examination of aspects of key legislation
to remove/streamline and make it more
appropriate for the purposes of SMEs.
Assessment of SMEs as possessing
distinctive characteristics that justify a
review of the provisions that negatively
impact their initiation and growth.
Development of mechanisms to monitor
trends in SME development over time in
response to specific interventions and
changing environmental conditions over
time.
6.7 PROCESS INVESTIGATION AND RE-
ENGINEERING IN OFFICIAL PROCESS
ACTIVITIES
Conduct process flow analyses within
approval structures to expose constraints
and inefficiencies.
Re-engineering of key processes and staff
and technology development within local
government in particular.
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7. References
1. Better Regulation Executive, UK (2005) Measuring administrative costs: UK
Standard Cost Model Manual, Cabinet Office, London.
2. DEDT(2010) Study on improving SMMEs business environment (Red Tape)
reduction in KwaZulu-Natal, Umhlaba Development Services.
3. DEDT (2011) Assessment of the administrative burdens imposed by
regulations and their impact on businesses operating in the KwaZulu-Natal
Province, Department of Economic Development and Tourism (DEDT),
Pietermaritzburg.
4. Department for Business Innovation and Skills (BIS) (2011), BIS smallbusiness survey 2010, Sheffield, UK.
5. Edmiston, K, (2004) The role of small and large businesses in economic
development, Federal Reserve Bank of Kansas City, Kansas, USA
6. First National Bank (2010) State of Entrepreneurship in South Africa,
Johannesburg.
7. GTZ (2006) Local Red Tape reduction to improve the business climate, GTZ.
8. Herrington, M. Kew, J. and Kew, P. (2010) GEM South Africa Report, Global
Entrepreneurship Monitor, Graduate School of Business, Cape Town.
9. OECD (2004) A guide for the policy review process and strategic plans for
micro, small and medium enterprise development, Centre for private sector
development, Istanbul.
10. Ortmans,J.(2004) How South Africa can boost support to small businesses:
Lessons from Brazil and India, Unpublished monograph.
11. SPB(2008) The impact of crime on small businesses in South Africa,
Strategic Partnerships for Small Business Growth In Africa (SPB),
Johannesburg.
12. SPB (2011) Headline report of SPBs Growth Index, Strategic Partnerships for
Small Business Growth In Africa (SPB), Johannesburg.
13. SPB (2011) Growing Small Firms, Growing Employment, Strategic
Partnerships for Small Business Growth In Africa (SPB), Johannesburg.