Labour conditions primary obstacle to SME growth - SBP

Survey finds that business owners cite skills shortages and labour law as major impediments

Small businesses: labour conditions the primary impediment to growth

Skills shortages and overly stringent labour regulations are harming the development of the SME sector in South Africa, according to the 2013 SME Growth Index, published by research specialists SBP.

15% of business owners said that a lack of skills was the greatest impediment to the growth of their firm, ahead of 12% who were overburdened by excessive regulation.

Business services firms most acutely felt skills shortages - 38% of firms felt that this was their greatest barrier to hiring more staff.

Among manufacturing firms, labour law was cited as the greatest hindrance to increasing staff numbers, accounting for 43% of responses. This finding corresponds with those of the World Economic Forum's Global Competitiveness Report for 2013, which also identifies South Africa's labour regulations as a critical concern for the country's competitiveness.

The perceived inability to dismiss unneeded staff was seen as critical in this area. As one manufacturer put it: "Labour laws are very restrictive. You have ideas but they are too risky. If the project doesn't go well, you can be stuck with them."

54% of shrinking firms felt especially effected by labour laws. High growth firms also saw this as their greatest obstacle to hiring (32%) but these firms also recognised skills shortages as major impediments to creating employment (31%).

Chris Darroll, CEO of SBP, said that the poor preparedness of South African school leavers entering the labour market, and the legislation that governs the labour market, create the most substantial constraints on employment growth. "We can expect stronger growth and employment numbers in the business services field with a better skilled labour force. Adapting labour laws to accommodate the volatility of manufacturing could see gains in employment in this sector."

The SME Growth Index is a multi-year research project geared towards establishing a solid, evidence-based understanding of South Africa's small and medium enterprises.

It is the largest, most comprehensive study of the sector ever undertaken in South Africa, and one of a few of its kind worldwide. The research is based on an annual survey that tracks the experiences of a panel of 500 established small firms in the manufacturing, business services and tourism sectors.

The full report is freely available here - PDF.

Statement issued by Chris Darroll, Chief Executive, SBP, February 20 2014

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