Why upskilling and legal formalisation is key to a stronger SME economy

January 7th, 2020 – JOHANNESBURG – Trying economic times in South Africa over the past decade have made doing business across the country particularly difficult for SMEs and entrepreneurs. According to official figures, 60 percent of South African SMEs fail within the first two years of their establishment.

Experts believe this is due not only to a lack of access to contracting markets, but also a lack of funding as venture capitalists become increasingly risk-averse as the economy continues to contract. Presently, the SME sector accounts for 47 percent of the country’s formalised workforce, contributing more than 20 percent to GDP and comprising approximately 6 percent of corporate taxes. But, despite representing a substantial component of the country’s economy, South Africa’s SMEs face significant challenges compared to other African nations and global emerging economies.

According to The World Bank Doing Business 2020 report, South Africa ranks 84th out of 190 countries, in terms of overall ease of doing business, falling beneath other BRICS partners Russia (28), India (63) and China (31). Furthermore, in terms of ease of starting a business, South Africa ranks 139th globally, again, beneath its respective BRICS partners Russia (40), China (27), India (136) and Brazil (138).

The report further stated that South African start-ups also take longer to establish themselves compared to their international counterparts. It takes 40 days, on average, to start a business in South Africa compared to nine days in China, 10 in Russia, 17 in Brazil and 18 in India. South Africa also falls beneath the sub-Saharan Africa average of 22 days, while ranking 47th out of 54 on the African continent.


Written by Business Report

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