Small Business in South Africa: The Necessary Engine for the Economy

From a general view, the economy of South Africa is characterized by the rich, middle class and the poor. The poor especially struggle to make a living amidst the challenges of educational qualifications, financial standings and unemployment amongst others. Unemployment, being amongst the challenges that South Africa faces, needs ardent solutions in order to remedy the situation and save the country from the ever increasing gap between the rich and the poor. According to the Centre for the Study of African Economics the unemployment rate in South Africa is 40%, which is obviously huge.


South African history is painted with an apartheid experience which was characterized by racial discrimination. Years down after independence the marks of apartheid can still be seen with a larger population of the blacks being on the lower part of the economic scale. This is mainly attributed to the inferior treatment of the blacks during the apartheid regime where they were subjected to inferior schools, jobs, social amenities, limited access to social, political and economic opportunities. Most blacks therefore have to struggle real hard to be at par with the races favored by the apartheid regime such as the whites. Nonetheless, the negative impacts of the economy on the people cuts across the races.

General Outlook into the Economy

From a general view, the economy of South Africa is characterized by the rich, middle class and the poor. The poor especially struggle to make a living amidst the challenges of educational qualifications, financial standings, unemployment amongst others. Unemployment being amongst the challenges that South Africa faces needs ardent solutions in order to remedy the situation and save the country from the ever increasing gap between the rich and the poor. According to the Centre for the Study of African Economics the unemployment rate in South Africa is 40% which is obviously huge.

According to a ‘Case Study of Day Labourers in Pretoria’ by Mr. P. F. Blaauw, Lecturer, Department of Economics, University of Johannesburg, in South Africa there are thousands of unemployed people, standing at the side of the road, waiting for informal and in most cases temporary employment. They lead a harsh life. They must be satisfied with an average daily wage of between fifty and sixty rand for a long day’s work. They are willing to do anything, from garden work to the mixing of cement, painting, loading or unloading of heavy goods. They will do it because it is the only income they have and many days go by without any work for many of these people.

Small Businesses as the Necessary Solution

One of the effective solutions to this contemporary problem affecting the developing world at large would be to go the small business way. They say that a journey of a thousand miles begins with a single step. Experience also shows that most of the big things started small. For example, some of the great inventors like Steve Jobs and Steve Wozniak who invented the Apple Computer started small then turned out big.

Characteristics of small scale businesses generally include: small scale operations, lack of management, lack of specialist staff but rather multi-tasking staff or even unskilled or semi-skilled staff. Small businesses are advantageous in that they help to drive economic growth, create employment, and are sources of innovation and new ideas. However, small businesses generally face various challenges such as weaknesses in innovation, a lack of financial acumen, marketing, entrepreneurial flair, practical knowledge, and human resource management. These challenges have hindered them from realizing their full potentials and ultimately hampering their growth.

Economic activities in South Africa include agriculture, mining, manufacturing, wholesale trade, retail & finance to transport, business services, personal services& imports and exports.

Legal Aspect to small businesses in South Africa

Small scale businesses in South Africa are incorporated in the collective category of Small, Micro, & Medium Enterprises (SMMES). They are governed by the National Small Enterprise Act, 1996. However, this Act, (formerly National Small Business Act, 1996) was amended by the National Small Business Amendment Act, Act 29 of 2004, which was meant to incorporate the Small Enterprise Development Agency (SEDA) to replace the Ntsika Enterprise Promotion Agency.  The other amendment brought by this Amendment Act is also the replacement of ‘small businesses’ with ‘small enterprises’ as provided by the National Small business Act, 1996.

According to the National Small Business Amendment Act, Act 29 of 2004 ‘small enterprise’ means a separate and distinct business entity, together with its branches or subsidiaries, if any, including co-operative enterprises, managed by one owner or more, predominantly carried on in any sector or subsector of the economy mentioned in column 1 of the Schedule and classified as a micro-, a very small, a small or a medium enterprise by satisfying the criteria mentioned in columns 5 of the Schedule. It also defines the “small business organisation” to mean any entity, whether or not incorporated or registered under any law, consisting mainly of persons carrying on small enterprise concerns in any economic sector established for the purpose of promoting the interests of or representing small enterprise concerns, and includes any federation consisting wholly or partly of such association, and any branch of such organisation.

The National Small Business Amendment Act, Act 29 of 2004 establishes the Small Enterprise Development Agency. The objectives of the Agency are to: design and implement development support programmes; promote a service delivery network that increases the contribution of small enterprises to the South African economy, and promotes economic growth, job creation and equity; and generally, strengthen the capacity of- (i) service providers to support small enterprises; and (ii) small enterprises to compete successfully domestically and internationally.

Amongst the functions of the agency include, to: implement the policy of the national government for small enterprise development; design and implement a standard national delivery network that must uniformly apply throughout the Republic in respect of small enterprise development, integrating government-funded small enterprise support agencies across all spheres of government.

Tax Obligation on Small Businesses in South Africa

Small business owners have the obligation to pay taxes to the South African Revenue Services (SARS) .  The taxes levied on the small businesses include Value Added Tax (VAT). The National Small Business Office (NSBO) in SARS has the mandate to see into all small business tax and customs policy matters within SARS. The office works in maximizing compliance among small businesses while at the same time finding ways to reduce the compliance burden faced by these businesses in South Africa.

Why Small Businesses for South Africa

The economy of South Africa is marked by: low growth rate, a high inflation rate, taxes such as VAT and a high rate of unemployment. This therefore calls for a great need of the small businesses especially in the informal sector. Contribution of small scale businesses to the overall economy would include: income generation, wealth generation, creation of jobs, provide economic stability and a better distribution of economic services.   This can best be understood by looking at the benefits of small businesses to the U.S. economy as compiled by South Western University . Small businesses in the U.S. are responsible for close to half of total U.S. sales, generate over half of GDP and employ 53 percent of the nation’s private, non-farm workforce.  Furthermore, 90 percent of all businesses in the U.S. are small businesses. Other benefits of small businesses to the U.S. economy include: creating new jobs; creating and attracting new industries.


The necessity of small businesses in boosting the economy of South Africa has been realized especially by the Government of South Africa. This can clearly be seen by the legislative measures that have been put in place in relation to small business. Various agencies, departments and organizations such as Department of Trade and Industry (DTI),Khula Enterprise Finance, the Apex Fund, the National Youth Development Fund and Small Enterprise Development Agency (SEDA)  which replaced the Ntsika Enterprise Promotion Agency under the National Small Business Amendment Act, 2004, amongst others have also been enacted and given a statutory face in order to look into the issues that involve small businesses such as trainings, provision of advice and counseling services, access to raw materials, and financial support to small businesses amongst other innovations.

It can therefore be said that the South African Government has the perspective of small businesses in mind but is this only working in the setting up of businesses without looking into their growth and survival for the future.  There should be incentives to ensure the growth of small businesses upon establishment. More also needs to be done in order to incorporate even the informal sector so that they can grow into the formal sector and also in the provision of capital especially to those who have skill without capital so that South Africans do not only rely on employment by others but are able to create their own employment. The Government should also cut down on the taxes on the small businesses and also strive to sensitize the small business operators on the need for investments and also create avenues for this to ensure the future stability of the small businesses. If this were done then it can see the growth of small businesses into large business organizations and a means to wealth creation, job creation and a general boost to the South African economy.


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