The recently released 2013/2014 World Economic Forum’s (WEF) Global Competitiveness Report has revealed that South Africa ranks significantly lower than other emerging economies when it comes to factors relating to business development and expansion.
According to Nazeem Martin, MD of Business Partners Limited, while many countries can learn from the strength of South Africa’s financial market development and the availability of financial services in the country, these rankings highlight the need for action around labour inefficiencies and other factors which aid business growth.
Overall, South Africa ranked 53rd out of 148 countries in the Global Competitiveness Report, down one place from last year, as a result of labour strikes, a struggling education system and government bureaucracy. The report ranked South Africa 116 with regards to labour market efficiency, 144 for flexibility of wage determination and 147 for hiring and firing practices.
Martin says that these factors affect small business growth, and challenge SME owners when it comes to expansion, management and business practices.
"The report also ranked South Africa 82nd in terms of the number of days required to start a business, which highlights the extensive red tape which SMEs need to overcome when starting a business."
He points to the restrictive labour laws which SME owners need to comply with, and says that although these regimes suit larger businesses and corporates; these requirements are often out of reach for SMEs.
"More than 50 percent of people in formal jobs in South Africa are employed by SMEs, and more than 60 percent of new jobs created every year are created by these businesses. The effort and cost to comply with our modern labour legislation can inhibit SME growth."
He says that he would suggest government considers an exemption of businesses below a certain size from all labour laws, apart from health and safety laws, and reinforce the exemption of a probationary period from the dismissal of rules. All this should and can be done without infringing the rights of workers.
Martin says that it is however not all doom and gloom for South Africa, as the report also highlights areas that the country is performing well in, which are all conducive for SME growth. For example, ease of access to loans (ranked 22) and venture capital availability (ranked 28) in South Africa were commended in the report, as was the quality of the roads in the country (ranked 41).
Although the quality of educational system is poor (South Africa is ranked 146), the country fares well in the quality of management schools (ranked 23), which augurs well for established SMEs owned by management graduates as well as big business who employ these graduates.
He says that it would be beneficial for teachers in South Africa to not only adhere to the government policy of being at school, but to commit to providing excellent teaching every single day. The department of basic education can in turn improve controls to increase accountability by teachers and reward them accordingly.
"The adoption of schools by corporate South Africa will also go a long way towards improving our education system.
"The SME sector has significant job creation potential, and, if fully utilised, could assist in solving the current unemployment challenge in South Africa. Despite the effort which is being made to aid SME growth in the country by government, the barriers highlighted in the Global Competitiveness Report need to be dealt with more effectively and rapidly, in order for the promising SME sector to grow to its full potential," concludes Martin.