Economic determinants of small business growth : the case of selected areas in the Johannesburg Metropolitan region

Abstract

The SME sector has widely been accepted as the engine of economic growth and poverty eradication in the world. SMEs play a significant part in the economic, modern and social expansion of a nation. It assumes a vigorous part in the worldwide economy through its critical commitment to GDP and enhancing the general population's standard of living. Usually, the advanced nations possess 90 percent of enterprises, which SMEs are part and one of the significant reasons for financial development. Even, the roles of SMEs in South Africa has become more crucial as they have potential to improve income distribution, create new employment, reduce poverty and enable growth. Nevertheless, SMEs are struggling and facing economic constraints to actualise their growth potentials. To fully realise the potential of SMEs, the sector needs to be approached with a fresh perspective in concurrence to the challenges they face. However, for SMEs to grow and be beneficial to the South African economy, the government need focus on different business frameworks and provide collateral to SMEs owners/managers in order to validate their business growth. In addition to this, the business owner needs access to information and market knowledge and enabling environment as a key factor for their business growth. The study had a primary objective to identify the determinants to SMEs growth and its link to economic growth, development and job creation in the city of Johannesburg metropolitan region. Constraints to SME growth within the study area was highlighted, like crime and strict government regulations. In order for SMEs owners/managers to succeed, the study further identified that the creation of an enabling environment and government support can assist small businesses in the study area to grow. A sample size of 200 SMEs was selected. Data were collected through the use of a structured questionnaire that was administered through trained fieldworkers. A total of 200 questionnaires were distributed and 197 were completed by the respondents. The sample size = 197, which resulted in a response rate of 98,5 percent. The statistical techniques used to analyse the data included scale reliability diagnostics, which shows; Standard deviation, Cronbach alpha, Inter-item correlation and frequency distribution, correlation and ANOVA. Frequency distributions and percentages were used to interpret the demographic profile in the results which included: race, age, level of education, capacity of owner, duration of self-employment and main reason for starting a business. The results indicated that the majority of business owners within the study area are whites. The majority of participants within the study area were between the ages of 41 and 50. Furthermore, there was a high percentage of who have Summary v obtained a degree qualification at frequency 47 (23,5%) and low participants with primary and secondary not completed at frequency 13 (65,0%). Frequency distribution were used to interpret the business characteristics of the participants. The results indicated that the majority of small businesses within the study area, started their business with the aim of ‘growth’ at a frequency of 172 (13,5%). The sample recorded a low frequency of SMEs starting their business with the aim of lifestyle at a frequency of 28(14, 0%). The results further showed that source of start-up capital by small businesses owners/managers were from own resources estimated at 75 (37,5%), while the majority small businesses secured their capital through a loan from family/ friend at frequency of 56 (28,0%). Government loans and support had a negative impact on few SMEs who struggle with finance and required information to grow their businesses. The results further give indication that SMEs in the city of Johannesburg metropolitan region are considered significant to generate more jobs within the study area and thus contribute immensely to the South African economic growth and development. The overall results indicated the government and stakeholder’s roles are important for growth and sustainability of SMEs.