SA is a "complete outlier" internationally when it comes to employment creation by small and medium-sized enterprises, raising questions about possible policy and regulatory failure.

Initial findings of a new study by the Small Business Institute (SBI) and the Small Business Project (SBP), released on Tuesday, found SA has only 250,000 formal SMEs, less than previous estimates of between 2-million and 6-million. "The situation is dire," Bernard Swanepoel, president of the SBI, said at the launch. "SMEs face extinction if we’re not careful," he added.

While formal SMEs — defined as businesses employing fewer than 200 employees — account for 98.5% of the economy, they only employ 28% of the formal workforce. This is significantly lower than employment rates internationally.

In the Organisation for Economic Co-operation and Development countries, over 95% of businesses are SMEs, employing between 60% and 70% of the working population and contributing up to 60% to GDP, said Chris Darroll, CEO of the SBP.

Alarmingly, the contribution of South African SMEs to jobs is falling, with large firms adding more jobs and growing employment at a faster rate than small businesses, according to the research. SA’s 1,000 largest employers, including the government, provide 56% of the country’s jobs. The aim in the National Development Plan is for SMEs to contribute 90% of job growth by 2030.

"The critical point to ask is whether this is pointing to policy and regulatory failure in this country. Why are we so completely out of step with the rest of the world?" Darroll said.

In an attempt to answer this question, the SBI and SBP have embarked on the first comprehensive baseline study on the size, nature, challenges and potential of SMEs in SA.

The initial findings are based on IRP5 and corporate income tax data provided by the South African Revenue Service, the Treasury and existing research.

The study, expected to cost R7m, will ensure SA is no longer "stabbing in the dark" when talking about SMEs, Darroll said. Preliminary findings show a lack of consistency in the government’s definitions of SMEs in 70 laws, regulations and key strategies reviewed.

• Marais is deputy editor of Business Day

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