Creating a Conducive Policy Environment for Employment Creation in SMMEs in South Africa

SEED Working Paper No. 35

This report is the
outcome of a research project undertaken by the International Labour Organization (ILO) to
analyse how the regulatory environment affects the growth of small, micro and medium-sized
enterprises (SMMEs) and, in turn, the generation of SMME employment in the South African

The assessment of the policy environment for small enterprises in South Africa is based on a careful mapping of existing laws and regulations. Clearly, the policy and legal framework for enterprise promotion has changed considerably since the removal of apartheid and the installation of democracy in 1994, as witnessed by the explosion of enterprises across the country. However, the practical implementation of policy and the enforcement of regulatory controls have not always been successful.
The MSE contributions to GDP and employment in South Africa are growing at a far faster rate than medium and large enterprises. Most of this growth appears to be in the tertiary sector. The SMME employment pattern in South Africa shows a growing and large number of survivalist enterprises that provide a precarious living for many who work under poor conditions of labour.
Inadequate access to finance, lack of skills and poor business conditions remain the primary factors constraining SMME performance. In addition, due to lack of information and poor drafting, many of the policies and laws are not understood by entrepreneurs. The burden of time and money required to complete the plethora of administrative tasks required by legislation encourages limited compliance.