Inflexible labour legislation and black economic empowerment are frustrating small business growth, according to an index released on Tuesday.

"Major regulatory barriers identified by the index are inflexible labour laws, broad-based black economic empowerment (BBBEE) and Sars [SA Revenue Service] inefficiencies," said Chris Darroll, CEO of SBP, the research company which compiled the index.

However, this could be seen as positive as these barriers were influenced by government policy, which could be reformed.

"South Africa is squandering a critical economic asset and source of job creation by failing to create an environment for the small and medium enterprise sector to flourish," Darroll said in a statement.

"But the good news is that this can be remedied."

The 2011 SME Growth Index is the first annual study produced by SBP.

It surveyed 500 small and medium enterprises (SMEs) and would initially track their performance for the next three years.

The firms chosen survived the first two years of operation, employed between 10 and 50 employees, and operated in sectors that the government had prioritised for growth -- manufacturing, business services and tourism.

Respondents said inflexible labour legislation constrained their growth.

"SMEs also express anxiety about increased inflexibility if proposed amendments to labour legislation materialise."

Less than half the firms on the panel had grown their staff numbers over the past five years, while less than a third had created new positions in 2011.

"South Africa's SMEs are simply not growing at the pace needed for large-scale wealth and job creation."

Darroll said the economic climate was given as the main reason for the lack of job creation.

Respondents were also unhappy about BBBEE requirements.

"Widespread dissatisfaction among all the firms, including black-owned businesses, is very evident, despite some 57% having accreditation," said Darroll.

"Accreditation comes with annual costs, is administratively burdensome, and is not balanced by enhanced access to procurement opportunities."

Half of respondents planned to grow in the short term.

"SMEs in the business services sector in particular are confident of growth, but manufacturers and tourism firms are less so.

"Just over half of business services firms envisage expanding staff numbers, as do 35 percent of manufacturers and a fifth of tourism firms," she said.

Darroll said older firms tended to employ more people.

"This is in contrast to government's emphasis on supporting start-ups."

Small businesses contribute more than half of South Africa's gross domestic product and make up 77% of non-government jobs, she said.