The legacy of apartheid has caused South Africa to lag behind other upper-middle-income countries in terms of small business, which is a core factor behind very low employment levels.

The country faces unusually deep inequality largely because of its limited small business community. This results in far fewer people earning livelihoods from their own businesses than in other upper-middle-income countries; and income from productive assets and financial savings is even more unequal than wages and salaries.

These were points made by speakers during nonprofit economic research unit the Trade and Industrial Policy Strategies’ (TIPS’) development dialogue on small business in the economy.

TIPS economist Lesego Moshikaro outlined some of the key takeaways from the new Small Business edition of the Real Economy Bulletin published recently by TIPS.

This provides baseline data on the number of small businesses and their contribution to the economy, as well as their distribution by industry and location; ownership by race, gender and age; investment; and profitability.

Moshikaro noted that the number of small formal businesses in South Africa reached 710 000 in 2022. There has been an increase, from 590 000 in 2010, to 680 000 in 2019, and a recovery from a decline during the Covid-19 pandemic.

In other upper-middle-income countries, small business owners constitute over 20% of the working-age population. By contrast, and of concern, is that in South Africa, this is just 6%, Moshikaro pointed out.

She noted that TIPS estimates that small formal businesses directly generate a third of value added in South Africa, while informal enterprise adds about 5%.

Moshikaro highlighted that, in 2020, small formal firms held at least a quarter of total business assets. Generally, they were both more labour-intensive and more profitable than their large counterparts, she said.

Further, small formal business generated 30% of total employment, 32% of all waged employment, including informal and domestic work, and half of waged work in the formal private sector.

In terms of education, she said close to half of formal business owners have post-matric qualification of some kind, compared to a seventh of their waged employees.

In terms of race, Moshikaro said black people have consistently owned about 95% of informal enterprises.

From a gender perspective, she noted that women own around a quarter of small formal businesses; however, half of these are white-owned businesses.

In the informal sector, the share of women entrepreneurs declined steadily from 45% in 2010 to 35% in 2022.

Moshikaro also touched on the age factor, noting that, in 2022, 4% of young people aged 15 to 34 were business owners, which equated to 15% of all employed youth.

From a geographical point of view, in 2019, the five largest metros held a third of the national population and around 60% of all formal small businesses.

The historic labour-sending regions held only 5% of formal business, although they have a quarter of the national population, Moshikaro outlined.