The effect of regulation on SMME's in South Africa : a research article focusing on labour laws and government bereaucratic procedures

Abstract

Background: Owing to the importance of SMMEs and their contribution to the South African economy, the South African government has been attempting to resolve the regulatory constraints and challenges that face these businesses. However, despite these attempts, South African SMMEs still have the highest failure rates in the world and struggle to succeed at the levels that drive the growth of the economy. Aim: This research article is to investigate if regulation has a negative effect on SMMEs and consequently contributes to their failure, more specifically, the effects of government bureaucratic procedures and labour laws. Setting: The research draws on primary data from twelve participants that are SMMEs, reports from research institutions and the resulting secondary data in the sector of SMMEs in South Africa. Methods: This research used qualitative research design, with data being collected through semi-structured interviews. Results: The findings extend research on SMMEs and suggest that while SMMEs have found a way of dealing with regulatory compliance, the burden of doing so is significant, in that it takes up too much time and funds to be compliant and this is contributing to their failure. More specifically, the inability to hire and fire due to the strict labour laws, government inefficiencies, corruption and lack of communication on ever-changing laws, such as broad-based back empowerment laws, are a some of the negative contributors. Conclusion: To meet the targets set out in the National Development Plan, the South African government needs to have targeted initiatives based on the experiences in the sector, needs to be more communicative of the already existing efforts and support for SMMEs, must implement SMME targeted policy and regulatory reform, and more urgently, root out corruption.