Determinants of the performance of construction SMEs in South Africa

Abstract

This research focuses on determinants that contribute to Small and Medium Enterprises’ (SMEs) performance in the construction industry. The post-apartheid South African government continues to experience challenges of unemployment in general. A 2011 census revealed that South Africa faces a number of economic challenges including unemployment, a lack of capital investment and a lack of Skills Development. In order to address these challenges, the South African government introduced the Skills Development Act (No. 97 of 1998) with the aim of improving skilled workforce competency, as well as reducing unemployment in the country. SMEs in South Africa were identified as a major role in the economy and a critical source of job creation. In South Africa, SMEs account for about 91% of formal business entities, contributing between 51% and 57% of gross domestic product (GDP), and providing almost 60% of all employment (Kongolo, 2010). The significance of SMEs in contributing to the economic growth of South Africa was recognised by the government and, as such, a framework for SME support and development was established. The National Small Business Act (No. 102 of 1996) regulates SMEs in South Africa and also serves to establish the National Small Business Council. This study includes a review of specific literature with respect to regulatory compliance and the challenges faced by SMEs within the construction industry, as well as research methodology that includes research results from the construction industry. The South African Register of Contractors (RoC) was established by the Construction Industry Development Board (CIDB) in terms of the CIDB Act (No. 38 of 2000). The register was designed as a tool to measure construction companies’ performance in relation to growth, service delivery, and enterprise development, as well as to create sustainable enterprises. The study focused on how the RoC may be used by the construction industry to measure performance amongst contractors that are graded from one to six. Furthermore, the study demonstrated the correlation between the contractors’ competency and their ability to be competitive in developing their value proposition within the built environment. The CIDB keeps records of construction companies that are active. Qualitative methods were used in this study to understand determinants that contribute to SME performance within the construction industry. A conceptual model was drawn to measure the control variables against the independent variables. The main findings of the study reveal that many construction SMEs have technical skills challenges which inhibit them from reaching their financial goals. Furthermore, there is a lack of technical skills training which affects their project management skills and use of technology. Sub-contracting is one of the elements that affect the performance of many of these SMEs and needs to be regulated by governing bodies to avoid their exploitation. Sub-contractors are found to be more reliant on main contractors when it comes to strategic management and organisation of projects (White & Marasini, 2014). The study concludes that government should enforce the new B-BBEE Codes more effectively to ensure that big construction companies develop small contractors so that they can acquire the necessary skills and experience required to participate in the industry.