The Contribution of Small- and Medium-Sized Practices (SMPs) to the South African Economy and the Challenges They Face

The Contribution of Small- and Medium-Sized Practices (SMPs) to the South African Economy and the Challenges They Face

Thomas Hoeppli

SAIPA Research Analyst

It has long been recognised that small- and medium-sized entities (SMEs) account for an overwhelming part of business worldwide and that they contribute considerably to private sector GDP, employment and growth.  Some estimates indicate that the total economic output of SMEs makes up about half of South Africa’s GDP and that SMEs provide employment to about 60% of South Africa’s labour force.  It is therefore not surprising that SMEs are seen as the backbone of many economies, including the South African one. 

Small- and medium-sized practices (SMPs) can provide custom-made services to their clients in a customised and personal way.  SMEs thus often turn to SMPs for a wide range of professional services.  In view of the crucial role that SMEs play in the global economic recovery from one of the deepest economic downturns in recent times, SMEs and the SMPs that serve them have been receiving increasing attention lately. 

The International Federation of Accountants (IFAC) created a SMP committee in 2006 to help cultivate and promote robust SMPs.  In 2011, the committee carried out four SMP Quick Polls to give SMPs all over the world the opportunity to express their views on important trends and developments that affect their own practice as well as their clients. 

A has over 7 000 members (excluding trainees and associates), more than 6 000 of whom professional accountants in practice.   Given the importance and the crucial role that their members play for South African SMEs, SAIPA extended IFAC’s surveys and launched an online survey amongst its members in April 2012.  This article highlights the main results of the survey and discusses the major challenges and issues that South African SMPs and their SME clients face.

While SMPs are “small- and middle-sized practices” by definition, South African SMPs tend to be even smaller than their international counterparts.  The survey reveals that only 17% of SAIPA member SMPs have more than 5 professional staff.  The smaller size of their practice and the flexibility that comes with can in fact constitute a comparative advantage to them.  It could for instance explain why the ‘ability to adapt to changing customer needs’ was cited only half as often by SAIPA members as the most important issue that their practice is currently facing compared to IFAC’s SMPs.

The scarcity of professional accountancy staff is a well-known problem in South Africa.  The survey shows, however, that more than half of SAIPA’s respondents are sole practitioners – almost 10 percentage points more than the SMPs surveyed by IFAC.  This could indicate one way South African SMPs have adjusted to the skills shortage.  In line with it, only 7% of SAIPA members consider ‘attracting and retaining staff’ as the most important issue for their practice.  Similarly, merely 6% deem ‘attracting new talent to the profession’ as the most important policy development area.  The skills shortage does obviously not affect SMPs to a great extent, but more than half of the survey respondents are sole practitioners.

SMEs in South Africa do not seem to face a ‘lack of demand for their products and services’.  Only 7% of SAIPA’s respondents indicated it as the biggest challenge to their SME clients, while 11% of IFAC’s respondents consider it a big challenge for their SME clients.  Neither do ‘difficulties accessing finance’ play a big role for the SAIPA members’ SME clients.  Whereas 23% of IFAC’s respondents cited accessing finance as the biggest challenge for their SME clients, it was mentioned by merely 15% of SAIPA’s respondents.

The survey does, however, clearly indicate one area where South African SMEs face bigger challenges than SMEs in other countries.  Almost half of SAIPA’s respondents (49%) indicated the ‘burden of regulation’ as the biggest challenge for their SME clients – something that is only regarded as the biggest challenge by 29% of IFAC’s respondents.  The complexity and the costs associated with standards and regulations are the two aspect that most respondents see as the greatest challenge to SMEs in South Africa. 

The costs associated with new regulations and standards also affect SAIPA member SMPs – roughly one quarter of them consider these costs as the greatest challenge for their own practice.  The volume of new regulations and standards is even the greatest challenge for over one third of the practices.  Not surprisingly, out of eight areas that could potentially be an issue for SMPs, 50% of SAIPA SMPs indicated ‘keeping up with new regulations and standards’ as the most important issue that their practice is facing at the moment.

The New Companies Act seems to pose a particular problem to SMPs.  Almost second survey response named it as the new regulation and/or standard that creates the greatest challenge.  20 persons further specifically mentioned independent review as the greatest challenge.  Regulations concerning taxes and taxation, especially the Tax Administration Bill, the (Income) Tax Act and the Tax Practitioners Bill, were mentioned by more than one out of five respondents.  However, not only the regulations themselves constitute a challenge to SMPs.  The interactions with government bodies (e.g. SARS or CICP) are equally challenging for SMPs.

The burden of regulation has often been pointed out in the case of South Africa.  In the Global Competitiveness Report 2011-2012 of the World Economic Forum, for example, South Africa is ranked 112th out of 142 countries in terms of burden of government regulation.[1]   The results obtained in the survey do therefore not come as a complete surprise.  Nonetheless, the burden of regulations faced by SMEs and SMPs is a serious concern.  It may in fact hinder the efforts of both SMEs and SMPs and thus slow them down in their crucial contribution to South Africa’s economy which is recovering after the global economic slowdown.

 

 

 

 

 

 


[1] South Africa is ranked lower than many other African countries, such as Burundi, Mali, Ivory Coast, Senegal, Kenya or Tanzania (see WEF, 2011: 398).

 

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