Johannesburg, South Africa, March 6, 2019
–South Africa’s financial institutions and policymakers have a big
opportunity to create jobs by expanding financial services in a stronger
business environment for smaller businesses, according to a new study released
today by IFC and the World Bank.
Small enterprises employ between 50-60
percent of South Africa’s work force and contribute around 34 percent
of GDP. However, the report, The
Unseen Sector: The MSME Opportunity in South Africa,
finds that only 14 percent of the country’s small businesses are formalized,
capping their job creation and economic contribution potential.
“By working together, we can increase
the ability of small businesses to access finance and markets, making them
visible to the broader economy and thus bigger job creators,” says Kevin
Njiraini, IFC’s Regional Director for Southern Africa and Nigeria.
The Unseen Sector focuses on three
themes: Size and profile of the MSME market, barriers to MSME growth and
MSME financing availability. In doing so, it provides a snapshot of the
South African small business landscape, where it’s thriving and what challenges
need to be addressed by the government and private sector to achieve a
stronger MSME ecosystem.
The report makes specific recommendations
to expand opportunities for MSMEs:
Better Data: A key study recommendation is to collect and digitize more
accurate and comprehensive data on the MSME sector that can be easily accessed
by all stakeholders.
policy coordination: Policy effectiveness requires clarity of definition
and a more coordinated approach between government departments. Greater
MSME policy coordination will support South Africa’s broad development
objectives, such as creating youth employment, by aligning the activities
of institutions around MSME support policies.
formalization: The study found that 86 percent of the MSME sector is comprised
of informal and survivalist businesses. Businesses struggle to grow out
of this classification in large part because of the poor business environment
for MSMEs. The constraints can be eased by reducing the cost to formalize
particularly around the cost to register a business, to be compliant with
regulation, and to access financial services.
The report is part of IFC’s SME Push Program,
which is committed to channel up to $3 billion over the next 5-7 years
into South Africa to increase lending to small businesses and optimize
the job creation potential of MSMEs. The IFC is forming partnerships with
financial institutions in South Africa to expand lending and working in
partnership with the World Bank to support building a stronger small business
“To have a strong small business sector
we need to support not only access to finance but also opportunities including
the tools and information small business owners need to thrive. That’s
why the work we are doing together with our partners is so important,”
says Paul Noumba Um, World Bank.
Through The Unseen Sector, the World
Bank Group aims to facilitate further dialogue and innovation that will
lead to greater small business financial inclusion.
IFC—a sister organization of the World Bank and member of the World Bank
Group—is the largest global development institution focused on the private
sector in emerging markets. We work with more than 2,000 businesses worldwide,
using our capital, expertise, and influence to create markets and opportunities
in the toughest areas of the world. In FY18, we delivered $23.3 billion
in long-term financing for developing countries, leveraging the power of
the private sector to help end poverty and boost shared prosperity. For
more information, visit www.ifc.org