Small businesses failure rate high

NEW BILL: Minister Rob Davies says regulations should not be confused with red tape Photo: Busisiwe Mbatha
NEW BILL: Minister Rob Davies says regulations should not be confused with red tape Photo: Busisiwe Mbatha

FIVE out of seven small businesses started in South Africa will fold in the first year.

This is against a global average of one out of two small businesses that fold in the first year.

This startling figure was released by Trade and Industry Minister Rob Davies at a media briefing ahead of the tabling of his budget vote in Parliament.

"There's a scary statistic, it tells us that if there are seven small businesses started in South Africa, in one year only two of them will continue to be in existence. In other words, five of them will be out of business within a year," he said.

Davies said with the global average for small businesses success standing at one out of two folding in a year, it meant it was much harder to become an entrepreneur in SA.

"It tells us that starting a business is hard work, it requires dedication and sacrifice. But if you stay the course and you are successful and you develop the productive skills and capacities, then in fact you end up being much better off than if you had a job."

Davies, however, dismissed criticism that the high failure rate of small businesses was exacerbated by the amount of red tape that they are burdened with, saying government imposed regulations that should not necessarily be confused with red tape.

He said his department encouraged incubation ventures that are designed to support small businesses to assist them until they are financially sound to stand on their own.

On the Licensing of Business Bill, which has been described by the Free Market Foundation as "crazy", Davies said that once they are done with the consultation process, significant changes will be made to the bill, taking in concerns about its impact on businesses.

"When we put out a bill we do listen carefully to what is being said and we work to improve the bill taking into account what recommendations and suggestions we do get in the process of consultation.

"When we present this bill again back to cabinet and into the parliamentary process, it will be a significantly different product from the one that you've got now," he said.

The foundation warned that, if passed, the bill would create unnecessary headaches for small businesses by granting licensing power to municipalities, exposing these businesses to unnecessary municipal inspections.

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