Economic development is a relatively new field of economics that started onlythirty years ago. Many of the measurements applied in measuring theeffectiveness of small businesses in South Africa are based on measuringgrowth, which is not always related to development. Using capital generation as one of the measurable parameters in economic development, a model was designed to measure the contribution of small business towards capital generation and, subsequently, development.
The model considered the contribution of small businesses towards capitalgeneration by measuring growth in assets, owners. incomes, employees.incomes and taxes paid. For these parameters to contribute to growth, additionalcapital needs to be generated by businesses. Job creation was also measuredas an important parameter used to calculate employees. and owners. incomes.
The model was tested with actual data gathered through personal interviews withbusinesses and analyses of the financial information of the businesses. The datawere collected to cover a five-year operational period. The model contributed toan understanding of the ability of small businesses to support development inSouth Africa.
The model was used to test the capital contributions of businesses of differentage groups and sizes as well as within different manufacturing environments andlocations in Gauteng and North West. Reducing the high failure rate of smallbusinesses will play an important role in any future developmental interventionsto increase the contributions of these small businesses. If the high failure rate isignored and if only successful businesses are considered, it is seen that smallbusinesses contribute to job creation. Small businesses, in general, increasedemployment below the total employment growth rate for the areas of the study, although the businesses which employed fewer than ten people outperformedthe industry average.
The data suggest that small businesses generally do contribute to capitalgeneration. Small businesses, which employed fewer than 20 people, contributedpositively to all aspects of capital contribution, compared to businesses whichemployed more than 20 people. These businesses performed positively only intax contribution. It is positive that small businesses invest in, and increase,assets, but it is concerning that tax contribution growth outperforms all othercapital generation parameters. Employees. incomes, and especially owners.incomes, showed a negative growth contribution to capital generation. Therewere definite trends in the data that businesses which employ the most assets,with large salary bills, large owners. payments and large tax contributionsshowed slower growth than did businesses employing smaller total capitalcontributions in these parameters.
The motor industry, which showed phenomenal growth over the past few years,did not manage to increase the capital it used taking into account the effect of theconsumer price index, excluding interest rates on mortgage bonds. This was alsoclear in the different regions which support the industry. The industry data can beused to study the different industries in more detail. Although more businessescontributed to growth in the four parameters, the net contributions in certaininstances, or parameters, were negative.
The results show that small business contributes both to economic development and to growth. It is also clear that the model can be used to analyse business contributions to development. It is unclear whether small business is the best way of stimulating development based on growth in capital contributions. The results and the analyses show that the model can be used as a successful management tool to stimulate development-related initiatives.
