Firm dynamics in South Africa

Until recently a lack of data meant that little was known about the distribution of firms and firm dynamics in South Africa. A new firm-level panel dataset based on tax data creates opportunities to better understand how firms enter, grow and exit. By using the OECD’s DynEmp framework, which was designed to create harmonised variables based on confidential firm-level data, this paper provides new insights about the dynamics of firms in South Africa and how these compare to other countries. One concerning finding is that the entry rate of formal sector firms was probably below the exit rate in recent years, which means that firms are growing older. The relatively low start-up rate compared to other countries together with the higher average firm size of entrants are consistent with the low rates of entrepreneurial activity and the presence of barriers to firm entry highlighted in the existing literature on the South African economy. As in other countries, young firms have disproportionately contributed to employment growth and remained net job creators even as GDP growth slowed. Nonetheless, large firms are particularly prominent in the South African economy, including as net job creators.