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T T R I TT TR RI I T T ra ining fo r T o wnship Re ne w a l Initia tive Understanding the small business market in Gauteng: Findings from the FinScope small business Gauteng pilot survey Judi Hudson 31 October 2007

T T R I TT TR RI I T T ra ining fo r T o wnship Re ne w a l Initia tive FinScope small business syndicate members (Association Incorporated under Section 21) Reg. Number 2004/031868/08

T T R I TT TR RI I T T ra ining fo r T o wnship Re ne w a l Initia tive Objectives and contribution of the study • Aim? To quantify the small business market using a sample that is representative of all small business activity in Gauteng; • Key innovations – Business Sophistication Measure (BSM) segmentation modelling to capture diversity in small business market; • And , spatial mapping: BSM data aggregated to municipal boundary level

T T R I TT TR RI I T T ra ining fo r T o wnship Re ne w a l Initia tive Methodology * Sample design guided by Prof D Stoker + the HSRC * Respondents aged +16 * International Labour Organisation approach * 3 degree sampling: enumerator areas, then household, then enterprises * 2 001 small business owners interviewed

T T R I TT TR RI I T Characteristics of Small Business T ra ining fo r T o wnship Re ne w a l Initia tive

T T R I TT TR RI I T Characteristics of Small Business T ra ining fo r T o wnship Re ne w a l Initia tive

T T R I TT TR RI I T Characteristics of Small Business T ra ining fo r T o wnship Re ne w a l Initia tive

T T R I TT TR RI I T T ra ining fo r T o wnship Re ne w a l Initia tive Key findings * Total number of small businesses estimated to be 1 053 818 or one in six adults * In 78% of cases, income generated the only source of income for the small business owner * Provide employment for 1,3 million people * Trading businesses account for two thirds of sample * Some 7% specifically add value to the products they sell on, women more likely to add value than men .

T T R I TT TR RI I T T ra ining fo r T o wnship Re ne w a l Initia tive Key findings contd. • Half of Gauteng’s small business owners are youth • 8% are non-SA citizens – 70% male, 78% informal, 2 in 10 will employ other people, more negative outlook on life • Majority of customers are private individuals (96%). BSM 7 other clients emerge – wholesalers, government, co-operatives + retailers. BSM 6 & 7 most likely to have service level agreements + long term contracts.

T T R I TT TR RI I T T ra ining fo r T o wnship Re ne w a l Initia tive Key findings contd. • 69% of small businesses are home-based businesses – home, a back yard, a garage • Only 27% have plans for taking advantage of 2010 • Approximately 7 in 10 business owners are not aware of any organisations that provide support, back up, advice or training to small businesses. 8% usage of govt. support mechanisms.

T T R I TT TR RI I T Support initiatives T ra ining fo r T o wnship Re ne w a l Initia tive Awareness of business support 100 80 Of the 28% business owners who had ever heard of an organisation that supported 90 small business, prompted awareness was … 80 70 72 60 % 40 50 72 40 43 30 30 20 26 22 19 18 18 16 28 14 11 9 10 8 7 5 4 0 % Umsobomvo Khula The Banks NAFCOC Business SEDA SETA's dti Dev Bank of I D C GEP NEF Business ITC Women's SA 0 Enterprise (all) Partners SA Place Dev Bank MicroFinance Total Apex Fund Yes No n=2001

T T R I TT TR RI I T T ra ining fo r T o wnship Re ne w a l Initia tive One size fits all? Introducing the BSM lens BSM provides lens to view the very different needs of small businesses with different levels of sophistication along a continuum – from informal street vendors to more sophisticated businesses Using business characteristics – eg: location, pays taxes, contracts of employment with employees, access to finance issues - BSM identified 7 segments plotting the growth of small business

T T R I TT TR RI I T The Landscape of Small Business T ra ining fo r T o wnship Re ne w a l Initia tive The BSM identified 7different segments plotting the growth of business sophistication 1 2 3 4 5 6 7 12% 9% 26% 23% 10% 10% 9% 123 522 97 370 278 291 247 075 110 512 100 171 96 876 Total Market Size 1 053 818 Top Line Breakdown of Business BSM1 BSM2 BSM3 BSM4 BSM5 BSM6 BSM7 Informal Vendors 100% 92% 74% 64% 58% 30% 1% Unregistered Individuals 0% 7% 18% 24% 29% 41% 5% Registered Business 0% 1% 8% 12% 13% 29% 94%

T T R I TT TR RI I T T ra ining fo r T o wnship Re ne w a l Initia tive Market Continuum Informal Trader Unregistered individual Registered Businesses 120% 99% 94% 100% 92% 74% 80% 64% 58% 60% 41% 40% 30% 29% 29% 24% 18% 20% 13% 11% 8% 7% 5% 1% 1% 0% 0% 0% BSM 1 BSM 2 BSM 3 BSM 4 BSM 5 BSM 6 BSM 7

T T R I TT TR RI I T Location of businesses T ra ining fo r T o wnship Re ne w a l Initia tive From home 63% On a footpath 76% From home 57% From home 59% From home 53% 50% From home 43% On a footpath 39% From home 37% Shop in small complex 18% On a footpath 11% Garage 13% Back Yard 10% Office Block 11% BSM 2 BSM 3 BSM 4 BSM 5 BSM 6 BSM 7 BSM 1 n=2001 High percentage of home-based businesses in all BSMs, except for BSM 1 where there is no fixed location

T T R I TT TR RI I T Business facilities T ra ining fo r T o wnship Re ne w a l Initia tive No Electricity Storeroom 63% Internet / e-mail 59% Electricity 64% Business Budget 57% Fax 55% 50% Cell Phone 44% Up to date Kitchen 43% accounting records No Water 98% No Water Security 46% 47% Toilet Facilities Outside Landline Telephone Business Budget Marketing Plan Business 28% 27% 27% Toilet Facilities 36% Inside 26% Company Car 27% Running Water Running Water Reception 27% Outside Business Computer/s 24% Hot Running Water Business Budget Inside 13% Credit Card 27% 15% 14% Machine 23% BSM 2 BSM 3 BSM 4 BSM 5 BSM 6 BSM 7 BSM 1 BSM1 have no water or electricity to run their business Business budget and technology come to the fore in BSM 5 upward, penetration of insurance products only starts in BSM 6 n=2001 Only 10% of all small businesses have access to a computer, only 22% of these have a website

T T R I TT TR RI I T Regulations matter T ra ining fo r T o wnship Re ne w a l Initia tive 100 90 87 83 80 VAT Registration 67 70 60 56 Income Tax 50 40 PAYE 30 26 19 20 10 UIF (Unemployment 10 5 4 Insurance Fund) 4 1 1 0 n=711 BSM5 BSM6 BSM7 VAT Registration starts in BSM 5. Lack of time and the size of the businesses are the primary reasons for non-compliance. Regulations felt to hinder small business most are income tax (25%) and VAT (16%) as the cost of compliance is too high Tendering in BSM 6 & 7

T T R I TT TR RI I T Population group T ra ining fo r T o wnship Re ne w a l Initia tive 100% 1 4 5 10 1 3 7 90% 1 2 27 80% 1 70% 4 63 60% 50% 100 100 99 92 89 87 40% 68 7 30% 3 20% 28 10% 0% Total BSM1 BSM2 BSM3 BSM4 BSM5 BSM6 BSM7 n=2001 Black Coloured Indian White 87% of all small businesses are black. BSM 7 dominance of white businesses (63%)

T T R I TT TR RI I T Job creation T ra ining fo r T o wnship Re ne w a l Initia tive 10.0 8.9 9.0 8.0 7.0 6.0 5.0 4.0 3.0 1.8 2.0 0.9 1.0 0.5 0.2 0.1 0.1 0.0 BSM1 BSM2 BSM3 BSM4 BSM5 BSM6 BSM7 The average number of jobs created by small business is 1.3. Importantly, there is a significant skew towards the upper BSM tiers. n=2001 70% of all small businesses do not create any jobs, BSM 5 + 6 start employing staff.

T T R I TT TR RI I T Turnover T ra ining fo r T o wnship Re ne w a l Initia tive R 463,747 400,000 300,000 200,000 100,000 R 66,597 R 27,841 R 24,710 R 16,793 R 9,113 R 10,723 0 BSM1 BSM2 BSM3 BSM4 BSM5 BSM6 BSM7 Below the poverty line n=2001 The average turnover of small business is R61 799.00, just over R5000 per month BSM tiers 1 and 2 operate below the poverty line *The poverty indicators are calculated using a poverty line that varies according to household size. A household of 4 persons has a poverty income of R1290 per month - HSRC

T T R I TT TR RI I T Industry sectors T ra ining fo r T o wnship Re ne w a l Initia tive BSM7 19 36 12 5 15 1 3 BSM6 43 30 9 7 1 2 1 1 1 BSM5 66 14 5 2 1 1 4 1 1 BSM4 65 18 5 2 1 1 4 1 BSM3 80 13 2 1 3 BSM2 84 14 1 1 BSM1 89 7 1 3 Total 67 17 5 2 2 1 2 1 0 0 0 1 1 1 Sale Of Goods Service Industry Construction Manufacturing Professionals Transport Industry Traditional Healer Landlord Run A Daycare Centre Run A Public Phone Service 10 times more service businesses, than manufacturing BSM 7 – services industry outdoes trade n=2001