A Methodology to Analyse the Determinants of SMEs' Biggest Obstacles in Doing Business in South Africa

Abstract

This study examines the most significant challenges facing Small and Medium Enterprises (SMEs) in South Africa, drawing on firm-level data from the 2022 World Bank Enterprise Survey. Using probit regression analysis, it explores how firm size, sector, geographic location, and female ownership influence the severity of perceived business constraints—namely, access to finance, infrastructure, regulation, workforce skills, crime, and the informal sector. The results indicate that sectoral differences are the strongest predictors of obstacle severity. Due to their capital and logistics needs, sectors such as Fabricated Metal Products, Construction, and Retail face heightened financial and transport challenges. Regionally, firms outside Gauteng, KwaZulu-Natal, and the Western Cape report more severe infrastructure issues, particularly electricity, while those within these provinces face greater skills shortages. Medium-sized firms generally report fewer constraints than smaller firms. Female ownership is not a consistent determinant of obstacle severity; however, firms without female ownership perceive corruption and crime as slightly less severe. These findings underscore the need for targeted, sector- and region-specific policy responses, particularly in enhancing financial access for capital-intensive industries and addressing regional disparities in infrastructure and workforce development.