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7.3 CONSTRAINTS
7.3.2. EXTERNAL CONSTRAINTS
7.3.2.1 The Economy: The economy was seen as a major constraint to business growth. This is indicated by a 72% response rate. This result is in keeping with the findings of the Investment
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Climate Survey where macro-economic instability was rated as a serious obstacle to growth by 33% of South African firms (Investment Climate Survey, 2004: 11).
7.3.2.2Regulations and Laws: A majority of 71 % of respondents indicated that regulations and laws were a constraint to the growth of their business. Environmental laws were seen to constrain growth while minimum wage regulations, health and safety regulations and affirmative action and BEE policies were not rated as major constraints. The Small Business Project (2005: 35) reveals that respondents see regulatory compliance as an impediment to growth and an expensive burden; compliance costs are also not evenly distributed amongst size classes of enterprises. The SBP research shows that regulatory compliance costs are regressive: small firms bear the heaviest burden in relation to firm size. For very small firms, more than 8% of turnover and more than R13, 000 per employee is spent on annual regulatory compliance. Although these costs fall relatively quickly as we move up the firm-size continuum, they nonetheless remain significant.
The SBP study estimates that total recurring compliance costs for the formal sector amounted to nearly R79bn in 2004, equivalent to about 6.5% of SA's GDP in 2003 ( Small Business Project, 2005: 95).
7.3.2.3 Taxation: The respondents in Pierermaritzburg view taxation as a serious hindrance to the growth of their businesses. The majority of respondents cited Vat (71 %), income tax (71 %) and UIF (46%) as impediments to growth. The Skills Development Levy (33%) was not seen as a major constraint to growth. Taxation was seen as a constraint as it takes up too much of managerial time in keeping records (77%); the paying of tax impacts on the cash flow of the business (74%); tax takes money out of the business that can be used for investments (81%) and penalties for late payments are excessive (75%). These fmdings are in keeping with those of the ICS where tax rates were rated as the fourth constraint to growth (Investment Climate Survey, 2004: 9).
7.3.2.4 Technology and Innovation: The use of technology such as computers can greatly enhance the operation and competitive advantage of the small business. Computers are utilised by 55.6% of the surveyed businesses. E-mail and sales were the two most common uses of computers. A total of 48% of respondents indicated that technology was not helping them to
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grow their business. Such a result raises concerns as advances in computer technology, coupled with lower prices, have made what was once available only to large businesses accessible to small businesses. The present day computer is capable of running the entire business, provided that the necessary software, research and installation have been professionally done. With regards to innovation, only a quarter of respondents indicated that they were innovative.
7.3.2.5 Crime: The survey results indicate clearly that crime is a serious problem among the business fIrms in Pietermaritzburg. About 42% of the respondents indicated that crime is 'a very big problem' and 46% stated that it is 'a fairly big problem'. The percentage of businesses that were affected by crime in the last twelve months amounted to 28%. The most common types of crimes were burglaries and theft by staff. Crime is viewed as a problem as the costs of repairs and replacements, costs of increased security and the costs of increased insurance premiums are high. Therefore the cost of crime in the Pietermaritzburg region is high. The result of crime as a constraint to growth in Pietermaritzburg is similar to that found by the Investment Climate Survey. The survey found that crime was rated as the fourth factor inhibiting growth in South Africa (Investment Climate Survey, 2004: 9). The report goes on to say that the direct losses due to crime and the cost of security were equal to 1.1% of sales revenue. Security costs account for two thirds of the cost of crime and direct losses account for the additional third (Investment Climate Survey, 2004: 12).
7.3.2.6 Business Support: The majority of business owners (64.4%) felt that there was insufficient business support available in Pietermaritzburg. From the comprehensive list provided by the researcher, only the Industrial Development Corporation and Ntiska have been used.
Although there are many government initiatives and support programmes available for small businesses, such support is unknown to the large majority of businesses in Pietermaritzburg.
According to the survey conducted by the, (Orford, 2004: 46) it was found that, awareness and use of business support was low. The report found that less than 12% of the businesses surveyed had made use of business support. The overall effectiveness of business support was rated negatively (Orford, 2004: 46). This study's results are similar to the fmdings of the Global Entrepreneurship Monitor studies.
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The association of these external factors (7.3.2.1 -7.3.2.6) to the growth of the business was examined using the Chi Square test and the following hypothesis:
Ho: External factors do not prevent growth.
HI: External factors prevent growth.
At the 5% level of significance, we rejectHo since the p-values of all the factors are less than 0.05 and conclude that these factors significantly prevent growth. The chi-square test statistics associated these variables are summarised in (table: 6.6: 86).