Labour challenges facing SMEs in South Africa

The World Economic Forum’s Global Competitiveness Index (GCI) is an assessment of the indicators that drive productivity and prosperity in 140 economies, in terms of factors that range from business sophistication to education. The 2015-2016 report places South Africa 49th, and while this is an improvement of seven places, it also highlights the challenges facing the country.

The report is based on 12 pillars, and it indicates what South Africa is doing right and what it’s getting wrong. The country is ranked 12 out of 140 under Financial Market Development, and comes in first place in the sub-indicator “Strength of auditing and reporting standards”. On the opposite end of the scale, SA ranks 107 out of 140 under Labour Market Efficiency, coming last in the sub-indicator “Cooperation in labour-employer relations” and third-last in “Hiring and firing practices”.

“By analysing the GCI report you get an understanding of the problematic labour issues in South Africa,” says Petra Rees, managing director of Lean Enterprise Acceleration Programmes – a leader in corporate acquisition and retention programmes. “These include restrictive labour regulations, inefficient government bureaucracy, and an inadequate supply of infrastructure. All of these factors even rank ahead of corruption.”
Established businesses can handle the rigid labour legislations, but SMEs are put under pressure in terms of budget, agility, responsiveness, output management, registration, compliance and maintenance. With the volume of administration required and time-consuming processes, an unintended consequence is that focus and profitability are taken away from the core activity of the business.

“The challenge for SMEs, is that the responsibility for the regulations and management falls squarely on the shoulders of the founding members. So, the owner of a small family bakery will end up in the same CCMA court as the CEO of a multinational corporation. The difference, however, is that the CEO will have vast resources and the skill of an HR department in dealing with the issues.”

Legislation requires that SME owners have a complete understanding of Acts, a broad knowledge of the HR landscape, and that they remain up to date with the requisite registration, policies and procedures. Small businesses often cannot enlist the skill of a specialist or a dedicated HR department, which means the owner needs to self-manage. Many SMEs simply avoid hiring staff and will joint venture with a more established entity on projects. Additionally, many SMEs are not positioned as competitive employers either in status or career pathing, while cash flow constraint limit remuneration competitiveness.

SMEs need to stay on top of how rigid labour laws impact their business, whilst also remaining agile and viable. “To assist SMEs, LEAP has launched a shared resource centre platform with access to HR specialists, at a fraction of the cost of employing one. Owners have access to training, HR and industry mentors to help raise awareness, knowledge, competency and capacity to manage these issues and remain competitive.”