The Absa SME Index

1. The Absa SME Index Growth in youth entrepreneurship is encouraged June 2013 Source: Economists.co.za

2. The Absa SME Index improves despite economic challenges • The ABSA SME index increased by 1,8 index points in the first quarter of the year. • The actual index number reached 95,2 which was up from 93,4 due to an increase in the number of small employers and a very slight increase of the self-employed. •  The ABSA SME index grew by 2,3% a year ago leaving the index at its highest level since the third quarter 2011 but still about 6,5% below its high point before the great recession hit the South African economy towards the end of 2008. • The index has improved with 6.3% since it low point in the second quarter of 2010.

3. Number of employers has increased • While the first quarter saw employer growth of 2,5% a year ago, the number of employers is still below level of middle of 2011 and still about 9% below the highest levels reached in early 2009. • The number of employers reached 726 000 in the first quarter which is still about 10 000 less than in the third quarter of 2011. • The number of employers has increased with 47 000 since the low of 679 000 in the April 2010 quarter. • The average number of employees per employer declined slightly to 11,5 employees per employer in the commercial sector of South Africa, although this level is probably the average of the last three years. • Self-employment while growing slower, is now at levels last seen in the 2nd quarter of 2009. The number of self-employed according to the ABSA SME index is 1 255 000 in the first quarter. This is just 1,1% below the level that was in operation before the recession. • While economic growth declined in the quarter to only 0,9% annualised; the actual number of employers and self-employed still increased although the average size of firms declined slightly. • Broadly, business owners in total still make up only 6% of all adults. Just over 2% of all adults are employers while nearly 4% are self-employed. These ratios have not really changed over the last year or so although there is a slight improvement in the number of self-employed and employers, but not enough to change anything but the comma points of the above ratios.

4. The age of business owners in South AfricaThe self-employed touch 40 but the employers are closer to 50… Just over a quarter of business owners are under the age of 35. There are 567 000 business owners who state their age as under 35 years and 72% of these are self-employed, indicating that only about 143 000 of the 726 000 employers are under the age of 35. The youth make up nearly 20% of all employers but over 32% of all self-employment.  One and a quarter million of South African business owners are between the ages of 35 and 60. However only about 60% of them are self-employed and nearly 40% of them are employers. 18% of all business owner in this age group employ between two and four others, which remains the biggest category overall of all employers.

5. The age of business owners in South Africa…cont.The self-employed touch 40 but the employers are closer to 50… • 502 000 of all employers are between 35 and 60, making this broad age group the most important for employment in South Africa. This age group makes up 69% of all employers indicating that employers tend to be about a decade or so older than self-employers. • While only 167 000 of South Africa’s business owners are older than 60, 48% of them are employers and they make up nearly one third of all employers of over 50 people. So while older business owners only make up 8.5% of all business owners, they make up nearly 80 000 or about 11% of all employers. • However, the over 60 age group still plays an important role as this age group makes up 31% of all businesses employing more than 50 people. • The average age of business owners still remains 42 years with the self-employed typical age being about 39 while the typical employers age is about 50.

6. The education of South African business ownersThe highly educated create jobs…. • Business owners tend to be more educated than the general adult population. 58% of the South African workforce has not completed high school while only 48% of business owners have not graduated from high school. • Moreover adults with tertiary education make up less than 12% of the adult population, while they make up 20% of all business owners and 33% of all employers. At the same time, adults who have completed only high school make up about 25% of the working age population, 26% of all business owners and 31% of all employers. • While 33% of employers have not completed high school the fact that they make 58% of the adult population shows that they are underrepresented in the employer stakes. • While the education figures do not add up to 100% following that many do not indicate their level of education, it is clear that tertiary education improves the ability of individuals to create jobs. With only 2,1% of all South African adults becoming employers and with a very high unemployed population, it is clear that tertiary education can help further job growth. • However not all tertiary education seems to have the same propensity to create jobs as it seems that Artisans and technical Post Higher Diplomas and Post Bachelor’s Degrees have the highest propensity to create jobs.

7. The education of South African business ownersThe highly educated create jobs…. • As can be seen in the table, a Bachelor’s degree only has the fifth highest employer creation ability and people with higher degrees and diplomas typically have about two to three times the likelihood to create jobs for others. • Adults with a post higher diploma have a nearly 18% likelihood of being an employer while someone with an Honours degree has a 12,8% likelihood and someone with either a Masters or Doctoral degree has a 12,6% likelihood of being an employer. • An adult who has not completed school is only an employer in 1,2% of cases while someone with a matric is an employer in 2,7% of the cases – still slightly higher than the average of 2,1% of adults who are employers. • An adult with a post graduate degree or post higher diploma generally seem to have at least a one in eight chance of being an employer. This must mean that policy makers should be looking at completion rates and quality of both the schooling system and the higher education system. If the quality remains high while completion rates increase, the chances of South Africa getting more employers would increase and so would the chances of employment for the general adult population, although one needs to also focus on at least high school completion rates too. Table 1: Chances of adults with a particular education to be employers Basic Source: Quarterly Labour Force Surveys/ calculations by Economists.co.za

8. The education of South African business ownersThe highly educated create jobs…. • The chances of someone being a business owners are one in 10 when they have a tertiary education, but less than one in 20 when they have not completed high school. Someone who only has a Grade 12 (only completed high school) has a one in 17 chance of being a business owner. Broadly this shows that education plays a substantial role in the ability to create businesses generally and employers particularly. • The best chance of someone being a business owner is having a post higher diploma when the chance increase to one in four, however, adults with post graduate degrees generally have a one in six chance of having their own business. This indicates that the combination of both academic and practical education at a high level plays a very important role in the ability of adults to create a business. •  Perhaps simply put Doctoral, Master and Honours degrees including Diploma’s tend to generate greater business ownership followed by Artisans with three years worth of formal training. •  The evidence in the South African labour market is that adults with good post school education are the ones that can create jobs more regularly than others. There is an exception in that someone with a diploma and less than grade 12 also has a high tendency to be a business owner, which shows that a form of specialisation is also key and not just academic abilities. • This can be seen in the fact that those with less than grade 12, but with some form of specialisation have a higher tendency to create their own businesses than adults who only have a normal degree. Many graduates are perhaps not equipped enough to go out and create their own jobs or become employers which might indicate a lack of specialisation at general university level.

9. The education of South African business ownersThe highly educated create jobs…. • The table shows that general high school completion is not a good indicator of the ability to create one’s own business and often, just a year or two of specialisation can help greatly in the ability to create work for one’s self or others. • A very simple summary of the facts shows that older adults with more than a basic degree or diplomas tend to create jobs along with Artisans. • While we did not look at experience par se, the fact here also points to trends which indicate that a few years of experience are probably needed for the average business owner. Table 2: Chance of adult with a particular education becoming a business owner (self-employed or employer) Basic Source: Quarterly Labour Force Surveys/ calculations by Economists.co.za