Volume 1, Number 2


The impact of the former local business service centres on small, medium and micro-enterprises in the Eastern Cape
Ncwadi, R. and le Roux, P.

Small businesses are recognized worldwide as a key element in economic and more particularly,industrial development. Most countries in the world have created special mechanisms to enhance and facilitate the creation and growth of SMMEs. Despite the efforts by the government to establish a support structure for the small business sector in South Africa, to date this effort has not been successful. The failure rate of SMMEs is between 70% and 80% and millions of Rands are being lost on business ventures. The objective of this article is to analyze the welfare impact of public expenditure on small, medium and microenterprises in South Africa. This research makes use of a cost benefit analysis on a sample of 226 small businesses which had received some form of non-financial support from local business service centers during the period 2001 to 2005. Using a benefit cost ratio as a decision-making criteria and subjective measurements on a three point likert scale, the results suggest that public finance on SMME promotion in the Eastern Cape yields positive social returns albeit that the small businesses still face a number of constraints. It is recommended that a holistic approach towards SMME support intervention is adopted; otherwise the social returns derived from public expenditure in SMME promotions will remain sub-optimal.

Keywords: SMMEs, LBSCs, welfare, cost benefit analysis, benefit cost ratio, social discount rate