THE IMPACT OF OVER-REGULATION ON SMALL ENTERPRISES

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Zeleke Worku ORCID logo

https://doi.org/10.22495/rcgv6i3c2art2

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Abstract

Khale (2015), Marivate (2014) and Asah, Fatoki & Rungani (2015) have highlighted key obstacles of sustained growth and development in start-up enterprises in South Africa. All authors have shown that lack of efficient services, too much bureaucracy, over-regulation, lack of entrepreneurial skills and lack of good governance constitute key obstacles to growth and development in start-up enterprises. This paper is a result of a 3-year long survey (2012 to 2014) that was conducted in the City of Tshwane in order to identify and quantify key predictors of adequate municipal services that are routinely provided to customers who operate newly established small businesses in the Tshwane region of Gauteng Province in South Africa. Data was collected by using a structured, pre-tested and validated questionnaire of study from a stratified random sample of size 1, 058 small businesses. The aim of study was to assess the impact of over-regulation and bureaucracy on the long-term survival and viability in small enterprises. Data analyses were performed by using probit analysis and the Cox Proportional Hazards Model. Additional analyses were performed by using in-depth interviews. The study showed that there was a significant association between the perception of over-regulation and failure in small enterprises. The results showed that 74% of businesses that failed were operated by individuals who had the perception of over-regulation and too much bureaucracy. The corresponding figure for viable businesses was only 11%. The viability of businesses was significantly influenced by 3 predictor variables. These 3 influential predictor variables were: negative perception on the quality of municipal services provided to newly established businesses [Hazard Ratio = 3.58; P=0.000; 95% C. I. = (1.45, 5.46)], inappropriate policy [Hazard Ratio = 3.19; P=0.000; 95% C. I. = (1.39, 5.28)], and lack of tailor made training programmes directed at newly established small businesses [Hazard Ratio = 2.89; P=0.000; 95% C. I. = (1.24, 4.77)], in a decreasing order of strength. Similar findings were obtained from the analyses of in-depth interviews.

Keywords: City of Tshwane, Small Enterprises, Over-regulation, Perception, Hazard Ratio

How to cite this paper: Worku, Z. (2016). The impact of over-regulation on small enterprises [Special issue]. Risk governance & control: financial markets & institutions, 6(3-2), 12-19. https://doi.org/10.22495/rcgv6i3c2art2