Factors affecting the survival, growth and success of small, medium and micro agribusinesses in KwaZulu-Natal.

Abstract

The sustained growth of small, medium and micro enterprises (SMMEs) could help to reduce poverty, income inequality and unemployment problems in KwaZulu-Natal (KZN). Public and private sector institutions can identify policies and strategies to, increase the survival and growth rates of SMMEs if they have more information about the factors that constrain business performance, and the link between entrepreneurial quality and enterprise success. The owners of 44 agribusiness SMMEs in a stratified random sample of Ithala Development Finance Corporation (Ithala) clients in KZN were, therefore, surveyed during October 2003-February 2004 to identify what they perceive are constraints on business survival and growth, and how entrepreneurial quality affects business success (using loan repayment performance at Ithala as a proxy for success). Principal Component Analysis of 36 potential constraints ranked by the survey respondents identified eight dimensions of perceived constraints: A lack of access to services; funding constraints at enterprise start-up; a lack of management capacity in the enterprise; access to tender contracts; compliance costs associated with VAT and labour legislation; liquidity stress; a lack of collateral, and a lack of institutional (government and private sector) support. A lack of collateral and access to services seemed to affect the Retailer stratum relatively more, while Speculators considered lack of capital at start-up to be their major constraint. Harvester contractors and Processors seemed to be most affected by compliance costs, while Processors were especially prone to liquidity stress. Possible solutions to ease these constraints include the provision of appropriate infrastructure and training, development of innovative loan products to address cash flow and collateral issues, more transparent tendering processes, and policies to reduce the costs of compliance with legislation. An empirical logit model showed that strong energizer behaviours (current and planned business expansion and staff training) that reflect entrepreneurial quality, more business experience, and family assistance to become an entrepreneur, promote loan repayment (success), while a lack of access to electricity and training facilities increase the probability of loan default. This suggests that more focus on the personal characteristics of credit applicants and (again) the development of appropriate infrastructure and training services could help to promote the future success of agribusiness SMMEs in KZN.