Project Background

The SBI, in partnership with business environment research specialists SBP, is currently developing an index tracker that will track and record several indicators from different indices that measure South Africa’s performance on starting, running and growing a business. When we talk about SME growth in particular, it is important to see small business as a continuum – from micro enterprises all the way to medium-sized firms. What is most important is not the distinctions within the continuum, but the ease with which enterprises can start, run and grow. This applies equally to micro enterprises that wish to gear up their operations and to larger businesses that may opt to downscale.

Within the context of “start”,  run” and “grow” the purpose of the index tracker is to primarily measure South Africa’s performance, targeting important factors for business activity such as access to finance, access to markets, the labour market, and on creating a business friendly legislative and regulatory environment. As an initial step, we’ve started to identify several variables that explain what we mean by start, run and grow. Once this has been finalised, we’ll then identify several indicators that measure performance for all the variables in question.

What are early indications showing concerning South Africa’s performance on what it takes to start, run and grow a business? According to several indices that we looked at, early indications show that it has become more difficult to start, run and grow a business in South Africa in 2017 compared to 2016. Under the “start, run and grow” continuum, we looked at several variables that have the greatest impact on the local business environment. For example, we looked at how hard is it for individuals to start and then obtain funding for a business in South Africa. To what degree is the whole process of paying taxes burdensome? How hard is it to obtain municipal services as business and is the cost of the rates justified? What about red-tape, skills development level, enforcing the rule of law, cross border training among several other variables show?

In this brief, a total of 24 main pillars that speak to starting, running and growing a business are briefly tabulated and summarised. These pillars were taken from six well-known indices that measure the performance of several countries on similar metrics. Whilst there are many indicators and sub-indicators embedded within the six indices we’ve chose, for this initial period we chose to go with a few from each index. In time we will include all of them. The period we are looking at is 2016 to 2017.

SBI Index Tracker Methodology

The SBI Index tracker will aggregate data from several sources that provide up-to-date insights from business people and country experts on the state of the economy in the country. Developed and powered by SBP, the SBI Index tracker will integrate two research focuses (longitudinal and bench-marking) to make it possible to track trends over time when you compare South Africa’s economy with its past performance or with several similar economies. Each data source that will be used by SBP to build the SBI Index tracker must fulfil the following criteria to qualify as a valid source: be based on a reliable and valid methodology, conducted yearly by a credible institution, and should score and rank multiple countries on the same scale.

Indices

The Global Entrepreneurship Monitor (GEM) is an annual study of entrepreneurial activity in multiple, diverse economies. In each economy, it looks at two main indicators. One being Entrepreneurial Behaviour and Attitudes and the other, Entrepreneurial Framework Conditions. Embedded in the two indicators are several sub-indicators and each indicator consists of 12 and 15 sub-indicators respectively. The second indicator (Entrepreneurial Framework Conditions) is closely aligned to the start, run and grow model. Results from the National Expert Survey (NES) are used by GEM to calculate final scores. The ratings are an average score from the survey participants who answered each question. It uses a Linkert scale and the rating are scored as follows: 1 = highly insufficient, and 5 = highly sufficient. We looked at 4 sub-indicators out of 27.

The Global Entrepreneurship Index is produced annually by the Global Entrepreneurship Development Institute (GEDI). It studies the health of an entrepreneurship ecosystem in each country. The Index uses 14 pillars to measure the performance of each country. We focused only on 11 pillars which are closely aligned to the start, run and grow concept.

The ease of doing business index is an annual benchmark study of regulation. It ranks countries against each other based on how the regulatory environment is conducive to business operation. The study currently reviews the economies of 190 countries and uses 10 pillars to measure the performance of each country. We identified 5 pillars that speak to start, run & grow.

The Global Competitiveness Index (GCI) tracks the performance of about 140 countries using 12 pillars as a measurement instrument of competitiveness. The Index measures the set of institutions, policies, and factors that set the sustainable current and medium-term levels of economic prosperity. We identified 2 pillars that speak to start, run & grow.

The Global Innovation Index (GII) is an annual ranking of countries by their capacity for, and success in, innovation. The Index provides detailed metrics about the innovation performance of 127 countries and economies around the world using 7 pillars as instrument of measurement. We identified 2 pillars that speak to the operations side of start, run & grow.

The Corruption Perceptions Index (CPI) is an annual study that ranks countries according to perceived levels of corruption in the public sector. The index captures informed views of analysts, business people and experts in countries around the world. The index ranks 180 countries and territories by their perceived levels of public sector corruption. The following covers the years 2016 and 2017.

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