The economic impact of small and medium enterprises on the local economy of Johannesburg

Abstract: South Africa is facing enormous socio-economic issues which introduce several challenges to the economic growth and development of the country. Amongst these issues is the high unemployment rate of 27.5% (Trading Economics, 2018), income inequality and poverty. In examining the role of small and medium enterprises in local economic development, Ayandibu and Houghton (2017) found that SMEs are more efficient than large enterprises since they use more labour-intensive production processes as compared to large corporations. Therefore, SMEs help to break the cycle of poverty by contributing towards meeting the financial needs of individuals and their families through creating employment opportunities. Governments offer a wide range of support to small and medium enterprises in both developed and developing countries (Hallberg, 2000). Since most SMEs have no access to finance, several economies across the globe have introduced SME financing programmes as mediums of intervention, (Kersten, Harms, Liket and Maas 2017; Quartey, Turkson, Abor, and Iddrisu 2017). Despite SMEs contributing to the local economic growth of Johannesburg, the 2008 financial crisis was detrimental to the economic growth of Johannesburg. As a result of the financial crisis, there was contraction in domestic and foreign demand, affecting employment, exports and sales. It is recommended that the Government introduces support programmes and policies that will help SMEs should there be another negative external shock. These programmes will provide a buffer when external shocks impact the demand of goods and services. Such programmes and policies will also help to prevent many SMEs from closing, thus preventing the loss of jobs as a result. Additionally, more research focussing on the Government support towards SMEs and the impact of external shocks should be undertaken.M.Com. (Local Economic Development