Small and Medium Enterprise Dynamics and the socio-economic wellbeing of households: evidence from Mbombela Municipality, South Africa.

Abstract

Largely, Small and Medium Enterprises have significantly contributed to both developed and developing countries over the last two decades. The SMEs have been acknowledged as the most crucial drivers for economic development and creation of job opportunities. Theoretically, SMEs come with the essential dynamics or changes that contribute to social, economic, political and environmental development significant in the improvement of people’s quality of life and standard of living. Empirically, SMEs are believed to play a critical role in households’ livelihoods by developing activities that people can take part in, and thus improve their general sustainable development. However, the failure of SMEs in South Africa is too high, looking at about 75% of the many small businesses failure to become reputable and well established firms. Using this background, this study assessed the relationship between SMEs and its dynamics and the extent to which they contribute to the improvement of people’s quality of life both socially and economically. This study aimed to understand the extent to which the lives of the households in the chosen study areas within the Mbombela municipality are influenced by SMEs. The study further came up with recommendations for both policy makers and the households on how the SMEs in the areas can be strengthen in order to positively contribute to the socio-economic wellbeing of the households, and how the households can strengthen themselves to gain exposure and be able to participate in more income generating activities such as SMEs. These recommendations were drawn from the findings generated from the data collected from the participants of SMEs within the Mbombela municipality. The study employed the quantitative approach and collected quantitative data using the Likert scale questionnaire. A non-probability sampling method was used to draw the targeted population of this study from the Mbombela municipality. Adopting the purposive sampling as well as the convenience sampling technique, granted the researcher a deliberate choice of participants. The researcher used the purposive sampling technique to choose only participants who are involved in SMEs. The study targeted about 250 participants, however 226 were able to answer successfully. Data quality measures such as validity, accuracy, and credibility together with ethical considerations were taken to ensure that the data collected is valid and reliable. Then, the correlation analysis and the multinomial analysis form the Statistical Package for Social Sciences was used for the analysis of the data, and the findings revealed that there is a strong positive relationship between SME dynamics and socio-economic wellbeing. The findings revealed that about 40% of the participants in the study fall into the “poor” category for human capital. This means that a significant number of the participants have limited essential skills and/or education. Similar trend for job creation is shown, over 40% of the participants fall into the “poor” category for job creation, meaning that the participants feel that there is still a need for more SMEs to create job opportunities. Moreover, the findings also show a Model Fitting Criteria table which revealed a significant Chi-Square value, suggesting that independent variables (job creation, and financial resources) have a huge substantial influence on the socio-economic status prediction of the households. The overall findings revealed the importance of SMEs and SME dynamics and their significant impact on socio-economic wellbeing of households. Hence, there were recommendations for both policy makers and the households in the municipality which touched on encouraging digital solutions and strengthening overall human capital of people and integrating the government, SMEs and financial institutions during policy making. The methodology chosen fulfilled the objectives of the study, however, there were some limitations to the study. There were participants instant help from the study and the researcher, some were not comfortable disclosing some of the demographic questions such as on education and income.