Africa-Press – South-Africa. The majority of formal workers are employed by just over 0.5% of South African companies, showing that big businesses are vital to address the country’s unemployment crisis.
This stands in contrast to much of the focus on small businesses as the primary site of job creation in South Africa. While important, these businesses hardly move the needle.
Small businesses with fewer than 50 employees make up the majority of companies in South Africa. This fuels the idea that they are crucial to creating jobs and tackling unemployment.
However, they employ only 16.5% of all formal workers in South Africa, despite accounting for 88.1% of all companies in the country.
This was revealed by Stellenbosch University economic historian Johan Fourie in a recent analysis of where South Africa’s jobs are created.
Fourie argued that the problem is not that South Africa has too few small firms, but rather that too few of its large firms compete globally.
“If South Africa wants jobs, stop romanticising smallness. Make sure the big firms can compete with the best in the world,” Fourie said.
South Africa does not have national champions on the scale necessary to move the needle in terms of economic output and job creation.
This requires a shift in thinking, with a focus on what big businesses need to succeed in South Africa. Fourie suggested the creation of a Department of Large Firm Competitiveness in this regard.
“That is because the uncomfortable truth is that small firms – however admirable their hustle – are not the ones that will move the needle. Large firms will,” Fourie said.
Efficient Group chief economist Dawie Roodt has argued this point for some time, saying that small businesses fundamentally do not move the needle regarding employment in South Africa.
“Small businesses tend not to survive for very long and tend not to employ many people over a long period of time. As such, they do not pay much tax either,” Roodt said.
“That is why the government is wrong to try to create small businesses that cannot compete with big businesses. They may be important for niche products and services, but not much else.”
“Small businesses, in the grand scheme of things, are only important because they can become medium-sized businesses and big businesses in time. That is what has to be done. We have to create corporates. That is where the emphasis must be.”
Fourie’s analysis shows that this is the case in South Africa, where large firms employ the majority of formal workers.
Around 0.6% of companies employ 50% of all formal workers in the country, in comparison to small firms, which only employ 16.5% of formal workers. This can be seen in the graph below.
Source: Johan Fourie
Big economies come with big companies
Fourie pointed to a research paper in the prestigious economics journal Econometrica that shows that as countries grow richer, there tend to be more large businesses, and these businesses tend to get larger.
As an economy grows, its biggest firms grow even larger relative to the rest. This holds true for 33 countries from the Organisation for Economic Co-operation and Development and the United States over the past 40 years.
Crucially, the data holds true for countries over time and is not a comparison of rich, developed economies versus poor, developing countries.
In the United States, for example, the pattern is clear as the country has become the world’s dominant economy over the past century.
Fourie noted research from the American Economic Review in 2024 that shows that in the early 1930s, the top 1% of American companies held 70% of total assets.
In 2018, the same share of companies held 97% of assets. This was also seen in the share of sales made by the top 1% of companies.
The share of total sales made by the top 1% of companies rose from 60% to over 80% over the last century.
This benefits broader society in more ways than typically expected, such as increased tax revenue, faster economic growth, and higher employment.
Fourie noted that the knowledge and skills generated by big firms spill into the rest of the economy through supplier relationships and competitors.
This effectively raises the “floor” in the economy, ensuring that smaller businesses can innovate and compete with their larger counterparts.
However, there is an issue, as large companies do not invest in new technology or innovations for society’s benefit, but for themselves. The benefits spill over unintentionally.
As a result, Fourie noted that big firms tend to under-invest relative to what would be best for the broader economy and the country. To solve this, there have to be policies facilitating the growth and creation of large firms.
Fourie explained that South Africa has many big companies that provide significant benefits to the country, but it simply does not have enough.
He pointed to the example of Shoprite, which employs over 150,000 people across its operations and has thousands of suppliers.
Fourie explained that large companies, like many of those listed on the JSE, sit at the centre of vast supply chains, generating demand for thousands of smaller suppliers.
These companies pay the majority of corporate tax, invest in new technologies, and drive broader economic growth.
“A thousand survivalist spaza shops, however important for the livelihoods of their owners, do not create the same kind of systemic growth,” Fourie said.
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