Factors that influence construction small and medium-size enterprises’ contribution to economic growth : evidence from the Eastern Cape, South Africa

Abstract

Worldwide research has identified small and medium construction enterprises as lifeblood for boosting the country’s gross domestic product (GDP) in both developed and developing economies, by means of creating employment and enhancing entrepreneurial activities. These small enterprises play a pivotal role in building a joint network with other sectors such as transportation, manufacturing, tourism, and energy, as these industries are part of the construction industry’s value chain. Nations such as Pakistan, Ghana, the United Kingdom (UK), and Malaysia, as well as Sri Lanka, have encouraged active participation of construction SMEs through policy reforms, to achieve key country strategic objectives, which include enhancing economic and technology development and attracting foreign direct investment. This proves the unequivocal responsibility of construction SMEs in any country when used strategically, particularly in emerging countries such as South Africa. However, research indicates although the South African government is putting more focus on aligning SMEs to play a strategic role in the country’s economic development, these enterprises are still not delivering the required results. According to a report by Statistics South Africa, the South African construction sector contracted by 4,7 percent between 2019 and 2020. The decrease in the contribution is attributed to critical challenges faced by construction SMEs that influence the contribution of these businesses to economic growth. Severally, research has been conducted on key challenges hindering the performance of construction SMEs. Part of these challenges are lack of skills and qualifications, unfavourable procurement practices and systems, supply chain relationships, and lack of technical and financial capacity. Although many researchers have identified these challenges, a significant gap remains in these research studies on how these challenges influence the contribution of construction SMES to economic growth. A detailed root-cause analysis of these factors is missing in these studies. Theoretical models on the factors influencing the contribution of construction SMEs are required in the business management field to help owners of these businesses be resilient. Thus, there is a need to close this gap through detailed research that will provide an in-depth understanding and appreciation of factors influencing construction SMEs in South Africa. Hence, this study is aimed at identifying factors that influence the contribution of construction SMEs and proposes an integrated prototype model for fostering the contribution of these firms. This study has a specific refence to construction SMEs within the Eastern Cape province. The need for this study is due to the limited growth and business failure experienced by these construction SMEs. A mixed-methods exploratory sequential design was adopted for this study. The quantitative phase of the study involved a closed-ended questionnaire and the qualitative phase of semi-structured interviews for construction SME owners or managers in the Eastern Cape, to determine factors that influence the contribution of their businesses to economic growth. For the quantitative study, inferential and descriptive statistical data analysis was conducted using SPSS (version 27.0), while for the qualitative study phase, a detailed analysis was done through thematic analysis. The empirical findings of the study revealed construction SMEs are faced with critical factors that affect their performance and, consequently, influence their contribution to economic growth. These factors are categorised into external and internal factors. Internal factors include lack of organisational support, lack of education and training, lack of business networking, as well as lack of leadership, a skills shortage, and lack of business managerial skills. While external factors include lack of government support, regulatory factors, financial barriers, and corruption, along with delays in payments, lack of access to market and lack of technological infrastructure. A theoretical model that indicates how these factors influence the contribution of these firms was developed and a wide range of recommendations proposed that can be used by business owners, government officials and private stakeholders, to alleviate the pressure exerted on these small businesses by factors identified in the study and ensure the building and development of construction SMEs to achieve sustainable growth