The role of government in developing 
sustainable SMEs in the construction sector in 
the Free State province  
 
MAKHAESA JEFFREY MOTSETSE 
 
A field study submitted to the UFS Business School in the Faculty of 
Economic 
and Management Sciences in partial fulfilment of the requirements for 
the 
degree 
 
Magister in Business Administration 
 
at the 
 
UFS Business School 
University of the Free State 
Bloemfontein 
 
Supervisor:  Dr JH van Zyl 
13th November 2015 
 
 
ABSTRACT 
The objective of the study is to determine the role of government in developing 
sustainable SMEs in the construction sector in the Free State province. The owners 
and managers who are on Grading 2 to 7 as per Construction Industry Development 
Board (CIDB) in the construction sector were the target population. The number of 
businesses that are failing in their first years of establishment is high, and the rate of 
unemployment is still high despite government intervention. If government is playing 
a role in assisting SMEs, to determine whether it is  addressing the main challenges 
that are affecting the growth of small businesses due to the number of companies that 
are failing is increasing.   
The construction sector is also affected by the number of businesses that are failing 
or liquidated, which is affecting employment negatively, as the sector employs a 
number of workers who are unskilled.  
An empirical research was conducted using quantitative approach and non-probability, 
stratified sampling technique. A total of 100 questionnaires were distributed to the 
owners and managers of the construction companies in the Free State that are 
operating on Grading 2 to 7. The total of 84 questionnaires were returned, representing 
84% of the total that were distributed 
The result shows that 96% of the respondents did not receive any funding from 
government, while only 4% received funding. It is also revealed that 64% of the 
respondents are not participating in the contractor development programme, and only 
36% of them are participating. The level of education or training is low, as 36.90% 
attended the workshop on tendering. 
 
 
 
  
ii 
 
DECLARATION 
I declare that the field study hereby submitted for the Magister in Business 
Administration at the UFS Business School, University of the Free State, is my own 
independent work and that I have not previously submitted this work, either as a whole 
or in part, for a qualification at another university or at another faculty at this university. 
 
I also hereby cede copyright of this work to the University of the Free State. 
 
Signed: _____________________  
 
Date: _____________________ 
 
  
iii 
 
ACKNOWLEDGEMENTS 
 
I would like to acknowledge and express my deepest gratitude to the following 
people for their efforts helping me in making this field study the best product: 
 
 The Lord who gave me strength during difficult times 
 My supervisor, Dr Johan van Zyl for all the guidance and support 
 My family for all the support that they gave during my studies 
 
  
iv 
 
TABLE OF CONTENTS 
ABSTRACT ................................................................................................................. ii 
DECLARATION .......................................................................................................... iii 
LIST OF TABLES ....................................................................................................... xi 
LIST OF FIGURES .................................................................................................... xii 
LIST OF ABBREVIATIONS AND ACRONYMS ........................................................ xiii 
CHAPTER 1: INTRODUCTION AND BACKGROUND TO THE STUDY ................... 1 
1.1. Introduction ......................................................................................... 1 
1.2. Background of SME and construction sector in South Africa .............. 2 
1.2.1. SME sector ......................................................................................... 2 
1.2.2. Background on construction sector ..................................................... 3 
1.3. Problem statement .............................................................................. 3 
1.4. Purpose and significance of the study................................................. 4 
1.5. Research objectives ............................................................................ 4 
1.5.1. Primary objective ................................................................................ 4 
1.5.2. Secondary objectives .......................................................................... 4 
1.6. Research methodology and design ..................................................... 5 
1.6.1. Research design ................................................................................. 5 
1.6.2. Target population and sample ............................................................. 5 
1.6.3. Data collection and analysis ................................................................ 6 
1.7. Ethical considerations ......................................................................... 6 
v 
 
1.8. Study outline ....................................................................................... 7 
1.9. Conclusion .......................................................................................... 8 
CHAPTER 2: LITERATURE REVIEW ........................................................................ 9 
2.1. Introduction ......................................................................................... 9 
2.2. Overview of SMEs............................................................................... 9 
2.2.1. Overview of SME in South Africa ........................................................ 9 
2.2.2. Defining SMEs .................................................................................. 10 
2.3. Contribution of SME .......................................................................... 12 
2.3.1. Job creation ...................................................................................... 12 
2.3.2. Poverty alleviation ............................................................................. 13 
2.3.3. Economic growth and development .................................................. 13 
2.4. Performance of SMEs ....................................................................... 13 
2.5. Factors affecting the growth of SMEs ............................................... 14 
2.5.1. Fraud and corruption ......................................................................... 14 
2.5.2. Lack of financial support ................................................................... 15 
2.5.3. Lack of entrepreneurial training ......................................................... 16 
2.5.4. Access to appropriate technology ..................................................... 18 
2.5.5. Access to markets ............................................................................. 19 
2.5.5.1. Rivalry among competitors ............................................................... 20 
2.5.5.2. Threats of new entrants .................................................................... 20 
2.5.5.3. Threats of substitute commodities .................................................... 20 
2.5.5.4. Customer’s bargaining power ........................................................... 21 
vi 
 
2.5.5.5. Supplier’s bargain power .................................................................. 21 
2.5.6. Lack of management skills ................................................................ 21 
2.5.7. Poor cash management and financial control ................................... 22 
2.5.8. High taxes ......................................................................................... 23 
2.5.9. Statutes and Regulations .................................................................. 24 
2.5.10.  Late payments ...................................................................................... 24 
2.5.11.  Increases in the costs of building materials .......................................... 24 
2.6. Construction sector ........................................................................... 25 
2.6.1. The construction sector in South Africa ............................................. 25 
2.7. The construction sector in the Free State ......................................... 29 
2.7.1. Overview of the sector ...................................................................... 29 
2.7.2. Contribution of the sector .................................................................. 30 
2.7.3. Employment in the sector .................................................................. 31 
2.8. Role of the government in developing SMEs .................................... 32 
2.8.1. Government initiatives in developing SMEs ...................................... 32 
2.8.2. Department of Small Business Development ........................................... 33 
2.8.2.1. Small Enterprise Development Agency............................................. 34 
2.8.2.2. Small Enterprise Finance Agency ..................................................... 34 
2.8.2.3. National Empowerment Fund ........................................................... 35 
2.8.2.4. Free State Development Corporation ............................................... 36 
2.8.2.5. Industrial Development Corporation ................................................. 37 
2.8.3. Department of Public Works ............................................................. 37 
vii 
 
2.8.3.1. Contractor Development Programmes ............................................. 38 
2.8.3.2. Emerging Contractor Development ................................................... 39 
2.8.3.3. Expanded Public Works Programme ................................................ 39 
2.9. Construction Industry Development Board ........................................ 40 
2.10. Conclusion ........................................................................................ 41 
CHAPTER 3: RESEARCH METHODOLOGY .......................................................... 42 
3.1. Introduction ....................................................................................... 42 
3.2. Research objectives of the study ...................................................... 42 
3.3. Research design ............................................................................... 42 
3.3.1. Sampling ........................................................................................... 43 
3.3.2. Population ......................................................................................... 43 
3.3.3. Sample frame .................................................................................... 44 
3.3.4. Sample design .................................................................................. 45 
3.3.5. Stratified sample ............................................................................... 46 
3.3.6. Sample size ...................................................................................... 47 
3.4. Data collection method ...................................................................... 48 
3.4.1. Methodology ..................................................................................... 48 
3.4.2. Data analysis .................................................................................... 49 
3.5. Ethical considerations ....................................................................... 49 
3.6.  Demarcation of the field study ........................................................... 49 
3.7. Conclusion ........................................................................................ 49 
CHAPTER 4: FINDINGS AND ANALYSIS ............................................................... 50 
viii 
 
4.1. Introduction ....................................................................................... 50 
4.2. Data analysis .................................................................................... 50 
4.3. Findings ............................................................................................ 50 
4.3.1. Background of the company ............................................................. 50 
4.3.2. Programmes by government ............................................................. 56 
4.3.3. Company operations ......................................................................... 61 
4.3.4. Challenges in implementing projects ................................................ 67 
4.4. Chi-square tests ................................................................................ 69 
4.5. Cross-tabulation ................................................................................ 73 
4.6. Responses from government entities ............................................................. 76 
4.6.1. Department of Economic Development, Small Business, Tourism and 
Environmental Affairs (DESTEA) ....................................................................... 76 
4.6.2. Small Enterprise Development Agency (SEDA) ...................................... 76 
4.6.3. Industrial Development Corporation (IDC) ............................................... 77 
4.6.4. Small Enterprise Finance Agency (SEFA) ............................................... 78 
4.6.5. Construction Industry Development Board (CIDB) .................................. 78 
4.6.6. Department of Public Works .................................................................... 79 
4.7. Conclusion ..................................................................................................... 79 
CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS .................................. 81 
5.1. Introduction ....................................................................................... 81 
5.2. Summary of the theoretical findings .................................................. 81 
5.3. Research conclusions ....................................................................... 83 
ix 
 
5.4. Other findings .................................................................................... 84 
5.5. Recommendations ............................................................................ 85 
5.6. Significance of the study ................................................................... 86 
5.7. Limitations of the study ..................................................................... 86 
5.8. Further research ............................................................................... 87 
5.9. Conclusion ........................................................................................ 88 
REFERENCES ......................................................................................................... 89 
ANNEXURE 1 .......................................................................................................... 96 
ANNEXURE 2 ........................................................................................................ 108 
 
 
 
 
 
  
x 
 
LIST OF TABLES 
Table 2.1: SME definition categories ........................................................................ 11 
Table 2.2: SME thresholds (upper limits) in different sectors ................................... 12 
Table 2.3: Contribution by province to the construction sector (%) .......................... 27 
Table 2.4: Number of companies registered in CIDB in South Africa ....................... 29 
Table 2.5: Number of companies registered in CIDB in the Free State .................... 30 
Table 2.6: Total employment per broad economic sector in the Free State in 2014 31 
Table 3.1: Requirements for contractor grading ....................................................... 44 
Table 3.2: Number of companies registered with the CIDB in the Free State .......... 45 
Table 3.3: Sample size per group ............................................................................ 46 
Table 3.4: Contractor classification .......................................................................... 47 
Table 4.1: Frequency distribution of the grading ...................................................... 51 
Table 4.2: Frequency distribution of specialised job ................................................. 51 
Table 4.3: Contractor Development Programmes Benefits……………………………57 
Table 4.4: Contractor Development Programmes Problems…………………………..57  
Table 4.5: p-values for selected variables .............................................................. 711 
Table 4.6: Tenure*current grading ......................................................................... 733 
Table 4.7: Education .............................................................................................. 744 
Table 4.8: Funding*cash flow problems cross-tabulation ....................................... 755 
 
  
xi 
 
LIST OF FIGURES 
Figure 2.1: Porter’s five forces ................................................................................. 20 
Figure 2.2: South Africa and Free State construction sector growth rates ............... 28 
Figure 2.3: Categories for NEF funding .................................................................... 36 
Figure 4.1: Gender ................................................................................................... 52 
Figure 4.2: Length of time business has been in operation ...................................... 53 
Figure 4.3: Number of partners in the business ....................................................... 53 
Figure 4.4: Company grading ................................................................................... 54 
Figure 4.5: Category of grading ................................................................................ 55 
Figure 4.6: Other type of work .................................................................................. 55 
Figure 4.7: Contractor Development Programme ..................................................... 56 
Figure 4.8: Courses attended ................................................................................... 58 
Figure 4.9: Funding .................................................................................................. 59 
Figure 4.10: Period to receive payment .................................................................... 60 
Figure 4.11: Government policies, regulations and legislation ................................. 61 
Figure 4.12: Experience in the construction sector .................................................. 62 
Figure 4.13: Highest educational qualification .......................................................... 63 
Figure 4.14: Adequate cost and accounting systems in place .................................. 64 
Figure 4.15: Estimating and procurement ................................................................ 65 
Figure 4.16: Cash flow problems .............................................................................. 66 
Figure 4.17: Work in other provinces outside the Free State ................................... 67 
Figure 4.18: Challenges in implementing projects – 1 .............................................. 68 
Figure 4.19: Challenges in implementing projects – 2 .............................................. 69 
 
xii 
 
LIST OF ABBREVIATIONS AND ACRONYMS 
ASGISA: Accelerated Shared Growth Initiative of South Africa 
BDS:  Business Development Services 
BER:  Bureau of Economic Research 
CDP:   Contractor Development Programme 
CIDB:  Construction Industry Development Board 
CIPC:  Companies and Intellectual Property Commission 
CPI:   Consumer Price Index  
DETEA: Department of Tourism and Environmental Affairs 
DPW:   Department of Public Works 
DTI:   Department of Trade and Industry 
ECDP: Emerging Contractor Development Programme 
EDP:   Enterprise Development Programme 
EPWP:  Expanded Public Works Programme 
ESE:  Entrepreneurial Self-efficacy 
FDC:  Free State Development Corporation 
FS PGDS:  Free State Provincial Growth and Development Strategy 
GDP:  Gross Domestic Product 
GEAR: Growth, Employment and Redistribution 
GEM:   Global Entrepreneurship Monitor 
GNP:  Gross National Product 
HLM:   Hierarchical Linear Modelling 
IDC:  Industrial Development Corporation 
IPAP:   Industrial Policy Action Plan 
xiii 
 
IT:  Information Technology 
MDG:  Millennium Development Goals  
MEC:  Member of Executive Committee 
NCDP:  National Contractor Development Programme 
NCR:   National Credit Regulator 
NDOT:  National Department of Tourism 
NDP:   National Development Plan 
NEF:   National Empowerment Fund 
NGP:   New Growth Path 
NYDA: National Youth Development Agency 
RDP:  Reconstruction and Development Programme 
SACEM:  South African Construction Excellence Model 
SAMAF: South African Micro-Finance Apex Fund 
SARS: South African Revenue Service  
SBP:   Small Business Programme 
SEDA: Small Enterprise Development Agency 
SEFA:  Small Enterprise Finance Agency 
SME:  Small Medium Enterprise 
SMME:  Small, Medium and Micro Enterprise 
Stats SA: Statistics South Africa 
TEA:  Total Entrepreneurship Activity 
VAT:   Value-added Tax  
xiv 
 
CHAPTER 1: INTRODUCTION AND BACKGROUND TO THE STUDY 
1.1. Introduction 
South Africa has been characterised by high unemployment rate. Chimucheka (2014) 
indicated that most social ills that are confronting South Africa and other African 
countries are rooted in high levels of unemployment. It has been indicated that since 
1994, the unemployment rate has been in the region of 25%, with the latest figure 
being 25.5% (Statistics South Africa [Stats SA], 2014). Amra, Hlatshwayo and 
McMillan (2013) have highlighted that unemployment, together with poverty and 
inequality, has been and remains one of South Africa’s key development challenges. 
Small Medium Enterprises (SMEs) have been developed and are used as vehicles 
that are stimulating the economy of developing countries (Mahembe, 2011). Mahembe 
(2011) also indicated that SMEs have played a pivotal role in creating jobs, alleviating 
poverty, creating new products and contributing to growing economies of developing 
countries. 
The South African SME sector is a critical component of the government’s initiative to 
stimulate job creation. To create 5 million jobs over the next decade, as envisaged by 
the government, approximately 13 600 new manufacturing businesses would need to 
be set up; in current terms, this would mean that about 100 000 new firms in all sectors 
must be created. This is an ambitious goal (Small Business Programme [SBP], 
2011:3).  
Even though SMEs are regarded as the vehicle that will assist in increasing 
employment, they are still facing challenges that are affecting their growth, and they 
fail in their first years of establishment. It is indicated that South Africa suffers from a 
high failure rate of SMEs, with the estimate being between 70% and 80% (Fatoki & 
Smit, 2011:193). Many SMEs do not reach their full potential and fail to grow, resulting 
in lost jobs and wealth for the region in which they are based. Given this high failure 
rate, it becomes vital to research the factors that are affecting them from growing and 
to enable them to survive.   
1 
 
Although the construction sector has special characteristics that distinguish it from 
other sectors, it is not excluded from the high failing rate of business. The industry is 
complex and investments in construction projects from public and private sectors are 
continually increasing. Many people saw an opportunity due to the increase in 
investments in construction, and they started to open construction companies. The 
problem of the high rate of failure also increased, as there is no regulating body that 
will screen all the new registration to determine if the owners of the companies have 
experience; therefore, it makes it very easy for anyone to start a company in the 
construction industry. Past studies have shown that many people that have opened 
companies do not have experience in the construction industry even though they can 
have start-up capital.  
This study examines the role of government in developing sustainable SMEs in the 
construction sector. To contextualise the study, the following section provides 
background information such as the role of SMEs in the global economy and the 
manner in which SMEs operate.  
1.2. Background of SME and construction sector in South Africa 
1.2.1. SME sector 
The country has prioritised the development and promotion of Small, Medium and 
Micro Enterprises (SMMEs). There were different economic policies that were 
developed in order to assist the promotion of SMMEs such as Reconstruction and 
Development Programme (RDP); Growth, Employment and Redistribution (GEAR); 
the Accelerated Shared Growth Initiative of South Africa (ASGISA); New Growth Path 
(NGP); and National Development Plan (NDP).    
SMEs are contributing to a large part of the gross domestic product (GDP) of each 
country. This was supported by Ahiawodzi and Adade (2012) where they indicated 
that SMEs in Ghana account for 70% of GDP, and they make up 92% of businesses 
in the country. In South Africa, 97.5% of businesses are SMEs, and 70% of the 
manufacturing sector in Nigeria constitutes SMEs (Abor & Quartey, 2010). 
2 
 
1.2.2. Background on construction sector 
The construction sector plays an essential role in South Africa’s economy and 
contributes significantly to the economic growth as compared to many other sectors 
(Construction Industry Development Board [CIDB], 2011). The sector is regarded as 
a critical sector of the economy that produces building and civil engineering structures 
and determines the extent to which efforts in a resource-rich country are translated 
into investment outcomes. 
The employment figure (in terms of people employed) in construction in the third 
quarter of 2014 was 1 280 000 in the country, and it was the largest increase of 99 000 
from 1 181 000 in all the sectors (Stats SA, 2014). The construction sector is the 
largest sector that employs unskilled workers. The contribution of the construction 
sector to the South Africa GDP between 2007 and 2012 was significant, as it amounted 
to 13% (Stats SA, 2014). The sector was regarded as one of the few that managed to 
increase the contribution by 2.3% as compared to other sectors that showed negative 
growth. 
1.3. Problem statement 
The number of businesses that are failing in their first years of establishment is high, 
and the rate of unemployment is still high despite government intervention. If 
government is playing a role in assisting SMEs, is it addressing the main challenges 
that are affecting the growth of small businesses, as the number of companies that 
are failing is increasing? Adcorp (2012) revealed that 440 000 small businesses were 
closed down in the last five years in South Africa. 
The construction sector is also affected by the number of businesses that are failing 
or liquidated, which is affecting employment negatively, as the sector employs a 
number of workers who are unskilled. The unemployment rate in the Free State is 
32.2%, which is higher as compared to other provinces such as Limpopo with 15.9% 
and Northern Cape with 28.7% despite the increase in government spending (Stats 
SA, 2014).  
The CIDB reports that 173 253 contractors were registered, and 59 306 (34.23%) 
contractors were suspended, expired or deregistered (CIDB, 2015). The percentage 
3 
 
of the number of contractors that are failing is very high, and others can operate for a 
long period but without going to higher grading.  
The research problem of the study is to look at government interventions in 
developing sustainable companies in the construction sector, as the results 
have shown poor sustainability as compared to equivalent businesses in other 
sectors in the Free State. 
1.4. Purpose and significance of the study 
The overall purpose of this study is to determine the role of government in developing 
sustainable SMEs in the construction sector in the Free State.  
1.5. Research objectives 
The objectives that follow provide a specific focus on the research problem.  
1.5.1. Primary objective 
The primary objective of this study is to determine the role of government in developing 
sustainable SMEs in the construction sector in the Free State.  
1.5.2. Secondary objectives 
The secondary objectives of this study are to: 
 determine factors that are affecting the growth of SMEs in the Free State in the 
construction industry; 
 assess programmes in place to support the small and medium contractors in 
the Free State; 
 determine the interventions that are necessary in order to address challenges 
that are affecting the growth of SMEs; and 
 investigate strategies that can be employed by small and medium contractors 
in countering challenges and increase employment in this sector. 
 
4 
 
1.6. Research methodology and design 
1.6.1. Research design 
This section outlines the study design and the research methodology used in the 
study. The study will be a formal survey of the current situation in the Free State, with 
a specific focus on the role of government in developing SMEs in the construction 
sector.  
1.6.2. Target population and sample 
The sample type will be a non-probability, stratified sample that will be used to gather 
the primary data. This method was chosen because of the nature of the research 
problem and the fact that the participants are already involved in the field of interest 
and have different grading as per Construction Industry Development Board (CIDB) 
grading. Thus, it is neither feasible nor desirable to select a random sample from this 
population group. The people of interest to the researcher are already part of a non-
random group, and the researcher will attempt to contact and recruit as many of these 
people as possible into the study (Blumberg, Cooper & Schindler, 2008:235).  
Possible reasons for people choosing not to participate in the study will not be 
investigated, and the researcher will not attempt to ascertain whether significant 
demographic differences exist between those who choose not to participate and those 
who do. The same limitation will apply to those who agree to participate in the semi-
structured interviews. 
The study will focus on contractors who are Grade 2 to Grade 7 and registered with 
the CIDB. The registration for Grade 1 can be completed by any company, as it does 
not have any requirements except registration with the Companies and Intellectual 
Property Commission (CIPC). Therefore, most of the companies that are on Grade 1 
are not operating or have not operated for a long period. For companies registered in 
electrical engineering, the contractor must have an Electrical Contractor Licence 
issued by the Electrical Contractor Board of South Africa. All contractors that are still 
active will be selected from the CIDB database.  
5 
 
1.6.3. Data collection and analysis 
Data will be obtained through quantitative techniques. Quantitative data collection will 
entail questionnaires that will be sent to the owners and managers of SMEs in the 
construction sector in the Free State. The questionnaire will be divided into two parts; 
the first part will evaluate the background of the company, and the second part will 
focus on the operations of the company. The questionnaire will have 25 questions in 
order to obtain enough information to ensure that the objectives of the study are 
achieved, and data collected will be analysed using statistical software.  
 
The second questionnaire will be send to different government and entities that are 
responsible for SME in order to determine their role to ensure sustainability. The 
findings will inform the researcher’s overall recommendations and conclusions. 
1.7. Ethical considerations 
In achieving the objectives of the study, ethical issues need to be considered such as 
protecting the anonymity or confidentiality of participants so that they can speak their 
mind honestly without any fear of adverse consequences. The researcher will be 
guided by moral values when interacting with the participants so that they are not 
exposed to risk or undue influence and do not develop unrealistic expectations 
regarding their involvement in the study.  
Participants will be informed as to the nature and purpose of the study, and they will 
provide their voluntary consent to participate. Participants will not receive any reward 
or punishment, whether social or financial, for choosing either to participate or not to 
participate. Those who do participate will only be thanked by the researcher, and the 
results of the study will be made available to them. Personal information on 
participants will be seen only by the researcher and (if necessary) a research 
assistant. The data will be used only for this study and will not be put to any illegal use 
or used in any way that the participant did not agree to. Data will be analysed for the 
entire group rather than for a single respondent. Data will be collected and analysed 
in a professional manner at all times. The findings will be scrutinised and interpreted 
with objectivity and neutrality by the researcher. The researcher will also briefly 
describe his own personal orientation to and interest in the research topic. 
6 
 
1.8. Study outline 
Chapter 1: Overview of the study 
 
The chapter outlines the purpose of the study. The background to the study and the 
problem statement of the study are provided. The aim and objectives of the study will 
be outlined. 
Chapter 2: Literature review 
 
The chapter will provide relevant literature in assisting to reach the objectives of the 
study. SMEs will be defined as per National Business Act, and their contribution to the 
economy and their performance will be highlighted. The factors that affect the growth 
of SMEs are discussed in detail. The overview of the construction sector and its 
contribution is outlined. The last part of the chapter discusses the role of government 
in developing SMEs. The background of different institutions that assist SMEs is 
discussed, and the assistance they provide to SMEs is outlined in detail. 
Chapter 3: Research design and methodology 
 
The chapter will focus on the methodology that will be used in the study, through 
research design, population and sample, data collection method, reliability and validity 
of the study.  
Chapter 4: Findings and analysis 
 
The analysis and interpretation of results that were gathered from the questionnaires 
that were sent out will be discussed in this chapter. The results of the background of 
the company, programmes by government, company operations and challenges in 
implementing projects are discussed. The last part discusses the chi-square test and 
cross-tabulation, where the correlation between the variables is determined. 
7 
 
Chapter 5: Conclusions and recommendations 
 
The last chapter of this study focuses on the conclusions that were drawn from the 
findings. Recommendations are made that will assist future research. 
1.9. Conclusion 
The study is motivated by the number of SMEs that are failing despite government 
support as indicated in the purpose of the problem statement. The number of SMEs 
that have failed have been indicated to highlight that there is a high failure rate of 
businesses.  
The primary objective was discussed in order to determine the intervention that is 
needed to reduce the number of SMEs that are failing. The secondary objectives are 
also outlined. The research methodology that will be used in order to meet the 
objectives was discussed. Ethical considerations while conducting research to make 
respondents aware of the ethics that bind the researcher are also discussed in the last 
part of the chapter.  
 
  
8 
 
CHAPTER 2: LITERATURE REVIEW 
2.1. Introduction 
The previous chapter provided a general overview of the study, elaborating on the 
significance and purpose of undertaking the study. The methodology to achieve the 
objectives was briefly discussed. 
This chapter discusses a literature review on small and medium enterprises. SMEs 
will be defined in order to get an understanding of them and categories applicable to 
them, as they have been categorised according to the turnover and number of 
employees. It is very important to look at their contribution to the economy as reducing 
unemployment and inequality.  
Factors affecting the growth of SMEs will be discussed in detail in order to obtain 
reasons for the high failing rate to achieve the secondary objectives of the study. The 
performance and contribution of the construction sector will be evaluated, since it is 
the study area of interest. The last part evaluated will be the role of government 
institutions in assisting SMEs. 
2.2. Overview of SMEs  
2.2.1. Overview of SME in South Africa 
The economy of any country is driven by private and public sector investment. The 
White Paper on Small Business and National Development Plan are identified as the 
key policies in developing and promoting SMEs in South Africa in order to include 
previously disadvantaged individuals in the mainstream economy (NDP, 2011). The 
creation and promotion of SMEs are important to the government, as they assist in job 
creation, alleviation of poverty and reduction of inequality. The number of SMEs that 
are created is increasing on a yearly basis.  
The total number of businesses that were classified as medium enterprises in South 
Africa were 2.4 million and micro-enterprises were 1.4 million in 2006  (Timm, 2011). 
According to Finscope (2010), the number of SMEs increased to 5 979 510, which is 
an increment of 57% in four years as compared to the figures in 2006.  
9 
 
2.2.2. Defining SMEs 
SMEs are defined differently in different countries, but the definition and categories of 
the National Small Business Act 102 of 1996 will be used (South Africa, 1996). The 
Act defines five categories of businesses using the number of employees as the main 
criterion, annual turnover figures and gross assets (excluding fixed property) to define 
the categories (Abor & Quartey, 2010:221). The columns that are shaded in Table 2.1 
will be the area of interest for this study. The definitions for the various categories of 
businesses are brought out in the table. 
10 
 
Table 2.1: SME definition categories 
Category Description 
Survivalist enterprise The businesses that are categorised as survivalist generate less 
than the minimum income standard. These include hawkers, 
vendors and subsistence farmers. 
Micro but formal The businesses under this category are regarded as informal, 
enterprise as most of them are not registered, such as spaza shops and 
minibus taxi operators. The turnover of micro-enterprises falls 
below the value-added tax (VAT) registration threshold (now R1 
million per annum). 
Very small enterprise These companies employ up to 10 people and have a turnover 
of R1 million, unless they fall within the mining, electricity, 
manufacturing and construction sectors, in which case they may 
employ up to 20 people. 
Small enterprise The upper limit is 50 employees and turnover of R3 million. 
Small enterprises are generally more established than very 
small enterprises, and they make use of more sophisticated 
business practices. 
Medium enterprise The maximum number of employees is 100, unless the 
company operates in the mining, electricity, manufacturing or 
construction sectors, in which case the upper limit is 200 
employees and turnover of R26 million. Medium enterprises 
tend to show a decentralisation of power and make use of an 
additional management layer. 
Source: National Small Business Act 102 of 1996 
 
Table 2.2 shows only the classes that are relevant to this study (medium and small 
enterprises). 
11 
 
Table 2.2: SME thresholds (upper limits) in different sectors 
Sector Class Number of Turnover Total asset 
employees  (million ZAR) value (million 
ZAR) 
Agriculture Medium 100 5 5 
Small 50 3 3 
Manufacturing  Medium 200 51 19 
Small 50 13 5 
Construction Medium 200 26 5 
Small 50 6 1 
Catering and Medium 200 13 3 
accommodation 
Small 50 6 1 
Source: National Small Business Act 102 of 1996 
 
2.3. Contribution of SME 
Stats SA (2014) indicate that SMEs make up 97% of all businesses in the country; as 
a result, they contribute to 35% of GDP. The South African government prioritised 
SMEs in terms of job creation in order to assist in solving the high rate of 
unemployment in the country. 
2.3.1. Job creation 
SMEs are regarded as engines that are used by the government in creating more jobs. 
SMEs are more labour-intensive as compared to larger firms, and expansion of SMEs 
will boost employment and reduce poverty.   
12 
 
2.3.2. Poverty alleviation 
Poverty affects the whole world even though it just differs in levels and it is indicated 
that poverty in developing countries is high (Ogundele et al, 2012). South African 
government identified SMEs as the key to alleviating poverty. SMEs have been set up 
to create employment that is sustainable than having programmes that are not 
sustainable such as state social grants that are developed by the Department of Social 
Development and are short term in nature. 
Poverty alleviation is aimed at reducing the negative impact of poverty on the lives of 
poor people. Poverty alleviation has been identified as one of the Millennium 
Development Goals (MDG) precisely because poverty can destabilise the world 
economy and lead to global unrest. According to Mbande (2010), given the MDGs 
intention to fight poverty, many donor nations are linking their funding of infrastructure 
to the achievement of socio-economic goals. Therefore, accessing infrastructure 
development funds can be a useful tool in construction industry development. 
2.3.3. Economic growth and development 
SMEs are regarded as a vehicle that assists people who are earning the lowest income 
in South African to gain access to economic opportunities. It was estimated that SMEs 
contributed to 35% of the GDP and also employed close to three-quarters of the 
nation’s employed population (Stats SA, 2014).  SMEs can also be regarded as part 
of assisting in training, as it offers apprenticeships for the youth. SMEs contribute 
largely to the sustainable development of the country in areas of economic growth, 
employment generation and poverty alleviation. 
2.4. Performance of SMEs 
Even though they contribute significantly to economic growth, SMEs are still faced with 
many challenges that are preventing them from growing (Mahembe, 2011). The 
factors that affect the growth of the SME will be discussed in detail. Adcorp (2012) 
indicated that 440 000 small businesses were closed down in the last five years in 
South Africa. 
13 
 
2.5. Factors affecting the growth of SMEs 
South Africa has a very high rate of business failure (around 40% of businesses fail in 
their first year) possibly due to lack of managerial capacity (Adcorp, 2012). The poor 
sustainability of start-ups in South Africa, relative to other countries in the Global 
Entrepreneurship Monitor (GEM) sample, also highlights the need for policy 
interventions aimed at supporting and mentoring entrepreneurs through the difficult 
process of firm birth. It was indicated that the support offered begins and ends with the 
provision of a generic business plan (Herrington, Kew & Kew, 2010:18). 
SMEs face numerous challenges that affect their growth, not only in South Africa but 
also across the world; this increases the number of businesses that are failing 
(Mahembe, 2011). This has resulted in high rates of business failure, thus making 
South Africa one of the lowest construction SMEs survival regions in the world 
(Mahembe, 2011; Ahiawodzi & Adade, 2012). Other challenges that were discussed 
by other authors (Mahembe, 2011; Ahiawodzi & Adade, 2012) include lack of 
management skills, finance and obtaining credit, access to markets and developing 
relationships with customers, appropriate technology and low production capacity, 
recognition by large companies, government bureaucracy, and support for the role 
that they play in economic development. The obstacles that follow appear to be most 
prevalent. 
2.5.1. Fraud and corruption 
Given the important economic role played by SMEs, the negative effects of fraud and 
corruption within this sector must be examined. Despite their contribution to the 
economic progress of South Africa, SMEs are vulnerable to the high cost associated 
with fraud and corruption in the corporate sector (GEM, 2014).  
According to the Global Competitiveness Report 2010-2011, South Africa ranks poorly 
in several areas because of the high levels of crime and corruption in this country 
(Herrington et al., 2010:18). Crime and corruption were ranked, respectively, as the 
third and fifth most severe problems facing businesses in South Africa. Out of 139 
countries surveyed, South Africa ranked 137th for the cost of crime and violence to the 
business community, and 104th in terms of public perceptions of the efficiency of 
14 
 
national police services. Statistics from 2009 showed that more than 70% of reported 
robberies that year had targeted small businesses. The owners and managers of 
South African SMEs perceive the crimes of fraud and theft as major threats to business 
(Rankhumise & Rugimbana, 2010). Indirectly, such crimes also result in the loss of 
business confidence and investment, as well as increased rates of emigration and the 
erosion of a stable infrastructure or economy. The situation essentially forces SMEs 
to improve their security measures, which results in higher business overheads. 
Furthermore, it is found that senior employees engage in theft and fraud relatively 
frequently, further undermining the profitability of small businesses (Rankhumise & 
Rugimbana, 2010). 
2.5.2. Lack of financial support 
SMEs use internal sources of funding when they are established, but as the needs 
increase, there is a need for an external source of funding to support the growth. Fatoki 
and Garwe (2010) indicate that lack of financial support is the second highest 
contributor after education and training that causes SMEs to fail or low creation of 
firms. 
In short, the main reason that applications for financing are refused is lack of collateral. 
If SMEs are to be better developed in South Africa, financiers need to understand the 
position of potential small business owners and the challenges facing their businesses 
(Rankhumise & Rugimbana, 2010:9). Without such support, the growth of SMEs will 
continue to be hampered. 
The SBP Survey 2011 investigated 500 enterprises and found that only 8% had been 
able to access finance through commercial banks. A further 57% of people running 
SMEs had made use of private funding or their personal savings, which included 
cashing in on their pension policies, remortgaging their homes, or relying on access 
bonds (SBP, 2011:32). Only 2% had received government finance such as an 
Industrial Development Corporation (IDC) loan. 
A survey of 100 firms in the Free State showed that the owners of a majority of these 
firms had used their own funding as start-up capital (Fongwa, 2011:26). Approximately 
53% of Free State business owners had used their own savings; 16% had received 
15 
 
loans from banks; and 14% had obtained micro-financing from the National Youth 
Development Agency (NYDA).  
Current government policies focus on providing SMEs with credit from formal sources. 
However, the practical results of this policy have been disappointing, largely because 
of inefficiency among the funding organisations (GEM, 2014). Many entrepreneurs 
who wish to start up SMEs lack a formal track record or the ability to provide collateral, 
and as a result, they are often denied access to finance.  
Collateral security thus remains a challenge for previously disadvantaged 
entrepreneurs. The situation is largely the result of socio-economic inequalities caused 
by the apartheid regime, in which preference was given to certain racial groups, hence 
leaving an overwhelmingly large number of South Africans ensnared in ongoing 
poverty. Many South Africans do not possess assets that could be used to provide 
surety to banks, often as a direct consequence of poverty and unemployment as well 
as imbalances of the past.  
Financial institutions need to have a positive track record in order to provide funding 
for SMEs. This creates a challenge for SMEs because they cannot provide the 
evidence of a track record.  
Fatoki and Garwe (2010) argue, with reference to Europe, that there are various 
internal characteristics of SMEs that usually determine the rate and pace of the growth 
of firms. While size and age seem to have been key traditional determinants of growth, 
lately several studies have also revealed financial structure and productivity to be 
some additional key determinants. The following factors are particularly important: 
internal finance, growth opportunities, indebtedness, and product innovation. All of 
these are firm-specific characteristics.  
2.5.3. Lack of entrepreneurial training 
Njoroge and Gathungu (2013) indicate that training and education for entrepreneurs 
can facilitate small business activities, with the main focus being stimulating 
entrepreneurial activity and performance. The importance of entrepreneurial education 
and training has been well documented and is probably a critical factor in promoting 
long-term economic growth and reducing unemployment. The GEM (2010) survey 
16 
 
findings showed that the quality of such education requires drastic upgrading and that 
appropriate entrepreneurial education should also be offered at all levels of the 
schooling system. Thus, education plays a key role in the survival of small businesses, 
and SME owners should be given the opportunity to attend training programmes to 
boost their knowledge in fields that are relevant to their business (Njoroge and 
Gathungu, 2013) 
The South African government wishes to encourage people to start new businesses, 
particular as a method of addressing the problem of unemployment in South Africa. 
However, as already mentioned, without adequate support from the DTI, growth within 
the SME sector is not sustainable. A study by Fongwa (2011)shows that public sector 
organisations have not proved to be effective providers of business development 
services (BDS) to SMEs in South Africa. This scenario is partly attributable to the lack 
of awareness among SME owners and managers of the support services that they 
may be eligible to receive from the DTI; many people are not even aware of these 
services or how to access them. Fongwa (2011) emphasises that the onus is on the 
DTI and its subsidiaries to understand the needs of small business owners.  
Thus, the lack of entrepreneurial training is a challenge to SMEs, and the growth of 
this sector is hampered by inadequate skills and knowledge (Arogundade, 2011). If 
the government wishes to foster SME growth and sustainability, it must do so by 
providing effective and accessible training. 
With regard to entrepreneurship education, research has found that, amongst other 
variables, formal learning from entrepreneurship-related courses had the strongest 
positive relationship with entrepreneurial intentions. The influence is through the 
mediation of entrepreneurial self-efficacy (ESE) as well as through the successful 
performing of certain tasks such as identifying new business opportunities, creating 
new products, thinking creatively and commercialising an idea. 
 
Despite the well-documented benefits of entrepreneurship education, many secondary 
schools are still lacking in this respect. An expert was quoted in the GEM 2010 report 
to saying that there is a lack of entrepreneurship education and training in primary and 
secondary schools in South Africa and further stated that the current education system 
continues to favour academic learning and largely ignores the realities of the world of 
17 
 
work. It perpetuates a culture of entitlement and jobseeking. The system also 
encourages higher education as the sole pathway to professional advancement and 
success, and creates the implication that vocational expertise is distinctly inferior to 
academic knowledge. Teachers are barely competent academically, let alone 
entrepreneurially, so they are unable to inspire and support those who show flair and 
passion. Worst of all, the system discourages individualism (GEM South Africa, 2010). 
 
According to Fongwa (2011), research findings bring out that to encourage students 
to become active during learning and to give them the opportunity to get hands-on 
experience in realistic situations will enable them to build competence levels. As they 
practise, students are expected to gain confidence in using the acquired competencies 
in different situations. Current research suggests the use of a variety of learning 
experiences to expose students to real-world situations  
2.5.4. Access to appropriate technology 
In the past, international sanctions on South Africa resulted in the somewhat 
paradoxical situation of local companies being “frozen” into a relatively competitive 
position. This scenario resulted from the lack of exposure to or interaction with 
international research and development initiatives. Changes in the political climate 
have meant that South African companies have needed to upgrade and improve their 
technologies to catch up with global change and developments (GEM, 2014). 
Successful entrepreneurs are by necessity technology-orientated and are willing to 
adapt to a changing environment. In a changing environment, innovation is the key to 
survival. 
Regarding the Internet, South Africa’s fixed-line broadband penetration rate is a mere 
1.4% compared with the OECD penetration rate of 24.9% (OECD, 2015). Although 
South Africa’s electrical infrastructure is relatively good compared with other sub-
Saharan countries, it still underperforms compared to Mauritius and Latin American 
countries. South Africa currently has a 75% electrification rate, and 12.5% of the 
population is still without electricity. For people who do not have easy access to 
electricity, the prospects for potential new business activities are severely limited 
(Herrington et al., 2010:34-35).  
18 
 
In certain areas of South Africa, small businesses rely greatly on information 
technology (IT). Nonetheless, small business owner-managers are reluctant to 
embrace IT to the extent that larger companies do, which means that they do not tap 
fully into its potential benefits. The reasons for this reluctance include lack of 
knowledge of computers, lack of funds, and an inability to identify the exact nature of 
their company’s business information needs (Herrington et al., 2010:34-35).  
Contractors are not using technology to look at viable alternative building methods and 
innovative building systems. 
2.5.5. Access to markets 
SMEs need to operate globally so that they can grow and succeed; therefore, they 
need to access the market outside their provinces and country. The success and 
growth of SMEs depend on two main factors: (i) improving production, and (ii) 
marketing and sales. A company’s access to markets largely determines its ability to 
survive and compete. The level of concentration in the economy suggests that finding 
and breaking into new markets is challenging for most SMEs.  
It is self-evident that businesses that fail to market their services or products 
sufficiently will perform poorly. This is one area in which most SMEs can improve their 
performance and become more competitive; products must be properly marketed to 
achieve business success (GEM, 2014). The marketing capacity of SMEs is limited 
because of their limited financial resources; hence, they mostly serve their immediate 
localities. This focus on local markets and the local environment suggests that there 
is a need for SMEs to develop a stronger marketing orientation and market expansion. 
It is important for SMEs owners and managers to understand the dynamics of the 
competition in the sectors that they are operating in so that they can succeed.  
19 
 
 
Threat of new entrants 
 
 
Supplier’s Rivalry among already Buyer’s bargaining 
bargaining existing firms in the  power 
power industry 
 
 Threat of substitute goods 
Figure 2.1: Porter’s five forces 
Source: Louw and Venter (2015:201) 
 
2.5.5.1. Rivalry among competitors 
Businesses do not operate alone, as there are competitors in the market. The 
businesses need to know their competitors and their strong points in order to penetrate 
the market (Louw and Venter, 2015).  
2.5.5.2. Threats of new entrants 
The threats of new entrants can impact negatively on existing ones, as they will reduce 
their share of the profit and also increase competition. It is easy to eliminate other 
companies where the entry barriers are easy. The barriers of entry in the construction 
industry are low. The capital investment requirements for entry are low, as the 
equipment can be rented and companies can subcontract (Louw and Venter, 2015). 
2.5.5.3. Threats of substitute commodities 
Louw and Venter (2015) indicated that a substitute product is a product that can be 
substituted but satisfy the same needs. However, a substitute product in the 
construction industry does not exist, as there is no substitute for building for residential 
purposes.  
20 
 
2.5.5.4. Customer’s bargaining power 
Customers are powerful if they are able to bring prices down while they are able to 
receive good quality (Dess, Lumpkin & Eisner, 2010:58).  
2.5.5.5. Supplier’s bargain power 
Supplier’s bargaining power refers to suppliers who bargain for lower prices in order 
to maximise profit (Louw and Venter, 2015). 
2.5.6. Lack of management skills 
A related problem is lack of managerial skills and capacity among South African 
business people. Approximately 40% of South African businesses fail within a year of 
starting up, which might be partly attributable to poor management (Fatoki & Smit, 
2011:193). Lack of management skills during the early stages of a business can cause 
business failure, as the owners prefer to manage their business in order to reduce 
costs. 
In South Africa, the ongoing demand for the development of housing, infrastructure 
and technology suggest numerous business opportunities for SMEs. According to the 
Department of Public Works (DPW), contractors currently possess a relatively low 
level of skills and resources, and require greater up-skilling; on the positive side, this 
situation means that historically disadvantaged people should find it relatively easy to 
enter the industry and participate as contractors (CIDB, 2011). A large presence of 
functional small-to-medium black-owned contracting businesses would help to 
decentralise the construction industry, which has historically been dominated by 
whites. Furthermore, independent contractors can perform small projects at numerous 
locations or sites that are geographically remote with greater ease and profitability 
than would be the case for larger companies. Because of their lower overheads, 
contractors are able to offer more competitive prices.  
In PwC’s latest Annual Global CEO Survey released in 2014, more than two-thirds of 
CEOs in the construction sector said they were extremely concerned about their 
access to key skills (PWC, 2014). In addition, 70% of the CEOs express concern about 
21 
 
rising labour costs in high-growth markets, and 37% of them believe that creating a 
skilled workforce should be a government priority (PWC, 2014). 
However, only 17% of CEOs believe governments have been effective, while 62% of 
them believe that they have made up-skilling the workforce an internal business 
priority (PWC, 2014). Lack of workforce expertise not only affects a company’s ability 
to compete for and complete contracts but also adds to the growth risk the company 
faces. Similarly, staff retention is critical to the sustainability of a company. In line with 
the requirements of the Construction Charter, construction companies recognise the 
development of skilled labour as critical to their sustainability. 
Entities included in the analysis in this study confirm that they remain committed to 
investing heavily in skills development, with a significant portion of their expenditure 
being directed towards bursaries and learnerships (PWC, 2014). Candidates are 
selected both on the basis of academic merit as well as a strong emphasis on students 
from historically disadvantaged backgrounds. This contributes to addressing the 
challenge of skills shortages and achieving the objectives of the Construction Charter. 
2.5.7. Poor cash management and financial control 
Familiarity with accounting practices is a prerequisite for all business owners. A 
qualified accountant should be employed to perform this task, and he or she should 
know how to manage cash and expenses. Poor record keeping affects the growth of 
business negatively, as contractors normally want to cut corners when it comes to 
record keeping. Business management skills are key to operating a business.  
Contractors normally lose track of their daily transactions as they do not record them; 
therefore, they cannot account for their expenses at the end of the month, which affect 
their profit and cash flow. Proper record keeping assists contractors to have accurate 
information in order to take the correct decisions, especially in doing projections for a 
project (Rankhumise & Rugimbana, 2010:8). 
Poor cash management is affecting the completion of projects, as payments are done 
in stages, and it is difficult for contractors to manage their cash flow until they receive 
the next payment. Liquidity is the key to the success of any business and can have a 
negative impact on profitability and sustainability. 
22 
 
Internal control processes should be put in place to reduce the chances of employees 
stealing from the business. Managers should allocate responsibilities in a manner that 
will minimise misappropriation of funds (Rankhumise & Rugimbana, 2010:8). This goal 
will also be facilitated by regular reconciliation between the bank account and the 
enterprise’s expenses and income. Stringent controls and measures are required to 
root out any internal theft so that it does not jeopardise the business. 
In the majority of businesses, managers and owners reward themselves with large 
amounts of money before prioritising the growth of the enterprise. This tendency is 
especially obvious among young enterprises and entrepreneurs. Business owners and 
managers should be encouraged not to use the assets of their businesses for personal 
use, at the expense of the enterprise (Rankhumise & Rugimbana, 2010:8). 
2.5.8. High taxes 
Another serious challenge facing South African entrepreneurs is heavy taxation. For 
SME owners who are not adept with figures, sorting out the finances of a business can 
be extremely time-consuming or costly. The time required to keep proper records and 
the amount of paperwork involved for tax returns are problematic. Many people feel 
tempted to avoid paying tax because they would rather use that money to grow their 
business interests or because of the implications to the cash flow of the enterprise 
(Marti, 2010). The South African government should exempt small businesses from 
having to pay punitive taxes. President Zuma said in his State of the Nation speech of 
2009, “the inclusive government will loosen the laws and implement a tax relief 
strategy for small and medium enterprises” (SOPA, 2009). The necessary actions are 
as follows: 
 Assessment by the government of the tax obligations of an SME. 
 Business people must know what tax regulations involve. 
 Entrepreneurs must pay their taxes timeously to avoid later problems. 
 
Government legislation on VAT places a relatively large burden on small businesses 
compared with that incurred by larger companies. This scenario is largely attributable 
to the complexity of the process of VAT registration and administration and to cash 
flow problems. Businesses stand to lose interest while waiting for their VAT refunds, 
23 
 
and VAT is paid at the point of invoice rather than the point of receipt. Inefficiencies in 
government departments, including the South African Revenue Service (SARS), 
create further barriers, while paying VAT on invoices jeopardises firms’ cash flow and 
competitiveness.  
2.5.9. Statutes and Regulations 
Government has passed more regulations in past years such as labour, and health 
and safety provisions that affect the construction sector directly (NDP, 2011). The 
labour legislation was repeatedly criticised for raising costs associated with 
employment. Complying with tougher labour laws was a costly exercise. Small and 
micro-enterprises relied heavily on informal labour contracts so as to keep costs down, 
and this was being challenged by new laws. The SME sector found it difficult to attract 
skilled labour as the cost was seen as too high.  
2.5.10.  Late payments 
The delay in receiving interim and final payments by contractors imposes huge 
constraints for the sector. Most of construction firms have been liquidated because of 
the delay in receiving payment, especially from government. The problem is that the 
contractors need to use their finances before they can claim any payment. Milford 
(2010) observes that lack of public sector capacity has led to an inefficient and 
cumbersome process of funding construction projects by the government and, in some 
cases, backlogs of more than six months in payments to contractors. Therefore, 
government is unable to spend allocations received. According to CIDB (2011), there 
are specific issues that have been raised due to the quality of tender documents and 
specifications and the management of change orders. The CIDB report notes that 
these factors are a reflection of the procurement capability of clients and their agents. 
2.5.11.  Increases in the costs of building materials 
Materials in projects are amounting to 60% of the total costs, and South Africa relies 
on machinery or equipment that is imported from other countries. The construction 
sector is affected heavily when materials costs increase because that affects their 
pricing. Stats SA (2013) and the Bureau of Economic Research [BER] (2011) reported 
price increases ranging from 70% to 241% between 2000 and 2010. Also, BER (2011) 
24 
 
determined that the prices of building materials increased linearly at an average rate 
of 70% between 2002 and 2010, and that all building materials prices increased overall 
up to 2008 when the materials prices reached their peak. 
Significant growth in the construction industry is dependent on price stability in 
materials costs, which have increased at rates higher than the inflation rate. Cockayne 
(2011a; 2011b) notes the effects that increases in building materials prices have on 
the construction industry, including the inability of developers to deliver affordable 
housing, high tender valuations and poor construction industry performance. 
Total costs increased by 9.4%, marginally higher than revenue growth, resulting in a 
slightly lower profit margin. For the heavy construction companies, staff costs 
continued to represent a significant component of operating costs, constituting 28.3% 
of total operating costs (2013: 27.8%) and increased by 10% in the prior year. 
The increase noted in the current year is higher than the 7% increase in construction 
revenue year-on-year. Retention of key skills to serve prospective contracts is one of 
the construction companies’ biggest investments in anticipation of the potential 
upswing. Although tender activity has been very high according to some companies, 
there were limited tenders awarded. 
Companies, therefore, have to decide whether they can continue carrying excess staff 
or whether they need to downsize. Announcements of various levels of retrenchments 
were made by most of the heavy construction companies. Construction material 
companies were still impacted by above-inflation energy cost increases and steel 
prices. Although Eskom’s increases for next year will be higher, the decrease in oil 
prices and global steel prices should assist with next year’s input costs. 
2.6. Construction sector 
2.6.1. The construction sector in South Africa 
The construction sector plays a vital role, as it contributes directly and indirectly to 
South Africa’s economic growth. According to Adendorff, Appels and Botha (2011), 
the development and growth of construction SMEs are important for all countries, as 
a strong construction SME base has the capacity to produce a high-quality 
25 
 
infrastructure for the country. It is regarded as a significant employer that assists in 
absorbing the excluded and creates more opportunities. The sector is the fourth 
highest in employing people with no education after agriculture, households and 
mining. 
The construction sector includes different categories such as bricklayers, plumbers, 
painters, tilers, electricians, carpenters and other trades. Professionals employed by 
the sector include architects, engineers (mechanical, civil, electrical and structural), 
quantity surveyors and cost engineers. 
The government is the larger contributor in the capital expenditure, as the expenditure 
increased by 4.8% in 2013, amounting to R212 billion. However, the effective growth 
rate from 2010 to 2014 was only 5.7%, which is less than inflation. It is estimated that 
it will drop to 4.5% during 2016. Construction input cost inflation is also above the 
Consumer Price Index (CPI) inflation.  
The construction sector is regarded as the major contributor to the GDP and the gross 
national product (GNP) because of its sizeable projects and role in economic growth. 
The sector is playing a major role, as it produces structures that add to productivity 
and quality of life. The nation’s workforce is active when the sector is operating at full 
capacity because it is labour-intensive. 
26 
 
Table 2.3: Contribution by province to the construction sector (%) 
Province 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 
Western Cape 18.4 19.9 18.2 17.6 16.8 16.3 15.3 18.2 18.9 20.2 
Eastern Cape 6.5 6.2 7.8 7.6 7.1 7.4 7.9 7.2 7.7 9.1 
Northern Cape 1.2 1.1 1.4 1.6 1.4 1.8 1.5 1.3 1.3 1.5 
Free State 3.2 3.2 3.7 3.9 3.6 4.5 4.0 4.1 3.6 3.6 
KwaZulu-Natal 16.7 14.8 15.9 15.2 16.6 18.6 19.1 20.6 18.1 18.3 
North West 4.9 5.0 5.0 4.9 5.3 5.1 4.9 3.6 3.4 4.1 
Gauteng 40.3 41.0 37.5 37.5 37.1 32.8 33.6 34.6 36.0 31.2 
Mpumalanga 4.4 4.4 5.8 6.6 6.3 6.7 6.4 5.4 5.7 6.2 
Limpopo 4.4 4.4 4.8 5.1 5.7 6.8 7.3 5.1 5.3 6.0 
Source: Stats SA (2014) 
 
Table 2.3 illustrates the contribution by each province towards GDP. The highest 
contributor is Gauteng at 31.2% in 2013, and Free State contributed 3.6% during the 
same period. The lowest contributor was Northern Cape with 1.5%. 
Although there was pressure in the sector, there was a slight increase in the growth 
rate. Figure 2.2 indicate the growth rate between Free State and South Africa. 
 
 
27 
 
20
15
10
SA
5
FS
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
-5
-10
 
Figure 2.2: South Africa and Free State construction sector growth rates 
Source: Stats SA (2014) 
 
Table 2.4 proves that even though there is a slight growth rate in the construction 
sector, the number of contractors registering from lower grading to higher grading is 
not increasing as expected due to the number of contractors that are liquidated. The 
number of construction companies that are suspended, deregistered and expired is 
very high. An example will be Grade 2 where 52.37% are suspended, deregistered 
and expired. 
According to the DPW, contractors currently possess a relatively low level of skills and 
resources, and require greater up-skilling. On the positive side, this situation means 
that historically disadvantaged people should find it relatively easy to enter the industry 
and participate as contractors (CIDB, 2011).  
 
28 
 
Table 2.4: Number of companies registered in CIDB in South Africa 
GRADE ACTIVE SUSPENDED DEREGISTERED EXPIRED TOTAL 
1 200 000 1 536 172 15 001 216 709 
2 4 038 1 738 306 2 396 8 478 
3 1 826 464 69 723 3 082 
4 2 176 619 80 1 080 3 955 
5 1 610 396 51 711 2 768 
6 1 609 326 40 515 2 490 
7 819 125 14 143 1 101 
8 307 39 2 53 401 
9 113 16 0 30 159 
TOTAL 212 498 5 259 734 20 652 239 143 
Source: CIDB (2015) 
 
2.7. The construction sector in the Free State 
2.7.1. Overview of the sector 
The construction sector in the Free State compromises economic activity directed 
towards renovations, extensions, upgrading and construction within the province (Free 
State Socio-economic Review, 2014). The construction sector grew by an average of 
5.9% as per Figure 2.2. There was negative growth in 2010 because of the end of 
construction of the FIFA World Cup infrastructure.  
29 
 
Table 2.5: Number of companies registered in CIDB in the Free State 
GRADE ACTIVE SUSPENDED DEREGISTERED EXPIRED TOTAL 
1 4 052 76 6 2 738 6 872 
2 231 94 11 130 466 
3 77 16 2 22 117 
4 117 24 2 45 188 
5 63 17 1 29 110 
6 75 15 1 25 116 
7 29 6 0 6 41 
8 10 1 0 1 12 
9 4 0 0 1 5 
TOTAL 4 658 249 23 2 997 7 927 
Source: CIDB (2015) 
 
Table 2.5 indicates the number of companies that are registered with the CIDB in the 
Free State, where 87% of them are still on Grade 1. It is an indication that the 
companies are not growing even though the sector is growing. The construction sector 
is also affected negatively by the companies that are failing, as 41% of the companies 
are either suspended, deregistered or expired. 
2.7.2. Contribution of the sector 
The sector contributed 3.6% to the GDP in 2013. The Free State Member of Executive 
Committee (MEC) for Finance confirmed that the provincial economy has been 
performing below the national average (Mohai, 2011). During 2010, the Free State 
economy grew by 1.9% and was projected to grow at 2.4% in 2011. The MEC for 
DETEA indicated that agriculture and manufacturing sector has shrunk by 4% in the 
past decade (Dukwana, 2011:5). 
30 
 
2.7.3. Employment in the sector 
The total population of Free State in 2014 was 2 800 000, with an average annual 
growth rate of 0.25%, which makes up only 5.2% of the national population of 
53 800 000 people (Stats SA, 2014). According to Stats SA (2014), the rate of 
unemployment in the Free State is highest at 32.2% as compared to other provinces 
and even the national unemployment rate, which was 25% in the last quarter of 2014. 
The rising unemployment rate leads to other serious problems, such as crime. The 
provincial unemployment rate is currently growing by 2% per annum, which does not 
bode well for the future of the Free State (Dukwana, 2011:5).   
Table 2.6: Total employment per broad economic sector in the Free State in 2014  
Sector Employment Percentage 
Agriculture 55 200 7.59% 
Mining 30 800 4.24% 
Manufacturing 58 400 8.03% 
Electricity 3 360 0.46% 
Construction 45 700 6.29% 
Trade 154 000 21.19% 
Transport 31 800 4.37% 
Finance 76 600 10.54% 
Community services 189 000 26.00% 
Households 82 000 11.28% 
Total 726 860 100.00% 
Source: Stats SA (2014) 
 
31 
 
The total number of employed people in the Free State is 726 860. In the Free State, 
the economic sectors that recorded the largest number of employed people in 2014 
were the community services sector, with a total of 189 000 employed people or 26% 
of the total employment in the province. The construction sector only employed a total 
of 45 700 people (6.29%), and the electricity sector employed the least, with 3 360 
(0.46%) in the province. 
Although the rate of unemployment is still high, government is still playing a role in 
assisting SMEs in creating job opportunities. There are different programmes with 
different institutions of government that are assisting SMEs. 
2.8. Role of the government in developing SMEs 
Since 1994, numerous SME support programmes have been established in South 
Africa. The results of these programmes have generally been poor, with no obvious 
positive influence on the small-to-medium enterprise sector.  
2.8.1. Government initiatives in developing SMEs 
The country’s Total Entrepreneurship Activity (TEA), which is an estimate of the 
number of working-age adults (18-64 years old) involved in starting or operating 
businesses up to 3.5 years old, is one of the lowest in the world (Herrington et al., 
2010). In 2011, the TEA rate in South Africa was 8.9%, which is considerably lower 
than the average of 14.1% for countries with similar economies as South Africa which 
participated in the GEM annual review (Herrington et al., 2010). In 2011, the country’s 
entrepreneurial intention rate was also one of the lowest at 17.6%. 
Herrington et al. (2010) point out that the growing body of unemployed youth in South 
Africa places an additional burden on a limited government budget that is already 
burdened with a large number of demands. Young people’s engagement in 
entrepreneurship helps them to archive economic independence and to reduce their 
reliance on state welfare. Youth entrepreneurship improves self-esteem and makes 
youths more productive members of their families and communities.  
Secondary, entrepreneurial intention is influenced by perceptions of feasibility, which 
focus on one’s ability to adopt entrepreneurial behaviour given the prevailing 
32 
 
environmental conditions regarding entrepreneurship. Factors that influence the 
development of entrepreneurship include, amongst others, political-legal and 
economic conditions and infrastructure development. Thirdly, social and cultural 
norms about entrepreneurship in a particular country or locality are considered to 
influence one’s decision to become an entrepreneur. The perception of social norms 
is to a large extent influenced by an individual’s family and friends. 
The business or the degree to which others attach high status to entrepreneurs might 
be termed entrepreneurial attitudes. Other relevant attitudes might include the level of 
risk that individuals might be willing to take and individuals’ perception of their own 
skills, knowledge and experience in business creation. GEM (2014) considers those 
who perceive good opportunities for starting a business as well as believe that they 
have entrepreneurial capabilities to be potential entrepreneurs in society, i.e. those 
most likely to have entrepreneurial intentions. More specifically, they will be 
opportunity-driven entrepreneurs. 
The DTI has been the main driver of SMME policy development in South Africa. 
However, the emphasis has tended to fall on micro-enterprises rather than larger 
SMEs. Generally, the relevant support institutions officially assist SMEs, but in reality, 
they are orientated mainly towards micro-enterprises.  
2.8.2. Department of Small Business Development 
South African government recognises the importance of SMME so much that they 
established the new ministry of Small Business Development in 2014 in order to 
facilitate the promotion and development of small businesses. 
The Minister Lindiwe Zulu indicated that he department is addressing lack of access 
to finance and the major obstacle that are affecting the growth of small business (Zulu, 
2015). The minister also indicated that there is lack of co-ordination between different 
levels of the government where the source of funding were located which results in 
the funds end up going to the wrong places. 
The allocation for the Department of Small Business Development for the three year 
period is R3.4 billion which Minister indicated that it is not sufficient to address 
challenges that are faced by SMMEs (Zulu, 2015). The department is planning to 
33 
 
implement program that will ensure that together with provinces, municipalities, 
development finance institutions offer both financial and non-financial support in one 
place (Zulu, 2015). 
2.8.2.1. Small Enterprise Development Agency 
Small Enterprise Development Agency (SEDA) was created under the Department of 
Trade and Industry in order to support small businesses in South Africa. It started to 
be active in 2006 in the Free State. The mandate of SEDA is to design and implement 
one standard national delivery network for the whole country, as well as providing non-
financial support and promoting small enterprises. 
SEDA assists both existing and start-up business even though it focuses more on the 
establishment of new businesses. It provides business support to SMMEs through 
development of business plans, development of marketing material, training, 
mentoring and coaching.  
SEDA has its in-house materials that assist to SMMEs to develop business plans such 
as templates, software and books that are free. The development of business plans is 
outsourced to service providers where SMMEs will pay 10% of the total costs. 
The mentoring and coaching is provided to businesses that have received funding. 
The programme assists in identifying gaps and running the business with someone 
supervising during the period of mentoring. 
SEDA also organises workshops and seminars so that it can identify challenges 
experienced and resolve them. It also assists in exhibiting the products nationally and 
internationally. 
2.8.2.2. Small Enterprise Finance Agency 
Khula Enterprise Finance Limited and South African Micro-Finance Apex Fund 
(SAMAF) were incorporated to form this system. Small Enterprise Finance Agency 
(SEFA) was established on 1 April 2012. Services provided include a credit guarantee 
scheme, the provision of equity (capital and gearing), and private sector funding for 
small businesses in certain sectors. This company finances small-to-medium-sized 
enterprises by partnering with financial intermediaries. The company grants a loan 
34 
 
from a minimum of R50 000 to a maximum of R5 million. According to their Annual 
Report of 2013/14, they have approved 87 applications to the value of R142 379 000 
in 2013/14 financial year in the construction sector. 
2.8.2.3. National Empowerment Fund 
The National Empowerment Fund (NEF) aims to promote business ventures headed 
by historically disadvantaged people or to drive broad-based black economic 
empowerment and to ensure that they inclusive in the economy. The agency provides 
tailored financial and non-financial support. It assists with the acquisition of shares in 
government and private enterprises and provides funding of at least R250 000 per 
business (NEF, 2015). The different types of funding offered by the NEF are presented 
next. 
(a) Entrepreneurship finance 
The purpose of the funding is to assist in start-up companies at an early stage of 
businesses that are owned by previously disadvantaged individuals. 
(b) Procurement finance 
The product assists black-owned SMEs that have been awarded tenders or contracts 
by public and private sector entities. The product’s main objective is to ensure that 
qualifying SMEs have the capacity to carry out the contracts. 
(c) New venture finance 
This product provides capital of R5 million to R25 million per project for BEE parties 
seeking to participate in medium-sized green fields projects with total funding requests 
of between R10 million and R200 million. 
(d) Strategic projects fund 
The fund has been established with a mandate to increase the number of black people 
who participate in early stage projects. It is aligned to national government policy and 
seeks competitive opportunity for the South African economy and the inclusion of black 
participation in opportunities at the outset of projects, as opposed to doing so during 
equity closure. 
35 
 
 
Source: NEF (2015) 
 
Figure 2.3: Categories for NEF funding 
 
2.8.2.4. Free State Development Corporation 
The Free State Development Corporation (FDC) is a specialist economic development 
agency that was instituted to provide citizens in the Free State with a range of services 
that will assist them in building sustainable SMEs. The FDC supports SMMEs 
financially by providing loans and also with other forms of non-financial support (FDC, 
2015). Investors receive comprehensive assistance in setting up businesses in the 
Free State. The different products are classified as follows (FDC, 2015): 
(a) Micro-loans 
Micro-loans are provided for amounts between R5 000 to R20 000 to assist a micro-
enterprise that may need start-up capital (FDC, 2015). 
(b) Bridging loans 
FDC (2015) provide a bridging loans assisting SMEs that have received a tender to 
deliver on a project, but the SMEs do not have the cash to start with the project. The 
36 
 
SMEs often receive projects, but they do not have the cash flow to start with the 
project, as they sometimes cannot manage their cash flow. The maximum bridging 
loan does not exceed 50% of the total project value. 
(c) Initiator 
The assistance was developed to assist entrepreneurs who are moving from the 
informal to the formal sector by providing them financial assistance with a minimum 
amount of R20 000 and a maximum of R1 million. The SMEs do not need their own 
contribution, as this has been raised as a major contributor of businesses failing to 
obtain funding or loans from financial institutions (FDC, 2015). 
(d) Propeller 
The funding assists small businesses that need to graduate to medium-sized 
enterprises by providing them with funding of between R5 million and R20 million 
(FDC, 2015). 
2.8.2.5. Industrial Development Corporation 
The IDC is mandated to develop industrial capacity. The priorities are aligned with 
government policies such as the NDP, Industrial Policy Action Plan (IPAP) and NGP. 
The priority of funding the companies is to enable job creation and develop sustainable 
growth and increase sector diversity by boosting local production (IDC, 2015). The 
IDC works closely with other government agencies in coordinating industry 
development. 
2.8.3. Department of Public Works 
The DPW implemented Contractor Development Programmes (CDP) in order to assist 
historically disadvantaged contractors in developing competent skills, create jobs and 
alleviate poverty. The purpose of the programme is to overcome all the challenges 
that are faced by small-medium contractors by giving them all the equipment in 
building a sustainable business (Thwala & Mofokeng, 2012).  
The department uses different models that are appropriate to different levels of 
development, and these can be broadly grouped as follows: 
37 
 
 Expanded Public Works Programme (EPWP) learnership type is for 
development of the Grade 1 and 2 construction workforce; 
 Emerging Contractor Development Programmes (ECDPs) is Grade 2 to 3 
emerging contractors and incorporates mentorship supported by formal 
business and technical training; 
 Enterprise Development Programmes (EDPs) for contractors in Grading 3 to 6 
who exhibit potential to develop and programmes focusing on improving the 
performance of established contractors; and 
 Contractor Incubator Programme is for Grade 4 to 7 in line with the South 
African Construction Excellence Model (SACEM). 
2.8.3.1. Contractor Development Programmes 
Current contractor development combines EPWP and ECDP models and applies in 
all gradings, with the main objectives of enabling environment, developing contractors 
and creating jobs. Programmes focus on workforce development, job creation and the 
development of emerging contractors, enterprise development or improving the 
performance of established contractors. 
The CDP aims to create an enabling environment for selected existing contracting 
enterprises to develop into sustainable contracting enterprises for the historically 
disadvantaged such as blacks, women and disabled persons. The CDP assists 
contractors who have a market of between R1.5 million and R30 million. The 
programme includes access to mentorship, financial support, information and other 
development support that would be relevant for contractor development. 
The programme uses learners in order to spend money on goods and services or 
incubation programmes for small emerging enterprises. The purpose is to involve 
different departments in order to assist historically disadvantaged individuals. 
38 
 
2.8.3.2. Emerging Contractor Development 
The ECDP is provided through the DPW which assists in providing access to projects 
for developmental purposes:  
 Contractors compete for projects through normal public procurement methods, 
which sometimes form part of the prequalification for contractors to enter into a 
development programme. 
 Contractors within development programmes receive preferential access to 
projects through limited bidding schemes. 
 No single model for contractor development fits all gradings of contractors and 
all levels of business maturity. 
 
Several programmes are needed in order to improve contractor development, improve 
stability, improve industry performance and restructure industry such as: 
 an opportunity and support-based approach; 
 the promotion of emergence and monitoring through a register for contractors; 
 public sector support; 
 the promotion and integration of emerging contractors into the industry; 
 promote access to information, advice and mentoring; 
 entrepreneurial and skills training; and 
 finance and credit. 
 
2.8.3.3. Expanded Public Works Programme 
The EPWP is a project initiated by the government to create temporary jobs so as to 
reduce the rate of unemployment in the country. The purpose of the programme is to 
provide skills and training to people while they are doing the job, especially for the 
unskilled. The purpose of the programme is to bridge the gap that exists between 
economic growth and the growing numbers of unskilled and unemployed individuals. 
The programme also improves the education system, which will equip individuals with 
skills so that they can be able to contribute to economic growth. Employment 
39 
 
opportunities will be increased in the economy to ensure that the jobs that are created 
are more than the new entrants on the labour market.  
Skills shortage is one of the challenges that are facing the construction sector, which 
is badly implicated in the delivery of infrastructure projects. EPWP can assist very well 
in employing graduates that are not employed. Government and training institutions 
should work together to make the programme a success. The basic infrastructure 
should be improved in the rural and urban areas so that the programme can assist in 
alleviating poverty and creating jobs.  
2.9. Construction Industry Development Board 
The aim of the CIDB is to assist contractors and emerging contractors by giving them 
support through the Construction Industry Development Board Act (38 of 2000). The 
CIDB and the National and Provincial Departments of Public Works are responsible 
for implementing the National Contractor Development Programme (NCDP). 
The CIDB assists in unlocking the constraints that contribute to the growth and 
development of sustainable contracting capacity, especially individuals from 
previously disadvantaged backgrounds. Skills development and contractor 
performance should be developed in order to reduce the number of projects that are 
not completed by the contractors and contribute negatively to the economic growth of 
the country. 
The programme assists contractors from previously disadvantaged backgrounds by: 
 establishing an enabling environment for contractor development; 
 enhancing and strengthening mechanisms to develop contractors, including 
development programmes for emerging contractors; 
 facilitating the improvement of contractors’ performance; and 
 supporting the creation of more skilled artisans, technicians and technologists 
for the construction industry. 
 
Productivity will be improved if there are adequate management skills in the company 
that will assist in improving profits and economic growth. The CIDB was created to 
40 
 
assist contractor’s development, but there is not much change, as the contractors are 
still facing challenges in growing their businesses. 
2.10. Conclusion 
The general overview of SMEs and their contribution was discussed consider their 
importance in creating job opportunities. SMEs were defined in order to determine the 
number of employees that are employed in the small and medium enterprises and 
their turnover. They are regarded as the largest employer in the country. SMEs are 
assisting in alleviating poverty and creating jobs, especially for unskilled workers. 
Although SMEs are regarded as the engines that are creating wealth and employment, 
they are still faced with challenges that are affecting them to grow, as the failure rate 
is between 70% and 80%. The factors that are affecting them are discussed in detail, 
such as lack of education and lack of financial support. 
Lack of education is regarded as the main cause of business failure followed by lack 
of financial support. SMEs are not marketing their businesses properly, as they only 
depend on government and nothing else. 
The construction sector was discussed in detail, as it is the point of interest in this 
study. The performance and employment of the sector in South Africa and Free State 
was indicated. 
The last part of the chapter elaborated of the programmes that are created by 
government institutions to assist SMEs and contractors. The CDP assists contractors 
to develop their skills by providing training.  The next chapter will discuss the research 
methodology used in this study. 
  
41 
 
CHAPTER 3: RESEARCH METHODOLOGY 
3.1. Introduction 
The contribution of SMEs in South Africa was discussed to determine their importance 
and contribution to the economy including reducing unemployment and alleviating 
poverty. The challenges that are affecting the growth and the role of government in 
developing sustainable SMEs as well as literature pertinent to this study were briefly 
outlined in the preceding chapter. This chapter will discuss the research methodology 
that will be taken to achieve the objectives of the study. 
3.2. Research objectives of the study 
The objective of this study was to determine the role of government in developing 
sustainable SMEs in the construction sector. To achieve primary objective, the 
following secondary objectives were addressed: 
 To determine factors that are affecting the growth of SMEs in the Free State in 
the construction industry; 
 To assess programmes in place to support the small and medium contractors 
in the Free State; 
 To determine the interventions that are necessary in order to address 
challenges that are affecting the growth of SMEs; and 
 To investigate strategies that can be employed by small and medium 
contractors in countering challenges and increase employment in this sector. 
 
3.3. Research design 
The two most popular ways to classify research is through quantitative and qualitative 
conceptualisation. Qualitative research methods intend to address research objectives 
through techniques that allow the researcher to provide elaborate interpretation of 
phenomena, without depending on numerical measurement (Zikmund, Babin, Carr & 
Griffin, 2012:132). Creswell (2009:16) added that in this research method, the 
42 
 
researcher seeks to find the meaning of the phenomenon from the views of the 
participants.  
The general purpose of qualitative research methods, as claimed by Salkind 
(2012:13), is to examine behaviour in the social, cultural, and political contexts in which 
they occur. On the other hand, Bryman (2012:75) held that when the researcher 
attempts to determine the cause-and-effect type of the relationship between 
independent and dependent variables, then it is a quantitative study. Also, Creswell 
(2009:16) added that the researcher in quantitative research tests a theory by 
formulating hypotheses, collecting data and then analysing the data to support or 
refute those hypotheses. This means that the research is quantitative in nature. The 
proposed cross-sectional study will be conducted in the Free State of South Africa. 
The chapter is divided into research design, target population, and sampling method. 
The research design provides the methods that will be used in order to achieve the 
objectives of the study.  
3.3.1. Sampling 
It was established that the number of emerging construction firms amounted to 7 927. 
However, a simple randomly selected number of emerging construction businesses 
will be identified for the study according to the minimum 10% conventional rule in order 
to allow for sound statistical analysis to be done. The same rule was applied so that a 
sufficient number of elements would be selected for each population group.  
3.3.2. Population 
The population for the purpose of this study will be the owners and managers who are 
in the construction sector in the Free State. The total number of companies that are 
registered with the CIDB are 7 927 in all the gradings. The companies are registered 
in different categories as per the value of contract they have performed. The grading 
requirements from Grade 1 to 9 are indicated in Table 3.1. 
 
  
43 
 
Table 3.1: Requirements for contractor grading 
Designation Upper limit of Best Annual Largest Available 
tender value Turnover Contract Capital 
 R’000 R’000 R’000 R’000 
1 - - - - 
2 R650   R130  - 
3 R2 000  R1 000  R450  R100  
4 R4 000  R2 000  R900  R200  
5 R6 500  R3 250  R1 500  R650  
6 R13 000  R6 500  R3 000  R1 300  
7 R40 000  R20 000  R9 000  R4 000  
8 R130 000  R65 000  R30 000  R13 000  
9 No limit R200 000  R90 000  R40 000  
 Source: CIDB (2015) 
 
3.3.3. Sample frame 
The sample frame represents all the elements in the population in which the sample 
is obtained. A sample of 100 companies from a population that represented different 
gradings was tested. The list of companies that are registered on the database of CIDB 
were downloaded from the CIDB website (CIDB, 2015). 
44 
 
3.3.4. Sample design 
The sample type was a non-probability, purposive sample, which was used to gather 
primary data. This method was chosen because of the nature of the research problem 
and the fact that the participants are already involved in the field of interest. Thus, it 
was neither feasible nor desirable to select a random sample from this population 
group. The people of interest to the researcher were already part of a non-random 
group, and the researcher attempted to contact and recruit as many of these people 
as possible to participate in the study (Blumberg et al., 2008:235).  
Table 3.2: Number of companies registered with the CIDB in the Free State 
GRADE ACTIVE SUSPENDED DEREGISTERED EXPIRED TOTAL 
1 4 052 76 6 2 738 6 872 
2 231 94 11 130 466 
3 77 16 2 22 117 
4 117 24 2 45 188 
5 63 17 1 29 110 
6 75 15 1 25 116 
7 29 6 0 6 41 
8 10 1 0 1 12 
9 4 0 0 1 5 
TOTAL 4 658 249 23 2 997 7 927 
Source: CIDB (2015) 
 
45 
 
3.3.5. Stratified sample 
The total population was divided into groups as per their grading where a stratified 
sample was drawn from each group. The method was appropriate because the 
companies are known and in different categories. The percentage for each group was 
determined to make up the total number of the participants. The percentage was used 
to determine the proportion of each group. The participants were selected randomly. 
There were 4 052 companies that were registered and active on Grade 1. There were 
no requirements when the companies were registered in this Grade, and it was found 
that most of the companies are not operational; therefore, all the companies will be 
excluded from the sample. Grades 8 and 9 were considered in the sample, as they 
represented large firms that did not fall under SME as defined in the National Small 
Business Amendment Act, No. 26 of 2003 (South Africa, 2003). 
Table 3.3: Sample size per group 
 Grade Grade Grade Grade Total 
2 3-4 5-6 7 
Total 
Active 231 194 138 29 592 
Percentage 
of total 
group 39% 33% 23% 5% 100.00% 
Sample 
size 39 33 23 5 100 
 
46 
 
3.3.6. Sample size 
The companies that were targeted as a sample were 100 from different gradings and 
categories. The information for the companies that are on Grade 2 to 7 were collected 
from the database of the CIDB. The companies that are suspended, expired and not 
active were not included in the sample. Some of the companies were registered in 
different categories but were owned by the same individual; therefore, only one 
category in those cases was considered, as it would have resulted in duplication. 
This study only focused on the companies that are active. The reasons for determining 
why the companies were suspended or did not renew their registration were not 
investigated. Table 3.4 classifies the contractors per category. 
Table 3.4: Contractor classification 
Category Description Brief explanation of the work 
ME Mechanical engineering Construction works that deals with 
development, extension, installation of 
engineering infrastructure 
GB General building Construction works that deals with materials 
such as steel and concrete 
EB Electrical engineering works – Construction works that deals with materials 
building such as steel and concrete 
CE Civil engineering Construction works that deals with materials 
such as steel and concrete 
EP Electrical engineering works Construction works that deals with 
– infrastructure development, extension, installation of 
engineering infrastructure 
Source: CIDB (2015) 
 
47 
 
3.4. Data collection method 
3.4.1. Methodology 
A quantitative research method was used, and data was collected through 
questionnaires. The data was collected by means of an unstructured and self-
administered questionnaire. Two set of the questionnaires was developed and send 
to SMEs in the construction sector and the other one was send to government entities. 
The questionnaire for SMEs was divided into two sections to ensure that all information 
was covered. The first section covered the company itself such as: 
 owner information 
 education background 
 background of the company 
 company operations 
 number of employees in the company 
The second section of the questionnaire was designed to respond to the primary and 
secondary objectives of the study such as:  
 government intervention 
 factors affecting the growth of their company 
 
The questionnaire was used as a method of collecting data, as it was inexpensive to 
use. A large number of contractors were reached across the Free State using the 
questionnaire method. The data was evaluated to determine the reliability and the 
correctness of the information and to determine if the research goal was met 
(Denscombe, 2010). The interview served as a follow-up, especially in instances 
where the information provided was not clear and clarity was required. The 
appointment with managers and owners identified in the sample was arranged before 
the interview took place. 
48 
 
3.4.2. Data analysis 
Data analysis is one of the steps that need to be followed when conducting a research 
study. The data that was collected was analysed using SPSS (statistical package for 
the social science) program. SPSS is a Windows-based program that can handle large 
data. It can further use the coded data to provide analysed data in the form of tables 
and graphs. 
3.5. Ethical considerations 
The researcher ensured that ethical considerations such as protecting the anonymity 
or confidentiality of participants were included and were discussed before the 
beginning of the research. Confidentiality assisted in ensuring that the participants 
spoke their mind honestly without any fear of adverse consequences. The researcher 
was guided by moral values when interacting with the participants so that they were 
not exposed to risk or undue influence and did not develop unrealistic expectations 
regarding their involvement in the study.  
Participants were informed as to the nature and purpose of the study, and they 
provided their voluntary consent to participate. Participants did not receive any reward 
or punishment, whether social or financial, for choosing either to participate or not to 
participate.  
3.6.  Demarcation of the field study 
The primary purpose of this research was to determine the role of government in 
developing sustainable SMEs in the construction sector. The owners and managers 
who were on Grade 2 to 7 in the construction sector were the target population. The 
study only focused on the Free State.  
3.7. Conclusion 
This chapter provided a detailed description of the research method that was followed 
in the study. The method that was followed was the qualitative method. The research 
design was discussed in detail including its components. The next chapter will present 
and analyse the results of the data obtained from the questionnaires that were 
completed by the 100 respondents.  
49 
 
CHAPTER 4: FINDINGS AND ANALYSIS 
4.1. Introduction 
The objective of the study is to determine the role of government in developing 
sustainable SMEs in the construction sector. This study was motivated by the number 
of companies that are failing within a very short period after they have started as 
discussed in the literature review in Chapter 2. The research methodology that was 
employed to obtain data was discussed in the foregoing chapter.  
This chapter reports on the results of the responses from the companies that were 
sent the questionnaire, i.e. companies that are in the construction sector in the Free 
State. The questionnaire was developed with the view of addressing the primary and 
secondary objectives of the study. The results will cover the background of the 
company, operations of the company and challenges that are affecting the growth of 
the companies. The reasons for failure of the companies were not determined in the 
research. 
4.2. Data analysis 
The research questions were self-administered in English. A total of 100 
questionnaires were distributed to the owners and managers of the construction 
companies in the Free State that are operating on Grade 2 to 7. Grade 1 was not 
included because the majority of the companies on that grade are just registered with 
the CIDB but are not operating. Grades 8 and 9 are regarded as established and large, 
as indicated in the National Small Business Act (South Africa, 2003). 84 
questionnaires were returned, representing 84% of the total that was distributed.  
4.3. Findings 
4.3.1. Background of the company 
The research findings on the data relating to the grading of the company as per CIDB 
requirements will be presented using frequency distribution. Table 4.1 indicates that 
the majority of the companies are registered on Grade 2 as per CIDB grading. This 
accounts for 34.5% of the respondents, followed by Grade 3 with 20.2%, Grade 6 and 
50 
 
Grade 7 are 16.7% each, Grade 4 is 7.1%, and the last one is Grade 5 with 4.8%. 
Table 4.1 shows the frequency distributions of the grading. 
Table 4.1: Frequency distribution of the grading 
   Grading (N) % 
Valid Grade 2 29 34.5 
  Grade 3 17 20.2 
  Grade 4 6 7.1 
  Grade 5 4 4.8 
  Grade 6 14 16.7 
  Grade 7 14 16.7 
  Total 84 100.0 
 
Table 4.2 illustrates the frequency of the work that the companies specialise in. Most 
of the respondents are in general buildings, which sits at 59.5%; followed by civil works 
with 22.6%; road and earthworks is third with 14.3%; and other companies did not 
specify their field of speciality. The reasons that there are no requirements for 
registering in general buildings might be the contributing factor for the higher number 
of SMEs in that category. 
Table 4.2: Frequency distribution of specialised job 
    (N) % 
Valid General buildings 50 59.5 
  Civil works 19 22.6 
  Road and earthworks 12 14.3 
  Other 3 3.6 
  Total 84 100.0 
    
 
 
51 
 
Gender
29%
Male
Female
71%
 
Figure 4.1: Gender 
 
Figure 4.1 demonstrates that 71% of the respondents are male and 29% of them are 
female. The results were also supported by a study in the Western Cape where it was 
found that the majority of the owners of SMEs are male at 61% (Brijlal, Naicker & 
Peters, 2013). Although the number of women in the business has increased, the 
majority are still men. Sectors such as construction are still dominated by men. It can 
be assumed that the nature of work and conditions are normally not suitable for 
women. 
Brijlal et al. (2013) supported that the issue of gender and entrepreneurship limits 
women’s ability to accrue financial capital. Therefore, the authors place the limitations 
on the ability to generate personal savings in order to have attractive resources and 
be able to impact on the growth of the business. 
The purpose of the gender classification is to determine if the companies are male-
dominated in the sector, as it is often regarded as a male business. The reason for the 
question of the number of women in the business was to determine if the companies 
are supporting the initiatives of government in empowering women in the country. The 
52 
 
government wants to empower women, and it was indicated that the companies 
should have 50% women in their business. 
How long have the company been in 
operation?
21% 26% Between 0 - 3 years
Between 4 - 5 years
Between 6 - 10 years
23%
More than 10 years
30%
 
Figure 4.2: Length of time business has been in operation 
 
Figure 4.2 depicts that 26% of the respondents have been operating for less than three 
years. Furthermore, 30% of them have been in operation for 4 to 5 years, 23% for 6 
to 10 years, and 21% for more than 10 years. 
How many partners are in the business?
5%
Between 1 - 5
Between 6 - 10
95%
 
Figure 4.3: Number of partners in the business 
53 
 
Figure 4.3 reveals that 95% of the respondents have between 1 to 5 partners and 5% 
have between 6 and 10 partners. The information will assist in determining if the 
partner of the company possesses different skills in business and how is it affecting 
their operations. The number of partners might play a role when coming to the capital 
contribution for the growth of SMEs. 
What is your current grading with 
Contractor Industry Development Board 
(CIDB)?
34.5
20.2
16.7 16.7
7.1 4.8
Grade 2 Grade 3 Grade 4 Grade 5 Grade 6 Grade 7
 
Figure 4.4: Company grading 
 
The question of grading will ensure that the study focus only on the small medium 
contractors. The small contractors are categorized into Grade 1 to 3 and medium 
contractor in Grade 4 to 7. Figure 4.4 indicates that 34.5% of the respondents are on 
the lower category in terms of CIDB grading, as they are still on Grade 2. This is 
followed by Grade 3 with 20.2%, Grade 6 and Grade 7 are 16.7% each, Grade 4 is 
7.1%, and the last one is Grade 5 with 4.8%.  
 
54 
 
In what category is your business registered?
95.2 96.4 97.6
83.3 88.081.0 86.9
60.7
39.3
16.7 19.0 12.0 4.8 13.1 3.6 2.4
No Yes
 
Figure 4.5: Category of grading  
 
Figure 4.5 highlights that 81% of the respondents are in general building, followed by 
39.3% in the civil engineering, 16.7% in mechanical engineering, 13.1% in steel 
security and 12% in electrical engineering.  
What other type of work does your 
company do?
4%
14% General buildings
Civil works
23% 59% Road and earthworks
Other
 
Figure 4.6: Other type of work 
 
55 
 
The study is directly focused on the small medium construction companies, hence it 
is imperative that the business types are specified. Figure 4.6 shows that 59% of the 
respondents are involved in general building, 23% does civil works, and 14% is 
involved in road and earthworks. The contractors can do different works in the 
construction industry as long they have registered to do that specific type of work. The 
number in this question will vary. 
4.3.2. Programmes by government 
This section presents the role of the government in developing sustainable SMEs in 
the construction sector as the primary objective of the study. The literature review 
indicated that government has provided training and funding for SMEs. The results of 
the programme by government, funding and government policies will be presented.  
Does your company participate in the 
Contractor Development Programme provided 
by Public Works?
36%
Yes
No
64%
 
Figure 4.7: Contractor Development Programme 
 
Figure 4.7 reveals that 64% of the respondents are not participating in the contractor 
development programme, and only 36% of them are participating. The respondents 
indicated that they are not aware and not invited for the programmes. The results are 
supported by a study that was done in the Free State, where it was highlighted that 
56 
 
74% of the respondents were not exposed to contractor development programmes; 
therefore, they did not attend while 26% attended (Thwala & Mofokeng, 2012).  
The information contradicts the information received from the CIDB office, where it 
was indicated that invites are sent to contractors, but the attendance is not satisfactory. 
The problem identified was lack of resources by the contractors such as emails. 
Table 4.3: Contractor Development Programmes Benefits  
Contractor Development Programmes Number Rank 
Benefits Mentioned 
Becoming innovative & competent contractors 43% 1 
Having business sustainability 33% 2 
Financial control and competitive tendering 13% 3 
Better Technical & Business understanding of 10% 4 
the construction 
 
Table 4.3 indicate that from the 36% respondents who have attended the development 
programme, 43% indicated that the programmes assisted them to become innovative 
and competent while 33% indicated business sustainability.  
Table 4.4 reveal that from the 36% respondents who have attended the development 
programme, 40% indicated that the programmes were not well publicized and most of 
the contractors did not about them. 36% said that there was not enough support given 
to the contractors after the programmes. 
 
 
 
 
 
57 
 
Table 4.4: Contractor Development Programmes Problems  
Contractor Development Programmes Number Rank 
Benefits Mentioned 
The programmes were not well publicized for 40% 1 
everyone to know about them 
There is not enough support given to the 36% 2 
contractors after the programmes 
The government does not take responsibility for 16% 3 
the growth and success of the contractors 
Work and funding is not provided by the 6% 4 
department 
 
 
Which courses have you attended in the 
last two years?
85.71 86.90
76.19
70.24 69.05 71.43
63.10
36.90
29.76 30.95
23.81 14.29 28.57 13.10
No Yes
 
Figure 4.8: Courses attended 
58 
 
For the business to keep in touch with the development in order to be successful it is 
important that the management of companies attend short courses. Figure 4.8 
indicates training that was attended in the past two years by the contractors in terms 
of the percentage.  The respondents indicated that 36.90% attended the workshop on 
tendering, followed by 30.95% for business management, 29.76% in construction 
courses, 28.57% in health and safety, 23.81% in project management, and the rest 
are below 20%.  
Did your company receive any funding 
from government?
4%
Yes
No
96%
 
Figure 4.9: Funding 
 
Figure 4.9 shows that 96% of the respondents did not receive any funding from 
government, while only 4% received funding. The reason is that the process to receive 
funding takes too long, and the disbursement of information is not up to standard. The 
results agree with a study that was carried out in Gauteng, where 3.3% of SMMEs 
received funding from government, while 56% of the SMMEs’ capital were owner’s 
contribution (Njiro, Mazwai & Urban, 2010). The results are also confirmed by a study 
that was carried out in South Africa by National Treasury in all provinces (Mago & 
Toro, 2013). These results are also supported by the findings of Amra et al. (2013) 
whose study found that SMEs are not applying for funding because of lack of collateral 
and do not have the cash flow to afford monthly repayments. Lack of funding for SMEs 
was also supported by a survey done by SBP in 2011, where it was found that only 
59 
 
2% of 500 enterprises received funding from through the IDC, whereas 8% had been 
able to access finance through commercial banks.  
 
How long does it take to receive the 
payment from the client?
48.81
27.38
2.38 8.33 13.10
Less than 7 days Between 7 & 14 More than 14 days 1 month More than 1
days but less than 21 month
days
 
Figure 4.10: Period to receive payment 
 
Payments from clients are very important, and it is even more important be paid as 
soon as possible. Figure 4.10 illustrates that 48.81% of SMEs receive their payments 
after a month, 27.38% within a month, 13.10% between 14 and 21 days, 8.33% 
between seven and 14 days, and only 2.38% receive their payments within seven 
days. The payment period affects cash flow negatively if it is longer, as this affects the 
contractor in completing the projects on time.  
60 
 
How do government policies, regulations 
and legislations affect your company?
44% Positively
56% Negatively
 
Figure 4.11: Government policies, regulations and legislation 
 
Figure 4.11 demonstrates that 56% of the respondents are affected positively by 
government preferential procurement policies, while 44% of them are affected 
negatively. The contractors need to meet certain CIDB requirements before they can 
tender for jobs in government, meet BEE targets and NHBRC regulations. 
4.3.3. Company operations 
The results of the operations of the company such as experience, skills and accounting 
systems will be presented under company operations. The results will determine the 
period that they have operated in the construction and skills acquired during that 
period to deal with the challenges that affect the growth of the company. 
61 
 
How many years does the company have 
experience in the construction industry?
12% Less than 3 years
12% 35% Between 3 - 5 years
Between 6 - 10 years
21% Between 11 - 15 years
20% More than 15 years
 
Figure 4.12: Experience in the construction sector 
 
In every industry it is important to have experience for the role to be performed to 
excellence. Figure 4.12 illustrates the experience that respondents have in the 
construction. Experience in the construction sector provides clients with confidence 
when they award a contract because the contractor will have a track record on the 
jobs that they have performed in the past. Thirty-five per cent of the respondents 
indicated that they have less than three years experience in the construction industry; 
20% of them have experience of between 3 and 5 years, followed by 21% with 
between 6 and 10 years experience; and the rest (with experience of between 11 and 
15 years, and 15 years or more) are made up by 12% each.  
The other study that was done by Thwala and Mofokeng (2012) indicated that 40% of 
those in the construction sector have experience of between 6 and 10 years, and 12% 
of them have experience of more than 15 years. 
62 
 
Educational qualification
33.33
32.14
21.43 21.43
20.24
19.05 19.05
15.48
10.71
7.14
PRIMARY SCHOOL MATRIC POST MATRIC DIPLOMA BACHELOR'S 
& LOWER CERTIFICATE DEGREE
highest educational qualification
highest educational qualification for your management
 
Figure 4.13: Highest educational qualification 
 
It is anticipated that the higher the level of small and medium contractors education 
the more skills they will have in managerial positions. Figure 4.13 shows the 
qualification of the owners and management of the respondents. Further, 33.33%, 
which represents one-third of the respondents indicated that they have matric; 21.43% 
of them have a diploma, followed by bachelor’s degree and diploma with 19.05%; and 
7.14% of the respondents have a primary school qualification.  
It is evident that this is a group of educated people who are educated hence the 
assumption that they are aware of methods of running a company in relation with 
experience. 
The results concur with the results that were discovered at Mbombela Municipality, 
where it was indicated that 23% has matric, 13% has a post-matric certificate, 33% 
has a diploma, while 27% has a bachelor’s degree (Aigbbavboa & Thwala, 2014). 
The management of the SMEs pointed out that 32.14% has a diploma, followed by 
21.43% with matric, 20.24% with a post-matric certificate, and those who have a 
63 
 
bachelor’s degree and primary school qualification are made up of only 15.48% and 
10.71% respectively. The relevance of the qualification in the construction industry 
was not addressed in the study. The results support the issues that construction is 
taken as another business venture of interest (Aigbbavboa & Thwala, 2014). 
In another study conducted by Amra et al. (2013), the results were indicated that 
approximately 70% of individuals employed in the informal sector have lower than 
matric, and only 4% of them have matric or higher. The construction sector is affected 
negatively by low skills, as the majority of the employees do not possess most of the 
skills required. It level of education or training in is low 
It is clear that the success and growth of a business depend on the level of skills the 
owner or management possesses. It is indicated in the figures that follow that a 
business whose owners have less skills are not doing well, as they cannot be able to 
overcome the barriers that they face in business. 
 
Does your company have adequate cost 
and accounting systems in place?
23%
Yes
No
77%
 
Figure 4.14: Adequate cost and accounting systems in place 
 
64 
 
It is demonstrated in Figure 4.14 that 77% of the respondents have adequate cost and 
accounting systems in place, whereas 23% does not have systems in place and uses 
consultants for the required services. A proper cost and accounting system is crucial 
for the company because it directly deals with the finances of the company. Using 
consultants assists the respondents even though such an avenue is costly for them. 
The results contradict with the response where the contractors have cash flow 
problems more often. It was not determined in the study that if the systems are 
available whether they are being used properly.   
 
Is the estimating and procurement done 
properly?
8%
Yes
No
92%
 
Figure 4.15: Estimating and procurement  
 
Figure 4.15 highlights that 92% of the respondents feel that estimating and 
procurement is done properly, and only 8% feels that it is not done properly. 
Consultants are used when the costing is done for tendering. The problem with the 
estimating that are not correct is that the respondents are not completing the projects 
that they are doing and it is affecting their cash flow negatively. 
65 
 
How often does the company have cash 
flow problems?
47.62
27.38
11.90 13.10
Never Rarely Often Always
 
Figure 4.16: Cash flow problems 
 
Construction companies are driven by cash flow to run sufficiently and if the cash flow 
is negative it spells out problems. Figure 4.16 indicates that 47.62% of the respondents 
have cash flow problems often; 27.38%, rarely; 13.10%, always; and 11.90% never 
had cash flow problems. Cash flow problems can affect the company negatively, as 
the company can be liquidated if it cannot pay its creditors. Several studies that were 
conducted indicated that SMEs view cash flow as a major challenge in developing 
their companies. Other studies indicated that 38% of SMEs are experiencing high cash 
flow problems (Ejon & Mbohwa, 2015). 
66 
 
Does your company get work in other 
provinces outside the Free State?
35.71
33.33
23.81
7.14
Never Rarely Often Always
 
Figure 4.17: Work in other provinces outside the Free State 
 
It is common in the construction industry that a construction company will market and 
get the work outside their geographical area. Figure 4.17 reveals that 35.71% of the 
respondents are only getting contracts in the Free State; 33.33% rarely gets contracts 
outside the Free State; and 23.81% often gets contracts outside the Free State. On 
the other hand, 7.14% always gets contracts outside the Free State. This is an 
indication that companies are not marketing themselves, and they are afraid of 
competition. 
 
4.3.4. Challenges in implementing projects 
The challenges that are faced by the contractors when implementing projects will now 
be discussed. Results represent one of the secondary objectives that highlight the 
challenges that are faced by the contractors in implementing projects as discussed in 
Chapter 1. A Likert scale was used in these questions, ranging from 1 for no extent to 
5 for very large extent. 
67 
 
Challenges and problems when implementing 
construction projects I
39.51
37.04
33.33
28.4029.63 27.16
23.46
19.7518.52
16.05
13.58
8.64
4.94 0.00 0.00
LACK OF CASH FLOW LACK OF BUSINESS LACK OF FINANCIAL 
MANAGEMENT MANAGEMENT
To no extent To a small extent Moderate To a large extent To a very large extent
 
Figure 4.18: Challenges in implementing projects – 1 
 
Figure 4.18 illustrates that the SMEs are facing many challenges while implementing 
projects. 39.51% of the respondents indicated that they are moderately affected by the 
cash flow when they implement the projects. Further, 29.63% of the respondents 
indicate that they lack business management skills, while 27.16% lacks financial 
management skills. 
 
68 
 
Challenges and problems when implementing 
construction projects II
41.98
35.80 37.0434.57
32.10
29.63
22.22 22.22
16.05
8.64
3.70 6.17 4.94 2.47 2.47
LACK OF ESTIMATING LACK OF PROJECT PLANNING LACK OF SKILLED PEOPLE
To no extent To a small extent Moderate
To a large extent To a very large extent
 
Figure 4.19: Challenges in implementing projects – 2 
 
Moreover, Figure 4.19 shows that 22.22% of the respondents moderately lack skilled 
people. Also, 34.57% of the respondents lack project planning to a small extent, 
whereas 41.98% of them lack when it comes to estimating. The respondents indicated 
that they do have the costing estimate. 
 
4.4. Chi-square tests 
Chi-square tests are used to examine the relationship or association between two 
nominal (i.e. categorical) variables. Variables can be either independent or dependent 
of each other. The null hypothesis is that there is no association between two variables 
(the variables are not correlated). The alternative hypothesis is that there is an 
association between the two variables (variables are correlated). The conclusion is 
based on the p-value (reported in the Table 4.5), which is compared to a significance 
level of 0.1 (other options are 0.05 and 0.01). If the p-value is less than 0.1, the 
conclusion is that there is an association between the two variables in question (the 
two variables are correlated). If the p-value is greater than 0.1, the conclusion is that 
69 
 
there is no association between the two variables in question (two variables are not 
correlated). 
Table 4.5 on the following page shows a number of variables and significant 
associations that are highlighted in bold. There is a significant, dependent association 
that exists between education and lack of business management as indicated by the 
p-value of 0.006. The relationship between skills and employment is reflective of the 
general economy. It is assumed that a person with a higher level of skills is likely to 
succeed than a person with less skills.  
Brijlal et al. (2013) indicates that the quality of skill that the owner of the business 
possesses plays a critical role, as it will assist in overcoming barriers that the business 
might face in order to survive and achieve sustainable growth. Brijlal et al. (2013) also 
confirms that the majority of business owners who do not have skills in the business 
are less likely to run their business successfully.  
Period of operation was cross-tabbed with grading and education to determine if there 
was an association between these variables. From Table 4.6 on page 73, it can be 
noted that 56.3% of the owners or managers of the SMEs that operated for more than 
10 years have a bachelor’s degree, and 57.1% of them have matric and operated for 
between 0 and 3 years.  
It is indicated that the 29.8% of the SMEs have been operating for between 4 to 5 
years, followed by 26.2%, which represents companies that have been operating for 
between 0 and 3 years. More than 50% of the companies that have been operating 
for between 0 and 3 years are still on Grade 2, and 24.1% of the companies that have 
been operating for between 6 and 10 are still on Grade 2. It shows that the number of 
contractors can increase, but the growth in terms of the grading is stagnant.   
70 
 
Table 4.5: p-values for selected variables 
Work Government Lack of Lack of Lack of Lack 
Cash flow Payment outside policies business financial project of 
Variables 
Problems  period the management management planning skilled 
province people 
How long (years) has the 0.000 0.557 0.002 0.405 0.128 0.168 
0.132 0.026 
company been in operation? 
How many partners in the 0.038 0.207 0.806 0.635 0.777 0.499 
0.633 0.169 
business? 
0.000 0.794 0.004 0.018 0.014 0.016 
What is the current grading? 0.001 0.327 
Does the company 
0.032 0.514 0.232 0.765 0.557 0.233 
participate in the Contractor 0.493 0.115 
Development Programme? 
Did the company receive 
0.133 0.001 0.977 0.255 0.654 0.006 
any funding from 0.331 0.069 
government? 
How many years does the 
0.000 0.069 0.155 0.035 0.342 0.003 
company have experience in 0.059 0.011 
construction industry? 
What is the highest 0.001 0.001 0.006 0.437 0.098 0.003 
0.012 0.001 
educational qualification? 
 
 
What is the highest 
0.003 0.133 0.014 0.466 0.002 0.035 
educational qualification for 0.000 0.000 
management? 
Does the company have 
0.041 0.168 0.007 0.106 0.000 0.071 
adequate cost and 0.112 0.303 
accounting systems? 
Is the estimating and 0.854 0.557 0.779 0.018 0.001 0.656 
0.504 0.361 
procurement done properly? 
72 
 
4.5. Cross-tabulation 
The frequency of two variables at a time is determined using cross-tabulations, also known as two-way frequency tables.  
Table 4.6: Tenure*current grading 
      Current_grading Total 
      Grade 2 Grade 3 Grade 4 Grade 5 Grade 6 Grade 7   
Between 0-3 Count 16 1 3 0 0 2 22 
years 
% within Current_grading 55.2% 5.9% 50.0% 0.0% 0.0% 14.3% 26.2% 
 
Between 4-5 Count 4 12 1 2 5 1 25 
years 
% within Current_grading 13.8% 70.6% 16.7% 50.0% 35.7% 7.1% 29.8% 
 
Between 6-10 Count 7 3 2 0 5 2 19 
years 
% within Current_grading 24.1% 17.6% 33.3% 0.0% 35.7% 14.3% 22.6% 
 
More than 10 Count 2 1 0 2 4 9 18 
years 
% within Current_grading 6.9% 5.9% 0.0% 50.0% 28.6% 64.3% 21.4% 
 
Total Count 29 17 6 4 14 14 84 
  % within Current_grading 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 
          
 
 
73 
 
Table 4.7: Education 
  Education 
Total 
   
  
Primary 
  Post-matric Bachelor’s 
school & Matric Diploma   
  certificate degree 
lower 
  
Count 1 16 4 1 0 22 
Between 0-3 years 
% within Education 16.7% 57.1% 25.0% 5.6% 0.0% 26.2% 
Count 1 6 4 9 5 25 
Between 4-5 years 
% within Education 16.7% 21.4% 25.0% 50.0% 31.3% 29.8% 
Count 2 6 5 4 2 19 
Between 6-10 years 
% within Education 33.3% 21.4% 31.3% 22.2% 12.5% 22.6% 
Count 2 0 3 4 9 18 
More than 10 years 
% within Education 33.3% 0.0% 18.8% 22.2% 56.3% 21.4% 
Total Count 6 28 16 18 16 84 
  % within Education 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 
         
 
  
74 
 
Table 4.7 demonstrates that companies that have been operating for longer are likely 
to employ more skilled workers. Also, 56.3% of workers with a bachelor’s degree are 
employed in companies that have been operating for more than 10 years, while 31.3% 
of them are employed in companies that have been operating for between 4 and 5 
years. 
How a company employs will depend on the management of the company and the 
running of the company. The company can operate for a few years but still manage to 
employ skilled labour with qualifications or operate longer and not be able to employ 
skilled and qualified workers. The latter point is supported by the companies that have 
been operating for between for 6 and 10 years and that have only employed 12.5% of 
people with a bachelor’s degree.  
Table 4.8: Funding*cash flow problems cross-tabulation 
 Cash flow problems Total 
   Never Rarely Often Always  
Funding Yes Count 0 0 3 0 3 
% within Cash 0.0% 0.0% 7.5% 0.0% 3.6% 
flow problems 
No Count 10 23 37 11 81 
% within Cash 100.0% 100.0% 92.5% 100.0% 96.4% 
flow problems 
Total  Count 10 23 40 11 84 
% within Cash 100.0% 100.0% 100.0% 100.0% 100.0% 
flow problems 
 
Table 4.8 reveals that 96.4% of the respondents never applied for funding, and only 
3.6% applied for the funding. Additionally, 92.5% of the respondents that are not 
applying for funding often have cash flow problems. Moreover, 7.5% of the 
respondents that received funding are often confronted with cash flow problems. 
 
 
 
75 
 
4.6. Responses from government entities 
4.6.1. Department of Economic Development, Small Business, Tourism and 
Environmental Affairs (DESTEA)  
The respondent from the DESTEA indicated that they have a program that is assisting 
SMMEs by providing assistance to micro-enterprise in the form of grants. The 
assistance or support is not provided in monetary terms but through the purchasing of 
essential equipment needed to keep the micro-enterprise viable. 
The above-mentioned programme is targeting the micro-enterprise sector, as well as 
cooperatives. The program is still faced with the challenges as it just been 
implemented. The department assist all sectors but there is no monitoring tool in place 
to ensure that the companies are sustainable after receiving assistance.  
4.6.2. Small Enterprise Development Agency (SEDA) 
The respondent indicated that their policies are aligned with the Strategy for the 
Development and Promotion of Small Business. The Free State province has an 
annual training target of 1 500 entrepreneurs per annum.  
SEDA do not have the programme that is aligned to the contractors such as Contractor 
Development Programme. Their training are not tailor made for one sector as they 
want to address all the SMEs. 
The government should ensure that big construction companies sub contract smaller 
companies and this can be done by ensuring that no fronting takes place, access to 
funding from government institutions, transfer of skills.   
The respondent indicated that lack of financial management skills, inadequate skills 
and knowledge, costing and pricing are affecting the SMEs to grow. Lack of 
understanding business environment in which they operating. 
They do help companies develop, they empower the companies with necessary skills 
to operate business, like costing and pricing, marketing, operational requirements, and 
compliance with the relevant legislations in that specific industry 
76 
 
SME’S can help solve the problem of unemployment, they are in a better position to 
employ people whilst they are growing, expanding and identifying new opportunities 
in terms of the market and in the process more people can be employed 
Challenges faced with training of SMEs: 
 Occasionally invitees do not attend training even after confirming availability to 
attend training. 
 Level of education is not matching training provided. Trainees are either lacking 
basic education to understand content or the training content being too basic 
for other trainees) this includes understanding of language of instruction. The 
modules are in English and the presentation is done mostly in English. 
 There is no evidence of trainees starting businesses or improving their 
businesses after attending training. There is also no follow-up from Seda to 
monitor progress and to encourage implementation of the knowledge gained. 
 Assessment tests are not always conducted to evaluate understanding of the 
training content remains unknown. 
 Unsuitable venues and other facilities that are not conducive for training 
purposes especially in the townships are often the only options available and 
are used for training purposes. Poor lighting of the venue; lack of functional 
ablution facilities; lack of enough and suitable desks and chairs.  
 Different age groups being trained in the same classrooms. Training is delayed 
because the elderly people tend to absorb the training content at a slower rate 
than the younger people. 
4.6.3. Industrial Development Corporation (IDC) 
The respondent from IDC indicated their policies are aligned with the Strategy for the 
Development and Promotion of Small Business. They assist SME with funding almost 
all the sectors involved in the manufacturing and value-adding activities, except for 
construction and transport. 
The respondent indicated that their process of processing the application can take 2 
– 6 months due to the verification that is supposed to be done on the businesses. IDC 
77 
 
has the post investment department that is doing the monitoring after they have funded 
the project to ensure that the companies are sustainable. 
Own contribution was identified as one of the challenges by IDC as it is about 40% 
and more often SMEs do not have such contributions. 
4.6.4. Small Enterprise Finance Agency (SEFA) 
The respondent indicated that they assist SME with funding. They have assisted 67 
companies in the pasts two years with the funding. The programme do assist with the 
developing of companies.  
The challenges that were identified by respondent are as follows: 
 Lack of coordination between government entities 
 Long process of filling application and documents required 
 Marketing of the available services is considered to be poor because the 
information is accessible on the Internet and pamphlets provided at the office. 
4.6.5. Construction Industry Development Board (CIDB)  
The respondent indicated that their policies are aligned with the Strategy for the 
Development and Promotion of Small Business. CIDB assist the contractors by 
training in order to improve their gradings. They facilitate training, contractor 
development implementation and funding through partnerships with industry 
stakeholders.  
The respondent indicated that there is a need for financial management, skills training 
and regulations such as Contract Law is required in order to improve the construction 
sector. 
The respondent also identified monitoring as a challenge as it is not done after 
assisting the contractors due to lack of staff and no proper monitoring tool.  
The SMEs can assist government in solving to reduce the unemployment. 
78 
 
4.6.6. Department of Public Works 
The Department of Public Works is the department that has a tailor made program in 
developing the SMEs in the construction sector. The respondent from Department of 
Public Works indicated that they have 100 companies that are on the Contractor 
Development Programme.  
Contractors in the development programme are trained to a higher CIDB level where 
they will be able to sustain their business through sourcing and marketing for job 
opportunities. The program assist contractors as they mentored from Grade 3 
(General Building) to Grade 7.  
The SMEs will be able to create more job when they can be allocated long terms jobs 
with sufficient and sustainable funding when required. 
Government should rather provide projects for contractors that are going through 
theoretical training and job opportunities that are aligned with mentorship for 
sustainable development.   
 
The respondent indicated the following as the challenges they meet during the 
implementation of the programme: 
 Contractors are not committee in the program as they send junior officials to 
the meeting. 
 Attitude of some of the contractors towards the mentors. 
 
4.7. Conclusion 
The findings of this study were discussed in this chapter in order to determine that the 
objectives of the study were achieved. The results indicate that the majority (34.5%) 
of the SMEs in the construction sector are on a Grade 2 as per CIDB grading and 
59.5% of them are in the field of general building.  
79 
 
The high percentage of 47.62% of SMEs that have cash problems support the 
literature study that indicated that SMEs are still facing challenges that are affecting 
their growth. Cash flow affects the running of the business. As the SMEs are not able 
to pay their creditors, eventually, they are inevitably liquidated. 
The delay in receiving payment from clients such as government was also highlighted 
as affecting the company negatively because they cannot be able to complete their 
projects and pay their labourers. The government does not stick to its policy of 30-day 
payment from date of invoice.  
Lack of business management is also affecting the SMEs in construction, as their 
owners and managers cannot run their businesses successfully. The SMEs does 
employ skilled workers. However, even though the sector employs more unskilled 
workers, there is still a need for project managers or engineers.  
The construction sector is showing growth, as the government is investing largely in 
capital expenditure. However, the growth of individual companies in terms of moving 
to a higher grade is very little. 
The other challenges faced by the SMEs include awareness, as the SME are not 
aware of the programmes that are driven by government. The results have shown that 
government intervention is limited. The final chapter will consider the conclusions and 
recommendations of the study. 
  
80 
 
CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 
5.1. Introduction 
The background that motivated this study was the rate of high failure rate of SMEs 
despite the fact that government is assisting. The purpose of the study was to 
determine the role of government in ensuring that the SMEs become sustainable in 
the construction industry in the Free State. The primary objective of this study was to 
determine the role of government in developing sustainable SMEs in the construction 
sector. In achieving the objectives, a literature review was conducted in understanding 
the SME sector in general in South Africa, the contribution by SMEs in the construction 
sector, the role that SMEs are playing in assisting to reduce unemployment, and the 
challenges that are affecting the growth of SMEs.  
The research was conducted in order to obtain primary data to determine the role of 
government and factors that are affecting the growth and high failure rate of SMEs in 
the construction industry. Secondary objectives also determined the impact of 
employment where companies are not growing to higher gradings.  
The analysis of results that were obtained through questionnaires that were sent to 
owners and managers in the construction industry was discussed in the penultimate 
chapter. This chapter presents the conclusions of the field study that is guided by the 
study objectives and findings. The recommendations are based on the results of the 
study. The significance and limitations of the study will also be discussed in detail. 
5.2. Summary of the theoretical findings 
The findings  
In order to conduct the investigation of the problem statement of main research topic 
and to answer the objectives they were as follows: 
Objectives: 
 To determine factors that are affecting the growth of SMEs in the Free State in 
the construction industry; 
81 
 
 To assess programmes in place to support the small and medium contractors 
in the Free State; 
 To determine the interventions that are necessary in order to address 
challenges that are affecting the growth of SMEs; and 
 To investigate strategies that can be employed by small and medium 
contractors in countering challenges and increase employment in this sector. 
Based on the first objective of the study “to determine factors that are affecting the 
growth of SMEs in the Free State in the construction industry” whereby: 48.81% of the 
respondent indicated that it takes more than a month to receive money from their 
clients after issuing invoices; 47.62% indicated that have cash flow problems; low level 
of education as 33.33% of responded have matric only; 70.6% have been in operation 
for more than 4 years but they are still in Grade 3 and 96% of respondents never 
receive the funding from government. 
The second objective “to assess programmes in place to support the small and 
medium contractors in the Free State”. The study revealed there are Contractor 
Development Programmes that available in the Province but 64% of the respondents 
are not aware about the programmes that available as they did not participate in those 
programmes. The respondents from government indicated that they do not have 
monitoring tool in place to ensure that the contractor 
The third objective “to determine the interventions that are necessary in order to 
address challenges that are affecting the growth of SMEs”. It has been revealed in the 
study that there is a lot of intervention that is required from Public Sector and Private 
Sector. 
The intervention by Public Sector 
• Develop guidelines to direct private sector interventions to high impact 
initiatives 
• Consolidation of various pockets of enterprise development funds into one port 
to be jointly managed by the department 
82 
 
• Develop programmes to encourage the entrepreneurial culture from basic 
education level 
• To develop monitoring tool that will assist government entities to monitor after 
providing assistance to ensure sustainability 
The intervention by Private sector 
• Raise awareness within Supply Chain Managers 
• Expand Enterprise, Supplier Development Programmes and incubation to build 
capacity of SMEs 
• Include them in database as preferred suppliers and provide them with 
procurement opportunities 
• Increase access to knowledge/information on existing  procurement 
opportunities 
The last objective “to investigate strategies that can be employed by small and medium 
contractors in countering challenges and increase employment in this sector”. The 
study revealed that the contractors can overcome the challenges by 
 Taking part in the skills development programmes 
 To request government to intervene in expediting the payments 
 To market their companies and be more competitive 
 
5.3. Research conclusions 
The primary objective of the study was to determine the role of government in 
developing sustainable SMEs in the construction sector as indicated in the 
introduction. It has been that the role of government in developing the SMEs in the 
construction is minimal as the failing rate is still high which is supported by 64% of the 
respondents that are not participating in the programmes offered by government. 
Government institutions that have been established to assist SMEs in terms of 
information, training and financing are not visible to ensure that the majority of the 
83 
 
SMEs that are operating in the province are aware of them and where their offices are 
situated. This is limiting the SMEs in obtaining information and is affecting them 
negatively. 
Cash flow was one of the greatest challenges that were indicated by the majority. It is 
the one that can make or break the company and that can lead to liquidation or not 
being able to complete projects.  
The following challenges are faced by SMEs and are affecting their growth:  
 lack of business management skills 
 access to funding from government institutions 
 delays in receiving payment from clients such as government departments 
 lack of collateral when applying for finance 
 policymakers are failing to distinguish the needs of SMEs in different sectors 
when they design programmes 
 failure to grow to higher gradings 
 lack of access to technology 
 inability to pay high levels of skilled employees 
 
5.4. Other findings 
The SMEs are not aware of the opportunities that are provided by government 
institutions and the private sector, as they are still failing. One of the challenges 
currently facing South Africa is the shortage of skilled construction workers and lack 
of education. Lack of education and experience are impacting negatively on the 
success of businesses in the construction industry, and they sometimes lead to the 
failure of more businesses.  
Projects are not completed because they are given to companies that do not have 
experience in the construction due to cash flow problems. Delays in receiving 
payments from clients also lead to incomplete projects.  
84 
 
5.5. Recommendations 
The research findings indicated that there is a need for the South African construction 
industry to address the challenges that are faced by small and medium contractors.  
This section indicates the recommendation that will help SMEs: 
 Government should make more funds available in order to roll out the 
programmes of ECDP to both public and private institutions where the private 
institutions can be incentivised to become more involved; incentives can be in 
the form of tax rebates or preferential status on the evaluation of tenders. 
 The CIDB and government should develop a programme of screening people 
who want to be construction contractors as there is no system currently in place 
and any person can just register.  
 The timetable for development and mentoring programmes should be 
developed for the financial year and advertised early so that all the small and 
medium contractors can have information in advance, as they are not aware of 
the programmes that are available for their development. 
 Government should put strict rules on companies, departments and 
municipalities that are not paying the contractors within the prescribed period 
of 30 days. 
 Performance and skills should be some of the criteria for registering on the 
database of the CIDB, as they will improve in enabling contractors to grow in 
the construction market.  
 The training should also focus on women to assist them in improving their low 
level of education, as their level of involvement has been relatively low. The 
training should be tailor-made for each industry in addressing the specific 
challenges that are facing the industry. 
 Thus, the EPWP must be planned to address the issue of unemployment in a 
holistic manner. To achieve this, both government, training institutions and the 
85 
 
private sector must work together in the skill revolution for the betterment of the 
country. 
 The companies in the construction sector must develop an intensive marketing 
strategy in order to target the private sector also and not only government jobs. 
 The private and public sectors should set specific goals, where each 
organisation establishes clear goals on the percentage they will spend per 
annum on small and medium contractors. The goals should be in the SMART 
principle, where they are specific, measurable, attainable, realistic and time-
bound. The focus should be shifted from the old approach, where there is a 
huge database of contractors with little work opportunities forthcoming to any 
single one and where the smaller group could access opportunities. The 
opportunities will allow the contractors to progress from sub-contracting within 
a certain period to being main contractors, and this can be done on a rotational 
basis to give all the contractors opportunities. 
 The intervention of training and development of small and medium contractors 
by government is required, as it will assist them in improving their management 
skills and enable them to run their businesses successfully and sustainably.   
5.6. Significance of the study 
The study has revealed that despite the government’s role, SMEs are still facing 
challenges that are preventing them from growing. The companies indicated that they 
did not receive assistance from government except the workshops on training, which 
are sometimes not helpful, as there are no follow-ups. SEDA provides training that is 
not categorised according to the sectors in order to address specific needs but offers 
only general training, which proves to be an impediment because sectors have 
different challenges. The training is only provided for two days, and there is no follow-
up after that to determine if there was any implementation. 
5.7. Limitations of the study 
The study was subject to limitations that are as follows:  
86 
 
 The study population was SMEs in the construction sector. 
 The study was concentrated on the construction sector in the Free State. 
 The study was only done from Grading 2 to 7 as per CIDB gradings. 
 The reasons for the companies that failed, expired and suspended were not 
determined.  
The above-mentioned limitations motivate that the study could not be generalised. 
5.8. Further research 
The research can be investigated further in the following areas:  
 the opportunity in researching the reasons for the failing businesses  
 the performance of the companies where the owners have relevant 
qualifications in construction as compared to owners without qualifications 
 to determine if there is a correlation between qualified business owners and the 
success of the business 
 to determine if gender has an impact on business growth  
 to find out the reasons and problems that are causing clients or government 
departments to take long in paying contractors 
 
 
 
 
 
 
87 
 
 
5.9. Conclusion 
The conclusions are made from the primary data results as presented in Chapter 4 
about the role of government. It is concluded that SMEs are still facing challenges that 
need attention from government. The recommendations that will assist in building the 
SMEs to increase employment were provided. The other challenges that are still facing 
the SMEs were mentioned, and they can be researched further in order to assist 
government in improving the services that it provides. This study has clearly 
highlighted the role of government in developing sustainable SMEs in the construction 
sector in the Free State province. Therefore, the study has made a contribution to the 
existing body of research relating to the research area of this study. 
 
  
88 
 
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95 
 
ANNEXURE 1 
PART A: BACKGROUND OF THE COMPANY 
This section of the questionnaire focuses on the background of the company. 
1. Gender 
Male 1  
Female 2  
 
2. How long (years) has the company been in operation? 
Between 0-3 years     1  
Between 4-5 years     2  
Between 6-10 years     3  
More than 10 years     4  
 
3. How many partners are in the business? 
Between 1-5     1  
Between 6-10     2  
More than 10     3  
 
4. In what category is your business registered? 
Mechanical engineering – ME 1  
General building – GB 2  
Electrical engineering works – building – EB 3  
96 
 
Civil engineering – CE 4  
Landscaping, irrigation & horticultural works – SH 5  
Steel security fencing or precast concrete – SQ 6  
Electrical engineering works – infrastructure – EP 7  
Fire prevention & protection systems - SF 8  
 
 
5. What other type of work does your company do? 
General buildings 1  
Civil works 2  
Road & earthworks 3  
Other (specify) 4  
 
6. What is your current grading with the Contractor Industry 
Development Board (CIDB)? 
Grade 2 1  
Grade 3 2  
Grade 4 3  
Grade 5 4  
Grade 6 5  
Grade 7 6  
 
 
 
97 
 
7. How many employees are currently employed by your company?  
______________________________________________________ 
 8. How many employees in your company are registered under the 
following categories? 
Construction project manager 1  
Construction manager 2  
Quantity surveyor 3  
Architect 4  
Civil engineer 5  
 
9. In your opinion, how can the construction industry can solve 
unemployment? 
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________ 
 
10. Does your company participate in the Contractor Development 
Programme provided by Public Works? 
Yes 1  
No 2  
 
If yes, what are the benefits of those programmes? 
98 
 
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
_________________________________________________________________ 
If no, why? 
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________ 
 
11. Are there any problems that were identified during those programmes? 
(Please mention in detail the specific problem) 
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________ 
 
12. Did the programme improve in developing the company? 
___________________________________________________________________
___________________________________________________________________
99 
 
___________________________________________________________________
_________________________________________________________________ 
13. Which courses have you attended in the last two years? 
Construction Management 1  
Business Management 2  
Project Planning 3  
Tendering 4  
Finance Management 5  
Health and Safety 6  
Risk Management 7  
Other, please specify 8  
 
 
14. Did your company receive any funding from government? 
Yes 1  
No 2  
 
 
If yes, describe in detail 
Source of funding Year Amount How did you spend the 
money? 
    
    
    
100 
 
 
 
If no, why not? 
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________ 
 
  
101 
 
PART B: COMPANY OPERATIONS 
This section of the questionnaire focuses on the operations of the company. 
15. How many years does the company have experience in the 
construction industry? 
Less than 3 years 1  
Between 3-5 years 2  
Between 6-10 years 3  
Between 11-15 years 4  
More than 15 years 5  
 
16. What is your highest educational qualification?  
No Education 1  
Primary School 2  
Grade 12 (Matric) 3  
Post-matric certificate 4  
Diploma 5  
Bachelor’s Degree 6  
Other, please specify 7  
 
  
102 
 
17. What is the highest educational qualification for your management? 
No Education 1  
Primary School 2  
Grade 12 (Matric) 3  
Post-matric certificate 4  
Diploma 5  
Bachelor’s Degree 6  
Other, please specify 7  
 
18. Does your company have adequate cost and accounting systems in 
place? 
Yes 1  
No 2  
 
If no, what system are you using for costing? 
 
 
19. Is the estimating and procurement done properly? 
Yes 1  
No 2  
  
103 
 
If no, how is the procurement done?  
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________ 
20. How long does it take to receive payment from the client? 
Less than 7 days 1  
Between 7 and 14 days 2  
More than 14 days but less than 21 days 3  
1 month 4  
More than 1 month 5  
 
21. How often does the company have cash flow problems? 
Never 1  
Rarely 2  
Often 3  
Always 4  
 
If yes, please specify reasons for cash flow problems 
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
_________________________________________________________________ 
 
104 
 
22. Does your company get work in other provinces outside the Free 
State? 
Never 1  
Rarely 2  
Often 3  
Always 4  
 
If yes, which provinces 
___________________________________________________________________
_________________________________________________________________ 
 
23. How do government policies, regulations and legislation affect your 
company? 
Positively 1  
Negatively 2  
 
Please specify 
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________ 
 
  
105 
 
24. To what extent do you encounter each of the following challenges and 
problems when implementing construction projects? Please indicate 
your answer using the 5-point scale:  
 
 To no To Moderate To large To very 
extent small extent large 
extent extent 
 
Lack of cash flow 1  2  3  4  5  
Lack of business 
1  2  3  4  5  
management 
Lack of financial 
1  2  3  4  5  
management 
Lack of estimating 1  2  3  4  5  
Lack of project 
1  2  3  4  5  
planning 
Lack of skilled 
1  2  3  4  5  
people 
 
25. List the main challenges and problems that you are facing in running the 
company. 
________________________________________________________________
________________________________________________________________
106 
 
________________________________________________________________
________________________________________________________________ 
26. What can government do in order to promote greater involvement in the 
South African construction sector? 
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________ 
 
Thank you for your assistance in completing this questionnaire! 
 
 
 
 
 
 
 
 
 
 
 
 
107 
 
ANNEXURE 2 
The Questionnaire will only be used for this research purpose only. 
1. NAME OF THE ENTITY: 
FDC 1  
DESTEA 2  
IDC 3  
NEF 4  
SEFA 5  
CIDB 6  
PUBLIC WORKS 7  
 
2. RESPONDENT’S POSITION: 
CEO 1 
 
CFO 2  
MANAGER 3  
 
3. Are your policies aligned with the Strategy for the Development and 
Promotion of Small Business? 
Yes        1  
No        2  
 
 
 
 
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4. How many companies participate in the Contractor Development 
Programme? 
1 – 100 1  
101 – 200 2  
201 – 300 3  
301 – 400 4  
401 – 500 5  
More than 500 6  
 
5. How do you assist companies in improving their CIDB gradings? 
Training 1  
Mentoring 2  
Funding 3  
 
6. What can government do in order to promote greater involvement in the 
South African Construction sector? 
___________________________________________________________________
___________________________________________________________________ 
 
7. What kind of assistance do you offer to SME? 
Training 1  
Funding 2  
Mentoring 3  
109 
 
Other, please specify 4  
 
Other, please specify 
___________________________________________________________________ 
___________________________________________________________________ 
___________________________________________________________________ 
 
8. How many companies have you manage to assist in the past two 
years? 
1-100 1  
101 – 200 2  
201 – 300 3  
301 – 400 4  
401 – 500 5  
More than 500 6  
 
9. Are there any problems that were identified during those programmes? 
(Please mention in detail the specific problem) 
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________ 
110 
 
10. Do you do the monitoring after assisting SME to ensure 
sustainability? 
Yes 1  
No 2  
 
If No, why? 
___________________________________________________________________
___________________________________________________________________ 
11. Do the program improve in developing the companies? 
___________________________________________________________________
___________________________________________________________________ 
12. Are you assisting all the sectors? 
Yes 1  
No 2  
 
If No, which sectors are you assisting? 
___________________________________________________________________ 
13. In your opinion, can SME solve unemployment? 
___________________________________________________________________
___________________________________________________________________ 
Thank you for assistance in completing this questionnaire 
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