An investigation into the financial challenges faced by SMMEs in the construction industry in Gauteng

Abstract

SMMEs in the South African construction industry make a significant contribution to the industry, but face several challenges, including access to sufficient finance. Government financial support for the industry has been found to be limited. This study, therefore, seeks to examine the financial challenges confronting SMMEs in the Gauteng construction industry. This study is significant in the sense that the construction industry makes a major contribution to the economy. The success of the industry is, therefore, essential in the interest of the country.

This study was quantitative, descriptive and cross-sectional in nature and the target population was all SMMEs in the Gauteng construction industry, estimated to be 10 480. Using a sampling frame, systematic sampling was employed and a sample size of 533 was employed. A questionnaire formed the basis for the empirical study, comprising six themes, viz., demographic characteristics, financial assistance and support, financial management skills, financial resources, access to finance, and financial bootstrapping. The data was analysed using SPSS (Version 27).

It emerged that the industry was dominated by male contractors, with the vast majority of businesses being relatively young, and having under ten employees. Most contractors faced challenges in obtaining finance and many resorted to bootstrap financing. Contractors believed that they had the necessary financial knowledge levels to run their businesses. Most respondents were of the view that government has not provided direct financial and financial related support. The study introduces a path diagram for the modified Structural Equation Model that emerged from the findings. Based on the findings, several recommendations have been made for contractors themselves, the private sector, government, policy makers and other stakeholders, with a view to supporting the industry.

These include the encouragement of woman established and owned businesses who can be put through a government and private sector funded incubation program to develop and support their growth until they have the capacity to operate independently. The establishment of a construction bank has also been proposed, which could aid the financial challenges faced by SMMEs in the construction industry.