Impact of Crime on Small Businesses Report 2008 - Gauteng Online

THE IMPACT OF CRIME ON SMALL BUSINESSESIt seems likely that crime also has a deterrent effect on new business entrants. TheSouth Africa victim’s survey found that over a quarter <strong>of</strong> those interviewed saidthat they would not start their own business because they feared violent crime. 3Christopher Stone, in a paper based on his work on AsgiSA, observes that: ‘Whilethere is broad agreement that high levels <strong>of</strong> violent crime constrain growth, there isvery little known about how it does so and by how much… The South Africangovernment itself routinely lists the high level <strong>of</strong> crime, particularly violent crime,as an impediment to growth. Yet the evidence is much weaker about specificallyhow crime constrains growth. On this question, there are many hypotheses and fewcertainties.’ 4To date, studies assessing the impact <strong>of</strong> crime on business have tended to focus onthe large corporate sector. The specific problems <strong>of</strong> the small and emerging sectors<strong>of</strong> business have been less intensively considered. International studies have foundthat while small and micro firms are less likely to be targeted by criminals than largerfirms, when they are victimized, their costs are proportionately much higher. 5Big businesses can provide a relatively robust assessment <strong>of</strong> the costs <strong>of</strong> crimebased on insurance data. In contrast, the proportion <strong>of</strong> small businesses with insuranceagainst criminal acts is relatively low. Evidence from international researchalso suggests that SMEs are very likely to under-report crimes to the police.Given the importance <strong>of</strong> small business as a driver <strong>of</strong> economic growth and jobcreation, particularly in developing countries, the extent to which crime deters theformation and sustainability <strong>of</strong> small enterprises needs to be clearly understood. Itis also important to understand the links between a more vibrant small enterprisesector and reduced crime. To quote Martin Feinstein writing in Business Report:“A society where entrepreneurs are highly valued and supported, where small businessesflourish and where young people can put their energies into starting businessesbecause they see it as a viable and feasible option, will be a society wheremore people see options other than crime.” 6In 2007 the Policy Co-ordination and Advisory Services (PCAS) unit in the Presidencyrequested SBP to undertake research that would provide a better understanding<strong>of</strong> the extent to which crime impacts on small enterprises, and more particularlyon emerging black-owned businesses. An objective, quantifiable assessment <strong>of</strong> theactual and efficiency costs <strong>of</strong> crime for small businesses was a key requirement.The study was funded by USAID under the SEGA II programme.The research was undertaken between May and October 2007, and involved closeconsultation with key stakeholders throughout the project. A reference group wasestablished, comprising representatives <strong>of</strong> The Presidency, the South African PoliceService, the National Secretariat for Safety and Security, the National Prose-8