Title: Measuring SME technical cost and allocative efficiency and its determinants in South Africa

Authors: Anthanasius F. Tita; Adefemi A. Obalade

Addresses: Faculty of Economic and Management Science, Department Finance, University of the Western Cape, Private Bag X17, Robert Sobukwe Rd., Bellville, Bellville South, 7535, South Africa ' Faculty of Economic and Management Science, Department Finance, University of the Western Cape, Private Bag X17, Robert Sobukwe Rd., Bellville, Bellville South, 7535, South Africa

Abstract: A question that has received little research in the empirical literature is whether small and medium-sized enterprises are efficient and what are the determinants of efficiency? We employ a two-stage efficiency analysis to measure the technical, cost and allocative efficiency of South African small and medium enterprises (SMEs) and their determinants. Our results showed that only 3.7% and 0.17% of the 588 SMEs analysed are technically and costefficient, respectively, with an overall average score for technical, cost and allocative efficiency of 84.7%, 70.8% and 94%. SMEs led by women are 3% points more cost and allocation-efficient than SMEs led by men. Cost efficiency emerges as the biggest challenge for SMEs' growth and survival, while foreign ownership, experience, and location are the major determinants of SME efficiency.

Keywords: technical efficiency; cost efficiency; allocative efficiency; non-parametric DEA; fractional regression; SMEs; small and medium enterprises; two-stage efficiency analysis; location.

DOI: 10.1504/IJMEF.2025.148106

International Journal of Monetary Economics and Finance, 2025 Vol.18 No.2/3, pp.176 - 186

Received: 19 Feb 2024
Accepted: 30 Oct 2024
Published online: 25 Aug 2025 *

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