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

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.