Opportunity Issue 97

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BUSINESS SA’s SMME emergence New research from the BeyondCOVID Business Survey paints a bleak picture for the future of South Africa’s small business sector one year on from when the Covid-19 pandemic hit the country. Specialist management consultancy Redflank conducted the BeyondCOVID Business Survey between July 2020 and March 2021, surveying nearly 4 500 companies, more than half of which were SMMEs. SMMEs play a crucial role in job creation and growth, being identified as a productive driver of inclusive economic growth and development. “In South Africa, the small business sector is a critical part of the national economy, with the government’s National Development Plan 2030 looking to SMMEs as a major source of employment and stimulator of growth, reducing unemployment against a backdrop of a formal sector that continues shedding jobs,” says Fay Mukaddam, chairperson of BeyondCOVID. The results of the BeyondCOVID Business Survey point to a vastly different reality. Lings Naidoo, director at Redflank and BeyondCOVID co-founder, says: “SMME respondents indicated that they plan to retrench an average 13% of their staff – or 1.2-million people – in the next six months, against a 5% figure for corporates. At face value, businesses appeared to be in a slightly better position this year, but closer examination showed that this applies only to corporates. The situation is worsening for SMMEs.” 34 | www.opportunityonline.co.za While 44% of corporates indicate that they have returned to “business as usual” mode this year, the comparative number for SMMEs was a 15% drop. While large and small businesses were equally at risk of closure at the start of the lockdown one year ago, SMMEs are now 26 times more likely to have to shut shop, the survey found. “We plan to use our business networks within the private sector and government to leverage funding and investments, commercial and otherwise,” Mukaddam A SNAPSHOT OF THE FINDINGS • 21% businesses closed (64% expect to reopen) • 54% currently operating below capacity • 41% planning to retrench staff over the next six months • 33% expressed the need for funding over a six-month period in order to continue trading over the next year • Businesses expect recovery to pre-Covid-19 levels to take six months longer now (3.5 years) compared to their projection of three years at the onset of the pandemic • 5% are cash positive now (up from 2% at the start of the pandemic) • 57% have staff working from home (dropped from 74% in July 2020) • 61% willing to allow staff to continue working from home post-pandemic • The ICT, financial services and real estate sectors have the most people working from home, and agriculture, transportation and construction sectors the least. Sectors that are worst impacted, according to the survey, include accommodation and food; arts, entertainment and recreation; water and waste management; construction and education. Sectors where corporates are improving but where SMMEs are still struggling are cited as agriculture and construction.
BUSINESS says, adding that their overall aim is to provide enabling services and technology to make small businesses more robust, sustainable and bankable. To this end, BeyondCOVID has engaged professional associations including the South African Chamber of Commerce and Industry, Kisby SME Fund and others as strategic partners, to deliver on key objectives. SMME SURVIVAL SOLUTIONS “There is a rich abundance of knowledge, skills and expertise in our SME sector – all of which have played an essential role in SMEs being able to adapt to survive the pandemic. Part of this is that we have had to move away from a ‘business as usual’ approach and realise the need to learn from the lessons that the past year has taught us to plan and prepare for the future,” says Trevor Gosling, CEO of small business service provider Lulalend. Gosling says that SMEs need to understand how their customer base and needs have changed, which includes the competition. “These shifts are important to consider, especially if you want your marketing efforts to yield the maximum results. If your customer base or their needs have changed, it is important that SMEs focus on building new relationships to deliver repeat business in the future.” Owners should consider how hastily streamlined processes and drastically slashed overheads can be refined to create a new, efficient and cost-effective business model that can still deliver the best goods and services to their customers. Combining this with the advantages of applying digital technology can set a business owner on the road to recovery. While most companies have been moving online over the past few years, the pandemic has shifted this into overdrive. He says that there is no turning back. “People have now gotten used to living in a digital world.” As part of the planning, it is essential that time is taken to analyse what can be done to reduce financial constraints in the year ahead. In addition to this, access to capital to invest in growing or pivoting the business will be crucial. Despite some of the advances being made, Gosling says that small businesses are often held back by poor cash reserves or a lack of funding. “According to a recent TransUnion survey, almost 50% of SMMEs listed access to funding as the main barrier to growth. The reality is in most instances, traditional lending options aren’t always available to small businesses. “Small businesses need to be cautious and have a contingency plan,” Gosling points out. “With the current market volatility, they need to ensure that they manage their cash flows and build up sufficient cash reserves to improve their liquidity.” “In many developed and developing economies, SMMEs generally account for over 90% of all formal businesses. They contribute significantly to GDP and create and sustain lots of jobs in those countries. In South Africa, while 98% of formal businesses are SMMEs, they make a far smaller contribution to employment and GDP. “If we are to achieve the goal of the National Development Plan for SMMEs to create at least 90% of the targeted 11-million new jobs by 2030, we need to pay far closer attention to developing small businesses. “One of the key elements of the Economic Reconstruction and Recovery Plan is localisation, and we expect SMMEs and co-operatives to play a central role in driving localisation. They are nimble and have great insights. To enable SMMEs and co-operatives to meet the potential demand, our Manufacturing Scheme is supporting these enterprises to build capacity to supply products in the right quality and quantity.” President Cyril Ramaphosa Virtual engagement with SMMEs and cooperatives, 25 February 2021 “It starts with having the capital they need, when they need it, to achieve their short- and long-term goals. Not only is this important for their business growth, but it is also just as important for the country’s economic growth,” says Gosling. “It is important that SMEs talk to their credit providers about access to funding, including a revolving credit facility to help manage their cash flow.” While South Africa’s economy took a series of blows over the last year, business owners remain confident that things will slowly start to stabilise in 2021. This was reaffirmed with South Africa’s SACCI business confidence index rising to 93.4 in November of 2020 from 92 in October, above pre-pandemic levels. According to Gosling, a large part of the country’s growth this year will be dependent on SMMEs. “Despite the impact of the Covid-19 pandemic, the remarkable ability of these businesses to adapt to change has helped them evolve and ultimately survive. Companies were resilient, optimistic and innovative, trusting that, although the situation will not improve considerably in 2021, it will be able to at least start stabilising.” _____ __ ___ __ _ _ _ _ _ _ _ __ There is a rich abundance of knowledge, skills and expertise in our SME sector – all of which have played an essential role in SMEs being able to adapt to survive the pandemic ___ __ ___ __ _ _ _ _ _ _ _ _ _ _ www.opportunityonline.co.za | 35
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Opportunity Issue 97

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