Research combed to bolster SMEs
A wealth of survey material can offer clues to the way forward for small and medium businesses. By
The lockdown has reinforced the importance of SMEs in the SA economy — and their vulnerabilities. This has resulted in an avalanche of research that risks being overwhelmed in the noise. Now the Small Business Institute (SBI) is analysing this research in an effort to provide policymakers with a clear picture of what SMEs really need if they are to grow and thrive.
The government’s latest economic development proposal, the South African Economic Reconstruction and Recovery Plan, which is due to be finalised at a Cabinet meeting this week and adopted urgently, puts the development and support of SMMEs as one of the centrepieces of the policy.
This is critical. Around the world, SMEs contribute disproportionately to their country’s economy and employment, with small businesses driving innovation and growing up into large businesses. It is in these small to medium businesses that future organic growth opportunities are found.
Not so in South Africa. Even before the pandemic, the number of active small businesses had declined dramatically. At the end of 2019, the number of liquidations in this sector was up 10% on 2018. The economic cataclysm precipitated by the lockdown has simply accelerated that trend.
The SBI, with support from miner Exxaro, has embarked on a programme to analyse the situational environment for small businesses of South Africa, to identify the activities, barriers or mindsets holding these businesses back, and make policy recommendations.
“There is no point to layering clever, forward-looking initiatives on top of a foundation impeding business growth,” says Jennifer Cohen, SBI head of policy and research. “Ultimately, we will make recommendations to support small businesses, whether formal or informal, to rebound and grow, ensuring greater economic activity and money flowing into the economy.”
Conducted by small business research experts SBP, the intention is to review the findings and proposals from government, government agencies, academics, NGOs and business on the economic impact of the coronavirus over the next five months.
The research will look at what is happening in two districts – one in the Free State, one in Mpumalanga – examining historical challenges for businesses and those wrought by the economic devastation of Covid-19.
SBP has reviewed more than 160 surveys and papers published since April — and the information stemming from this research has been published in this note.
Pre-Covid there were about 267,959 formal businesses in SA, all employing one or more people. This number has not grown since 2004. Of these, micro, small and medium enterprises (employing between one and 250 people) constitute by far the majority of SA’s business sector – 98.5%. This is drawn from a study conducted by the SBI in 2018.
The GEN 22 on Sloane survey conducted early in lockdown estimated that 55,000 SMEs would not survive extended lockdown. They reckon there could be 423,000 potential job losses in the small business segment.
Recent surveys from May onwards by Nedbank, Visa, the SA SME Finance Association, Genesis and consumer credit organisation Transunion amplify these concerns. The research notes that while UIF support has been life-saving, government’s loan relief support to South African small businesses failed miserably. Of R200-billion set aside for business assistance, only R13-billion had been lent by government, assisting about 10,000 businesses by August.
SASFA reported that by May, 47% of SMEs had applied for government relief and 32% were successful, implying only 15% of SMEs with turnover below R10-million per annum had any support. The dismal performance has much to do with obligatory compliance measures to access government’s loan relief, says Cohen. Qualifying businesses had to be South African-owned and employing a 70% majority of South Africans.
Informal traders and township businesses unable to trade for months in the hard lockdown stages were required to obtain a licence to operate from the local municipality; register with the CIPC, the revenue authority SARS and Unemployment Insurance Fund.
“This is time-consuming and difficult to do under normal circumstances, nearly impossible in a hard lockdown,” says Cohen.
In June, the Minister of Small Business Development — charged with dispensing the government’s loan relief — reported that her department had formalised more than 2,242 spaza shops during Covid-19, processing applications from another 4,406. These represent less than 3% of the 150,857 FMCG retailers in townships mapped by market researchers Frontline and AfricaScope.
It would seem government focused more on formalising informal businesses than on providing financial aid to distressed businesses during lockdown. A Small Enterprise Foundation survey found this to be the case.
Understanding barriers to growth for informal township businesses is important to SA’s economic future. Since lockdown, government seems to have awoken to the importance of this sector as an employer.
Speaking at a CDE-organised webinar on the subject, Frederick Fourie, Professor and Senior Research Fellow in the Department of Economics at the University of the Free State, said that an estimated two million informal enterprises operated in SA in 2019, employing three million people. Of this, almost 400,000 businesses provided paid employment to 1.2 million people.
“The informal sector is a potent creator of jobs and needs to be supported,” he said.
The research, which aims to be concluded by January, will examine four key areas, notably the concept of “formalisation” of informal businesses and what this means in a new world; the principles of localism and whether the government’s new district-based planning model offers opportunity for a “bottom-up” approach to economic development and recovery.
In addition, SBP will present recommendations to resolve the regulatory systemic hurdles that have impeded small businesses to start, run and grow and will also delve deeper into the digitalisation of SA’s economy and the opportunities this presents for small businesses.
The research is evidence-based and one hopes that policymakers and big business will constructively engage with the recommendations.
Ultimately we will make recommendations to support small businesses, whether formal or informal, to rebound and grow, ensuring greater economic activity