Small firms adapt or die in lockdown
The harmful economic effect of the pandemic has seen small businesses lose out, but others have been able to survive by changing to suit the times
Mpumelelo Mtintso, the founder of the bicycle tourism company Book ibhoni, believes it’s unlikely that the domestic tourism season will resume this year.
The Soweto-based tour company had already experienced dwindling bookings in the weeks leading up to the initial 21-day lockdown at the end of March. It was during that period when Mtintso and his team of five cyclists decided to use their bicycles to deliver essential goods around Johannesburg so that they would survive the lockdown.
Mtintso said Book ibhoni, which mainly runs township heritage tours on bicycles, only had a few overhead costs before the outbreak of Covid-19. This ensured that the company maintained a strong balance sheet and was able to pay its obligations for the month of March. But the company’s revenue began to decrease as soon as the travel bans began to be implemented by governments around the world.
For deliveries in Soweto, the company charges a standard fee of R15 for 5km travelled, while deliveries in other parts of Johannesburg cost R10 for 5km travelled. All the income goes to the cyclists.
The highest amount one cyclist has received for deliveries during the lockdown is R100. This is far less than what cyclists would get under normal circumstances. But, says Mtintso, “It’s the least we can do to feed ourselves.”
Although most sectors of the economy are expected to be permitted to operate fully when the country transitions from level four to level three of the lockdown on June 1, the tourism sector will be left out of the eased restrictions.
The company has applied for relief funding through the government’s R200-million allocation for the distressed tourism sector, but is yet to receive a positive response regarding the application.
Like Book ibhoni, small businesses in the country are looking for ways to survive the pandemic. They are adapting their business models and offering products and services so that their employees can get back to work.
For Vincent Viviers, who is a cofounder of the on-demand delivery app Bottles, the pandemic has presented the company with the opportunity to expand its services from only delivering liquor to becoming “the fastest growing delivery app” in the country.
Bottles, Viviers says, is not only surviving the pandemic, it is thriving. This is because the company already had the systems and networks in place to adapt when it was required to.
“Small businesses are really great at being more agile and resilient in the face of crisis. Unlike big businesses, they are not married to the old ways of doing things and are therefore able to make the necessary changes,” he says.
The company has seen triple the amount of sales since it launched its grocery delivery services in April. At a time when many small businesses are facing closure and having to let go of its employees, Bottles has hired an additional eight people on top of the 18 permanent employees to deal with the volume of orders it receives daily.
Now that liquor will be permitted to be sold from June 1 when the lockdown restrictions are eased, the company will be a fully-fledged grocery and liquor store delivery platform, Viviers says.
But not all small businesses have been able to adapt to the trying times. In April, Statistics SA interviewed 707 small businesses regarding their operations during the pandemic and the lockdown. Of the businesses polled 90% said they had experienced reduced turnover and almost two-thirds of the respondents said the economic effect of the pandemic would be worse than the 2008-2009 financial crisis.
A second survey by Statistics SA found that as the initial lockdown was extended, 47.9% of business closed temporarily or paused activity.
In the first survey, 38.8% expected to implement layoffs as a temporary measure. This response increased to 45.6% in the second survey.
Fintech company Yoco’s small businesses experienced a 92% drop in turnover in April, according to data from a financial platform for small business.
In the three weeks since the move to level four of the lockdown, small businesses have recovered 44% of their pre-lockdown turnover.
The private and public sector have set up various initiatives to keep small businesses afloat.
In May the South African Reserve Bank and the treasury partnered with local commercial banks and launched a R200-billion credit guarantee scheme for distressed small businesses. This is in addition to the overall R2.5-billion earmarked by the government and its agencies for small and medium-sized enterprises and informal sector operators.
The department of small business’s development agency, the Small Enterprise Finance Agency (Sefa) has so far received 35865 applications of which 14 451 were fully completed. A further 21414 of the applications have been referred to the Small Enterprise Development Agency. Sefa has approved 1 497 applications worth R513-million.
The public and private sector support programmes have seen an influx of requests for help but funds have rapidly depleted.
The small business department says Sefa will require an additional R4.4-billion to fund the balance of the 12 954 complete applications. The South African Future Trust, which was set up with seed funding of R1-billion from the Oppenheimer family, has already been exhausted.
Thando Maeko is an Adamela Trust business reporter at the M&G