Covid could create a new wave of entrepreneurs
One of the biggest questions for a post-Covid SA is whether small, micro and medium enterprises will have the recovery potential to again drive employment.
Sean Jackson, head of Business Cash Solutions at Investec Bank, said SMMEs have always been a jobs lifeline in SA’s economy, as well as strong contributors to the GDP.
“In fact, jobs provided by SMMEs increased to 10.8 million in 2019 Q1, accounting for 66% of economy-wide employment. But things have shifted. Debt, low confidence and stifled economic growth, further compounded by Covid-19, has seen enormous pressure being placed on small businesses, one of the hardest-hit sectors by the pandemic.”
A promising aspect in a future pandemic-free SA, said Jackson, is that of all the respondents of their recent client survey, 70% have reinvented themselves, focusing on providing innovative solutions to their customers’ new problems.
“Entrepreneurs do not have a template to work from. While on the financial side there are similarities to the 2008 economic meltdown, adding Covid-19 to the mix creates a brand new set of problems. And many SMMEs are fixing them.
“So, the question is, how do we plough back into the sector to reignite growth and is the sector strong enough to revive economic growth in a postCovid world as we head towards a sovereign debt crisis?”
He said that while it is early days, the massive layoff of skilled people, which might get even worse before it gets better, could create a new wave of entrepreneurs.
Through necessity, caused by job scarcity in the formal sector, many people could use their skills in building their own companies.
“If each of these hoped-for new enterprises managed to employ five people, it would go a long way to mopping up the unemployed.”
He said the biggest concern would be funding these new ventures, but the huge growth in work-from-home ventures, proved feasible by the pandemic, may reduce the need for finance. As will the boom in ecommerce.
He said the cash solutions side of Investec were down the road of remote work before the pandemic hit. The only drawback was connectivity in some areas.
“Fibre would solve the problem, but not for all.”
An advantage for start-ups is not having to employ full-time staff. The popularity, and acceptance, of the new “gig economy”, where people are contracted on a “project by project” basis, is that it offers flexibility for employers and short-term contractors.
A concern that hinders new venture growth is that most entrepreneurial spirits run businesses as Jacks and Jills of all trades, said Jackson.
“It’s a tough task, because inevitably there are skill shortfalls. We have assisted many of our clients overcome this by creating podcast interviews with highly successful entrepreneurs, who can pass on their experiences and knowledge to the people that need it. It is working really well, especially in uncertain times.
“We are also getting our message across regarding surplus cash. It is an area where many clients need advice. Several companies are actually thriving at this time. They are salting away money for future opportunities, but are putting it into low-yield investments. They would be better off consulting our team for other options. The term of the investment can be governed by when they will need the cash.”
Although BankservAfrica (BsA) data shows that the number of people losing salaries in June fell by 20.7% year on year, it reflects mainly government and large corporates employees, with a sprinkling of mediumsize firms.
It does not reflect the full impact of salary devastation on SMMEs. The middle-income band, many previously employed by now defunct SMMEs, has slid into poverty, using savings to exist.
While the private sector’s remuneration is markedly lower, civil servants have mostly avoided any drop.
In fact, said BsA, their unions are demanding higher remuneration. BsA said the civil service has swollen over the past decade, while their wages have tended to increase at a faster pace than those in the private sector.