New research from the BeyondCOVID Business Survey paints a dim future for South Africa’s small business sector.
26% of SMMEs report being forced to close their doors, 7% permanently, with forecasts that they expect to lay off a collective 1.2 million employees over the next six months.
Small businesses are also 26 times more likely to close than their corporate counterparts, requiring a hefty R1.1 trillion in relief funding if they have any hope of staying open over the next twelve months.
Specialist management consultancy Redflank conducted the BeyondCOVID Business Survey between July 2020 to March 2021, surveying nearly 4 500 companies, more than half of which were micro to small businesses.
A snapshot of the findings, which offer critical insights into the state of South Africa’s economy on the first anniversary of the hard lockdown, include:
- 21% of businesses polled are closed, although 64% of them indicated they do expect to reopen.
- 54% of businesses said they were currently operating below capacity.
- 41% of businesses are planning to retrench staff over the next six months. Construction, accommodation & food, manufacturing, and ICT are worst impacted, with the public sector, healthcare, and financial services least impacted.
- A third of businesses have expressed the need for funding over a six-month period 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.
- Businesses that are cash positive now number 5%, up from 2% at the start of the pandemic.
- The number of businesses with staff working from home has dropped from 74% in July 2020 to 57% now; up to 61% of businesses have indicated a willingness 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.
SMMEs play a crucial role in job creation and growth, being identified as productive drivers 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 1.2million 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.”
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.
“The results of the BeyondCOVID Business Survey in 2020 highlighted the challenges facing business across sectors, prompting BeyondCOVID to fine-tune its focus to help revive the hard-hit SMME sector as a way to stimulate job creation and contribute to the country’s overall recovery,” says Mukaddam.
“Initially, we were looking at the entire market and ways in which we could facilitate solutions. But we now want to be part of the solution, spurring job growth by opening access to funding, supply chains and markets,” she adds.
The goal is to help create an SMME sector that is less vulnerable and better able to ride out economic shocks. BeyondCOVID envisages achieving this via risk-sharing structures, or SMME Collectives, that offer these businesses safety in numbers and have dedicated the past few months to recruiting a board, amongst other key activities, with the calibre of credentials who will support the initiative.
“We plan to use our business networks within the private sector and government to leverage funding and investments, commercial and otherwise,” Mukaddam says, adding that the 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 Chambers of Commerce, Kisby SME Fund and others, as strategic partners, to deliver on key objectives.
“If they are organised into SMME Collectives supported by BeyondCOVID’s networks, services and technology, the risk is reduced and they become more resilient, thanks to being part of a bigger organisation that has the means they lack,” she concludes.