Sungula Nkabinde
THE OUTLOOK for South Africa’s small business sector is not as dire as indicated by statistics, which tend to exaggerate, according to Christo Botes, the executive director of specialist risk-finance company Business Partners.
Botes said statistical releases such as Adcorp’s Employment Index, which in February reflected that some 440 000 small businesses had closed over the past five years, exaggerated the actual situation on the ground.
For instance, he said, “when tendering for contracts at national, provincial and local government levels and at parastatals it is usually necessary to have a registered company, and in the past, businesses also needed to obtain a VAT number. As a result, thousands of companies are registered each year for tender processes, the vast majority of which will be deregistered should they fail to secure the intended contracts.”
Another explanation for the apparently high entrepreneur failure rate was that the Companies and Intellectual Property Commission (CIPC) regularly cleaned its register of firms that did not file their normal statutory returns in time. “Many of these deregistered companies have not been activated again as they were, in any case, not trading,” Botes said.
Companies that were registered as shelf companies, but never started trading, were also deregistered, mainly because of the cost of compliance – submitting returns and complying with international accounting standards and the new Companies Act. “As such, many businesses operating multi-company structures have consolidated their operations and deregistered any unnecessary entities,” he said.
Arthur Goldstuck, the manager of market research company Worldwide Worx, said more than 1 million companies had vanished from the CIPC database. According to Worldwide Worx estimates, there are now about 650 000 small and medium enterprises (SMEs) in South Africa. This figure, Goldstuck said, was consistent with those of other research organisations, yet the CIPC database reflected about 1.2 million.
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In turn, only half of those are active, so all these numbers must be seen in context,” Goldstuck said.
“Our 2012 SME Survey, due for release at the end of this month, shows that almost three-quarters of active, registered SMEs regard themselves as profitable, although only 65 percent believe they are competitive. The proportion of profitable companies has not fallen, but in recent years we’ve seen a 10 percent dip in the number that regard themselves as competitive – representing around 60 000 companies that have been pushed to the edge – although most of those are still breaking even or making a small profit.”
Botes said, however, that there were still challenges for SMEs, especially those that had survived the recent recession. Many companies that had dug into their reserves were cash-strapped now that the economy seemed to have begun its recovery.
Absa’s head of enterprise business, Oscar Siziba, said rising fuel and electricity costs, wage demands, low economic growth and uncertainty in the global economic environment made for a turbulent SME environment.
“These factors contribute to lower business confidence and lower credit demand… Although we are experiencing low interest rates… the disposable income of SMEs is being absorbed by the higher costs of doing business, lowering the demand for new credit,” he said.