By Rentia Mahoney
DURING the State of the Nation address in February this year, President Cyril Ramaphosa announced that the government is taking far-reaching measures to unleash the potential of small, micro and informal businesses.
The President told the nation that discussions have already commenced reviewing labour market regulations for smaller businesses to enable them to hire more people.
I will explore various aspects of importance for this sector in our economy.
Department of Small Business Development, Minister Stella-Ndabeni-Abrahams is pleased with the announcement of a new, redesigned loan guarantee scheme, which will be introduced to enable small businesses to bounce back from the devastating effects of the Covid-19 pandemic, as well as the civil unrest that engulfed KwaZulu-Natal and parts of Gauteng in July 2021.
Small and medium sized organisations (SMEs) are the backbone of local communities and serve as the engine-room for employment (specifically among youth) in South Africa. SMEs constitute the largest part of the economy and have the potential to create a considerable number of jobs in South Africa.
They drive growth and innovation and assist to keep the economy in motion. They leverage their agility to design and innovate modern technologies and business models to build a better future towards growth and prosperity.
According to a report, “An assessment of South Africa’s SME Landscape” by Adclick Africa, 47 percent of SMEs employ between one and five people, 39 percent of SMEs have only one employee and 39 percent of SMEs employ more than five people.
Registering with the Companies and Intellectual Property Commission (CIPC) is a requirement for businesses that want to work within the formal sector. An encouraging 89 percent of SME owners that were surveyed have registered with the CIPC.
According to Statistics SA, the number of persons running informal businesses declined from 2.3 million in 2001 to 1.1 million in 2009 before increasing to 1.5 million in 2013. And more than 95 percent of the owners of such businesses had only one business.
Two metrics determine the size of a business:
– The number of employees: (full time paid employees, or the equivalent of full-time paid employees). Small businesses must have between 10 and 50 employees, and medium sized enterprises can have up to 250 employees.
– Total turnover: Turnover ceilings range up to R220-million, being the maximum for a wholesale company to qualify as medium-sized enterprise, and a turnover of up to R5-million as an example for a catering company to qualify as a micro enterprise.
(Note that the asset value of a company no longer serves as criteria)
SMEs across South Africa represent more than 98 percent of businesses, employ between 50 percent and 60 percent of the country’s workforce across all sectors, and are responsible for a quarter of job growth in the private sector.
SMEs face several challenges that require attention, particularly during Covid-19 pandemic:
– Limited access to funding is constraining growth
– Only 6 percent of SMEs received government funding, and only 9 percent had sourced funding from private sources. The lack of funding is significantly adversely affecting business growth.
– A lack of finance knowledge and an awareness of opportunities (where funding is available) also remains a barrier. As an example, SMEs are not making use of payment relief for PAYE and the Unemployment Insurance Fund.
An ongoing struggle for SMEs is to connect with potential buyers and clients. It is critical for SMEs to access the right market to sell its products or services.
Business owners experience difficulties to motivate and empower staff. The simplicity of, and often flat-line structure of SMEs gives rise to problems such as a lack of management structure, designated decision making and key performance indicators. A lack of sufficient financial knowledge and related financial controls have an enormous adverse effect on SMEs.
Possible solutions for the challenges that SMEs face may include:
– Cashflow management and prioritisation of financial planning needs to be implemented. Implementation of financial operational and strategic structures; business owners to make the best use of available capital to scale their operations.
– Government support in the form of making funds available for SMEs which need to be effectively deployed by the SMEs and utilised. Government’s support for SMEs is critical for the growth and sustainability of SMEs and South Africa’s economy.
– Leveraging technology to reach new customers. SMEs can enhance their reach and efficiency at lower costs through digital and modern technologies, and therefore focus on their competitiveness.
– Enhance market strategies by not only focusing on one or two large customers, and increase market share, thereby reducing risk. SMEs could focus on potential new client bases or create a niche offering. Furthermore, SMEs can focus on efficiencies, track tasks, and improve its visibility in the market.
SMEs could also create more capacity for growth and strategy to ensure sustainability, by developing team skills and capabilities. This will allow leadership to distribute workload and operate more effectively.
Rentia Mahoney is an independent analyst
BUSINESS REPORT ONLINE