JOHANNESBURG – I really do not know which economist coined the phrase, but it’s largely accepted that a technical recession is when a country has two successive quarters of economic contraction.
At school we were taught the simpler definition (the nuts and bolts version), that a recession is a significant decline in economic activity, evident in less income, less sales, less production and less employment.
One of my lecturers, some seven years ago, quoted Ronald Reagan as saying that “recession is when your neighbour loses his job, depression is when you lose yours and recovery is when Jimmy Carter loses his”. The moral of the story is that a recession, technical or otherwise, is not good for any country.
But it’s not all bleak, especially for start-ups…
According to Forbes Opinion, start-ups, with their inherent agility, can take advantage of a weaker economy and come out on top. From day one, start-ups operate an inherently lean business model, while maximising value for customers.
While economic uncertainty is never a desirable situation, some of the world’s greatest businesses started during a downturn or recession. Importantly, many reports suggest start-ups are some of a developed country’s greatest employers, as they scale to become big companies in their own right.
Recessions create problems. They also slow investment in innovation down. Consumers and businesses are looking for solutions to problems which present opportunities for start-ups to solve. A start-up built during the tough times is designed from the ground up to be a lean, mean, efficient machine – whether they’ve bootstrapped or not.
These habits should stay with them when the market recovers, giving them higher profit margins since they’ll be able to lift prices once consumers and clients are spending again.
Consumer confidence
If one can build and grow a business when consumer confidence is down and businesses are tightening their belts, then the business will be bulletproof when things improve.
As a country, South Africa can also lessen the impact of a recession by focusing more on its local start-up environment, with initiatives such as:
- High impact investment in Agri start-ups. There are many start-ups and small businesses that are conducting great, sustainable farming initiatives. Our country needs to help scale these farms by investing capital in them to enable exports and increase job creation.
- Define what products/services are being consumed. Our resident research adviser Dr Pali Lehohla is a huge advocate of consumption and production. His famous quote is that “no country will ever be successful if the country does not understand in detail what is being consumed, who consumes this and who produces this”. By taking heed, South Africa has a high chance of expanding production opportunities into these industries, thereby increasing manufacturing and job creation. China’s understanding of the production and consumption model will be a great lesson for South Africa.
- Invest in technology. Technology is the key driver in nearly every industry imaginable. Investment is the primary enabler to get our tech start-ups with proven sustainability up and running quickly to scale. Most of our tech start-ups in South Africa need as much help and support from the government and private sector to scale.
- Help SME’s to participate more in the mainstream economy. SME’s may be small in size, but they’re big in impacting our economy. Most studies conducted in various developed countries prove that 40 percent of a country's total job creation comes from small businesses. South Africa, too, will not survive without them. The government should start channelling a far larger portion of its supply chain contracts to SMEs. The fact remains that big business, even with more sales/production, scares away from creating additional jobs in their companies.
- Help citizens to be more productive. How can our labour system be more flexible to allow people to have two jobs? This is the case in many developed countries, where people work flexible hours and have two jobs to help make ends meet. Employees are feeling the brunt of staying in one regular 9am to 5pm job that doesn't pay great – and can also be done in half the time – creating an opportunity to move on to their second job.
Some might argue that the unemployed would gladly be a nine-to-fiver, but that’s not the point here.
This challenge is that we’re not producing as much as we could with the skills we have. So how can the skilled be used wisely to produce more?
Any type of recession presents a complicated economic landscape, which ultimately affects every South African in some way.
For start-ups, there are a lot of reasons it might be a great time.
Smart start-ups should begin taking advantage of new opportunities and unique needs presented by the economic downturn. And with the country’s fiscal help, which is crucial, small businesses can definitely help turn the economic tide for the better.
Kizito Okechukwu is the co-chairperson of Global Entrepreneurship Network (GEN) Africa; 22 on Sloane is Africa’s largest start-up campus.
The views expressed here are not necessarily those of Independent Media.