Although South Africa has entered a technical recession, its already established SMEs have more to gain from improving business efficiency.
Although South Africa has entered a technical recession, its already established SMEs have more to gain from improving business efficiency.

How small businesses can thrive despite a recession

By Siphethe Dumeko Time of article published Dec 3, 2018

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Although South Africa has entered a technical recession, its already established small and medium enterprises (SMEs) have more to gain from improving business efficiency than trying to recession-proof their operations by downsizing staff and the like.

However, there is no denying that entrepreneurs who start a new businesses during this period of poor economic growth and low business confidence will face an uphill battle.

Procuring capital for a new venture is predicted to become more difficult as most funding institutions are expected to adopt an increasingly risk-averse stance. Finding those crucial first customers to bring the business to its feet could also prove more challenging.

With that said, there are still some opportunities for SMEs and below are some of the industries known to offer the best opportunities in a recession:

* Security. Whether it is real-world or cyber-security, both commercial and private asset owners become significantly more risk averse during times of economic recession and uncertainty. While spending in most other sectors decreases during a recession, security is one industry that tends to see increased interest.

The evolution of the private security industry in South Africa also proves this point. In spite of the continued under-performance of the country's economy in recent years, private security has become a R45billion industry with a growth rate of 15percent per annum, making it among the largest in the world.

South Africa has already seen a substantial increase in the number of start-ups in this market, and providing new tech-savvy solutions and more efficient support services in this sector may prove lucrative.

Similarly, the realm of cyber-security in South Africa is seeing increasing threats and heightened demand. However, the required skills remain scarce and businesses that offer solutions that can bridge this skills gap could see an increasing number of opportunities.

* Death care services. The estimated value of the funeral industry in South Africa is between R7.5billion and R10bn. Morbid as it may sound, businesses that offer services related to death - including funerals, cremation, burial, and memorials - are usually some of the most recession-proof operations.

That said, this is still a market that can become price sensitive during tough economic times, and service providers such as funeral homes often report that the demand for lower cost arrangements such as cremations usually increase.

Financial services related to the funeral industry also see increased interest as belts get tightened. It is estimated that the funeral insurance market in South Africa is worth more than R7bn in annual premiums.

* Education. Private education is a growing market and even in the tough economic conditions experienced in recent years, demand for more and better alternatives to the under-performing public education sector has increased significantly.

It is also reported that South Africa is experiencing skills shortages in almost all of its sectors, emphasising the need for service providers that offer more effective, affordable and accessible adult education. Businesses that offer accredited online training platforms have especially seen increasing interest in South Africa, as well as on the rest of the African continent.

The inherent advantage for SMEs is the fact that they have a lot of flexibility and are often in the best position to find new and innovative solutions to existing demand challenges. In a recession, this usually means finding ways of stripping down vital services and making them quicker and more affordable for clients.

Siphethe Dumeko is the chief financial officer at Business Partners.


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