While it’s no secret that South Africa’s SMEs have fallen on hard times, recent research has revealed the degree to which government and the banking sector have failed South Africa’s small, micro and medium-sized businesses.
In a recent review, The Small Business Institute (SBI) complied research from an unprecedented 160 research papers, surveys and studies into the impact of COVID-19 and the National Lockdown on small businesses.
SMEs Before the Pandemic
For context, South African SMEs haven’t been on a firm footing for many years. According to Sasha Planting of the Daily Maverick, before the pandemic arrived on our shores, approximately 267 000 small businesses were each employing between one and two-hundred-and-fifty people in the formal sector. This number has not changed since 2004.
A 2018 study conducted by the SBI revealed that these businesses account for 98.5% of the South African business sector. Planting also notes that liquidations in this sector at the end of 2019 increased by 10% on the previous year, indicating the fragility of South African business.
That was before the coronavirus hit South Africa. The subsequent lockdown that followed interrupted supply chains and caused a dramatic drop in demand for goods and services, severely impacting liquidity and resulting in job losses, pay cuts and low consumer confidence.
Small businesses are the foundation of successful economies, as is the case around the world. They drive innovation, inspire competition and offer more organic growth opportunities than big business and corporates. With this in mind, one would think that these young, vulnerable companies would be the first to receive aid from the powers that be.
How is Government Supporting SMEs?
While government did set aside aid for these businesses, the report from SBI entitled “Reflections of COVID-19 on Small Businesses in South Africa”, conducted by small business research experts SBP, revealed a disparity in the relief promised by government. While R200 billion was allocated for business assistance, only R13 billion was lent by government to approximately 10 000 businesses by August 2020.
Moreover, The SA SME Finance Association (SASFA) reported that only 15% of SMEs who generate a turnover of R10 million per year received support.
This was largely due to the criteria businesses needed to meet to receive aid, namely that only South African owned businesses with a workforce of 70% South Africans in their employ would qualify.
The SBI estimates that this approach of providing exclusionary debt relief, rather than grants to promote the future solvency of SMEs, will result in the closure of 55 000 SMEs, many of which have already succumbed to the challenges they’ve faced in 2020.
Red Tape Hindering the Informal Trade
In the informal sector, traders and township businesses needed to obtain a license from the municipality to continue operating. Additionally, these businesses were required to register with the CIPC and the UIF, a lengthy and time-consuming process which became even more of a bureaucratic nightmare during Lockdown.
But probably the most telling tale in the saga of government’s failed attempts to uplift SMEs occurred in the Department of Small Business Development. According to the SBI, the department seemed to focus more on formalising South Africa’s spaza shops through an application process tailored towards data collection, rather than providing financial aid.
Even so, despite their misdirected efforts, the department only attended to 3% of the 150 857 township FMCG retailers recorded by Frontline/AfricaScope.
Big Banks Loan Relief Schemes
South Africa’s big banks haven’t fared much better with their attempts to aid SMEs. While the Banking Association of South Africa (BASA) announced that big banks provided R45.56 billion in financial relief and loan guarantees, R12.96 of which went to businesses while the remaining R19.34 billion was allocated to individuals. Loans granted under the COVID-19 Loan Guarantee Scheme reached R13 billion – missing the mark of the R100 billion anticipated by the National Treasury.
Furthermore, loan schemes are a short-term solution that drives up debt and poses yet another financial challenge for small businesses going into the future. Some may even argue that these loan relief schemes have become an easy way for big banks to ensnare weakened and vulnerable businesses with nowhere to turn.
“The overwhelming conclusion after sifting through everything we’ve learned from this remarkable output is that South Africa’s SMMEs were brutally smacked.”
What’s Next for SMEs?
In his analysis of the review, SBI CEO John Dludlu said: “The overwhelming conclusion after sifting through everything we’ve learned from this remarkable output is that South Africa’s SMMEs were brutally smacked. Much more could have been done to coordinate a more considered, rapid, comprehensive and successful response to forestall the effect on these businesses, their owners, and employees.”
While the report touches on some positives, such as the growth of e-commerce in South Africa, the fact remains. During the most challenging time our economy has faced in the last century, those who hold all the cards turned their backs on the beating heart of our economy: small businesses.
For now, all SMEs can do is continue on the path they’ve been on for most of 2020. Hold on tight and hope that the research that has come to the fore through the SBI’s review, and similar initiatives, will drive some modicum of change and create realistic, actionable support programmes for South Africa’s most fragile businesses.
- Planting, S. “Small Business is Suffering from Analysis Paralysis”. Business Maverick (October 2020)
- The Small Business Institute. “Reflections on the Impact of COVID-19 on Small Businesses” (September 2020)
- The Small Business Institute (2020)“SBI releases situational analysis of the status of SMMEs in South Africa during Covid-19” [Press Release]. 6 October.