Almost 90% of businesses hurt by unrest were SMMEs – survey

A total of 89% of businesses impacted by the recent unrest in the country were SMMEs according to the latest NPC BeyondCOVID survey. These businesses also suffered the most under the lockdown restrictions that were in place since March last year.

The key findings of the survey, done shortly after the riots by specialist management consultancy Redflank during July, specifically investigated the impact of the riots on businesses across various sectors and found that:

• only 6% of impacted businesses are open as usual
• 51% of impacted businesses in KwaZulu-Natal and Gauteng have closed
• 7% of these businesses have closed permanently
• 44% have closed temporarily
• 89% of the businesses impacted are SMMEs
• 46% of impacted businesses do not have insurance
• 10% of the staff at impacted businesses were retrenched
• 8% of businesses had their premises completely destroyed.

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SMMEs create most jobs

The impact on SMMEs is important, because this sector provides more than 70% of the jobs in a country where almost a third of the population is unemployed. These small businesses stand to lose a staggering R3.4 billion a month in revenue as they try to resume operations, and will also need at least R16 billion in operational funding to recover.

SMMEs were already battling to get access to markets and affordable funding during the pandemic and they now face a 63% drop in revenue since looters destroyed their businesses. According to BeyondCOVID’s second survey results released in March 2021, SMMEs already had to deal with a massive drop in revenue since March last year.

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Challenge to reopen

It will be a considerable challenge for many small businesses to reopen, since 62% of those impacted did not have business insurance, with only 5% that had business interruption insurance. Therefore the BeyondCOVID board, led by adv. Fay Mukaddam, is engaging with government, the private sector and civil society to grow BeyondCOVID into a national cause.

“While government and large business interests are critical to the success of BeyondCOVID, it is also true that all citizens can contribute and we are making available avenues for crowd funding contributions, along with the innovative approach to derisk SMME collectives and related funding partnership opportunities,” says Mukaddam.

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Bigger businesses also struggling

Unfortunately, it is not only SMMEs that need help.

The latest survey, based on 1 070 responses from informal, micro, small, and large businesses, shows that the unrest has left businesses across sectors in dire financial straits.

“As expected, the most affected businesses are in KwaZulu-Natal, where 76% of the participants said they have been affected in some way. In Gauteng, the percentage is slightly lower at 54%, but this is still more than half of businesses in the country’s commercial and economic hub,” says Lings Naidoo of Redflank.

“It is alarming that more than half (51%) of the affected businesses in Gauteng and KwaZulu-Natal have either closed permanently (7%), or temporarily (44%). The impact of these closures has a significant impact on the economy and the livelihoods of communities in those areas.”

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Only 6% back to business

Naidoo says it is particularly worrying that only 6% of businesses affected during the riots are back to business as usual. “Businesses have been forced to retrench, on average, 10% of their staff and for SMMEs, the retrenchments are even higher, at 11% of the workforce.”

He points out that damage to property was extensive. “Our survey showed that 42% of the businesses reported damage to their premises and 8% said they have lost everything. Their premises were completely destroyed.”

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These businesses were mostly affected

Businesses in the retail, accommodation and food, health, and social services sectors were mostly affected.

Naidoo says nobody can forget the looting and vandalising of the South African National Blood Service in Durban, indicating that the unrest affected not only businesses, but the provision of health care as well.

He estimates the total cost of the damage to property, based on the extent of the destruction listed, is about R126 billion. “SMMEs are looking at damage of about R55 billion, while the cost to informal businesses alone is R4 billion.”

The stock of more than a third (39%) of the businesses surveyed was looted and more than half (55%) of those that lost revenue through looting were large corporates. It will take six to eight months for damaged businesses to repair their premises, while others say it will take around five months to get back to business.

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Role of insurance

Bigger businesses are in a better position than SMMEs because 73% of the respondents indicated they have some cover. However, even in this group, one in four will have to reopen without the income compensation offered by business interruption insurance.

All revenue dropped across sectors by 59% since the riots, with informal businesses trying to deal with a decrease of up to 70%.

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A lifeline

With the country currently in the grip of the third wave of the pandemic, it is clear that affected businesses need an urgent lifeline. “Unfortunately, it is impossible to help all businesses at once, but the SMME sector particularly requires attention.

BeyondCOVID will help by initially focusing on several key sectors to build momentum before expanding to other industries, but its goal is firstly to grow the number of small business collectives and provide a safe harbour for small businesses, Mukaddam says.