Small business can rise above adversity in perfect economic storm

Small businesses can rise above adversity in the perfect economic storm the country faces. The country’s economic trials also men that job losses increase, while graduates and the youth sit without employment.

At the same time, small businesses face rapidly increasing input costs as they turn to diesel, petrol and gas to cope with continued rolling blackouts that have become a daily part of our lives.

“Although we heard the amplified voices of big businesses about the current state of our nation, comparatively little has been said about the SME sector and the situation that small businesses face when they open their doors every day.

“It is an oversight that is not deserved. After all, these entrepreneurs, operating within and outside the formal economy, contribute about 34% to South Africa’s gross domestic product (GDP) and are vital to the growth of the nation’s economy,” Oscar Siziba, head of coverage for business banking at Standard Bank, says.

There are many reasons for this, he says. “SMEs serve defined customer niches and often operate where communities need services the most. They are also prime providers of employment opportunities, engaging between 50% and 60% of the national workforce.”

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Small businesses are where the customers are

In addition, because they operate where customers are, they also employ people from and around the communities where they operate, boosting local economies even further. Unfortunately, these SMEs are also among the most vulnerable when it comes to shouldering losses caused by load shedding, increasing interest rates and dwindling levels of discretionary income available to the people that form their customer bases.

Siziba says the lack of financial reserves and resources available to the more established corporate sector compounds their difficulties, while they are less able to cope with the drop in the value of the rand and the pressure this applies to input costs.

“However, fortunately for South Africa, our entrepreneurs are made of stern stuff. They survive and prosper, although about 39% of small business owners reported declining business productivity due to continuous rolling blackouts.

“In townships and informal economies, entrepreneurs continue trading, although about 65% are forced to ‘close shop’ during power cuts and sadly 66% had to reduce employee numbers to survive.”

As established entrepreneurs tackle their difficulties head-on, new green shoots of hope are breaking through the surface in the SME sector, Siziba says. ”For instance, during the first quarter of 2023, new business registrations increased by 10% compared to the same period in 2022.

“This uptick in registrations suggests that our people are taking charge of their futures. Instead of waiting for employment, they create opportunities for themselves and others. This true entrepreneurial spirit is good news for the country.

“It suggests that South Africans believe things will improve and are prepared to invest their hard-earned funds in building a new generation of businesses. Helping small businesses succeed in this challenging era will be the agility that enables them to pivot and change business strategies.”

Many business owners, taking to heart the lessons of the (seemingly forgotten) Covid-19 pandemic, which restricted access to their customers and physical walk-in businesses, have taken advantage of new revenue channels enabled by technology.

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Technology makes it easier for small business

“Digital technology and eCommerce sites made it easier for SMEs to access markets, customers and suppliers. With lower cost-bases, tight control over expenses and the far more comprehensive public showcase opportunities offered by the Internet, small businesses are making inroads into markets that were once the preserve of much larger, but less responsive, companies,” he says.

Recent research shows that 74% of small business owners say technology has become more important within their enterprises, while 43% percent report that technology helped them reach new customers and 39% add that technology boosted their profits.

Digital tools available at low-cost support e-commerce opportunities and offer a cost-effective way to manage company finances, stock, logistics and even customer relationships.

Siziba says as SMEs adapt to the times by shifting their business goals to stay relevant, it is only natural that they should have expectations of the role that financial institutions play in helping build their capabilities.

“With the sector’s important role in our society and economy, they are valuable customers. Although access to funding is still an essential requirement, requests for loans from SMEs have moved with the economic situation.

“For example, Standard Bank receives more inquiries about assistance to buy generators and solar panels than ever before, as companies, both large and small, seek energy solutions that lessen their dependence on the grid.”

He says rapid answers to finance requests have become critical in 2023 as competition in the SME sector is probably intenser than ever. “Moving from survival mode to enterprise growth and ultimately to prosperity, is linked to meeting customers’ needs and getting them what they need when they need it, on time, every time.”

Entrepreneurs are the lifeblood of South Africa’s economy and central to the country reaching its growth and development potential. Siziba says SMEs are a hardy, optimistic breed in a sector where research has shown that 99% believe they will still be in business and prospering five years from now.