Small businesses can alleviate SA’s jobs crisis – but how?

Small businesses can alleviate South Africa’s jobs crisis, but they need some help. South Africa’s most recent unemployment figures paint a gloomy picture with the unemployment rate now a staggering 32.9%, one of the highest in the world.

The country’s chronic joblessness leads to most other socio-economic issues, including crime, poverty and inequality. In other words, we cannot fix our other challenges until we fix unemployment.

“One way to solve the problem is to create more small businesses, which themselves employ more people. This brings us to our next problem: approximately 70%-80% of small businesses fail within five years, especially in the disadvantaged communities that need the jobs and economic activity the most,” says Stephen de Blanche, chief revenue officer for TransUnion Africa.

Research by the University of the Western Cape shows that only about 1% of micro-enterprises that start with fewer than five employees grow to employ 10 people or more. De Blanche says the downside of this is clear. These businesses are not helping to solve the unemployment issue, let alone contribute to the broader economy.

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Why are small businesses struggling?

He says there are many reasons for this, such as Covid-19, spiralling inflation, increasing interest rates and soaring fuel prices that create a perfect storm of chaos, a storm that makes it really hard for existing small businesses to survive and new ones to start up.

“The other challenge is that many small business owners lack the core skills you need to run a successful business, including basic financial acumen, such as how to manage cash flow and debt, along with business and project management skills that are critical in helping small businesses operate efficiently.“

There is no doubt that more entrepreneurial skills are needed in South Africa, but De Blanche says it goes further than that and that is where South Africa’s corporates have a major role to play. “Big corporate players must act as the enablers of small businesses and their success at several levels by creating opportunities, developing the skills needed to run businesses and providing access to funding.”

Access to financing is key, he says. “Even the best-run businesses can only grow to the limit of their cash flow. A lack of cash flow and funding limits their ability to hold stock. As an example, the solar industry offers massive opportunities for small businesses right now, but it is impossible for most SMMEs to hold the stock of inverters, solar panels and batteries they would need.”

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Access to finance is a problem

De Blanche says access to finance is even more challenging when a business operates informally, because they simply do not have the basic requirements that lenders look at to assess risk, such as income statements and balance sheets.

“They are what we in the financial services industry call ‘thin file’ clients. They are practically invisible to the economic mainstream because they have no credit history to evaluate.”

TransUnion works closely with the World Bank and the broader industry to find a way to assess the risk of previously un-scoreable businesses. On the one hand, it is vital that lenders lend responsibly but are we inadvertently creating a situation where small start-ups cannot access the credit they need to survive and grow?

“The answer may lie in using alternative data to qualify more small businesses. In this space, business owners are inextricably linked to their businesses. If you lend money to the business, you effectively lend money to the person. Therefore, by evaluating their personal risks, you may be able to get a picture of their ability to repay loans.”

Beyond that, corporates have a major role to play in getting more SMMEs to become accredited vendors. De Blanche says apart from giving them the skills and support they need to do the onboarding needed to become a supplier, they can ensure those SMMEs are paid as quickly as possible.

“In some cases, they can even put favourable payment structures in place to support the small business’ cash flow. Our economy and our society need jobs desperately. Our small business sector can provide them. They will just need a bit of help first. Our futures depend on it.”