The entrepreneurial economy sees small and medium-sized businesses struggling to stay in business

The rising cost of living combined with an alarming unemployment rate has meant that many South Africans have indulged in what some call “getting their livelihood” through entrepreneurship, unintentionally, according to Momentum and Unisa (University of South Africa) Success Science. Africa). Transfer.

As such, many of them are unskilled or unwilling to enter the world of freelancing. If given the opportunity, they would rather work for an employer than become entrepreneurs.”

However, even for those who envisioned themselves being empowered by starting their own business and having something just their own and expanded self-expression, the truth is: it can still be difficult to be successful and thrive as a business owner in South Africa, the report notes.

“It is a daily battle for SMEs (micro and small enterprises) to stay in business in South Africa.”

The report says the impact of the Covid-19 pandemic continues to be felt most heavily on small and medium-sized businesses, which are often the main sources of income for business owners and their employees. It is noted that the sector has not yet recovered to pre-Covid levels.

It notes that while there were just over 2.6 million small and medium-sized businesses in the third quarter of 2019 (Q3 2019), the number decreased slightly to around 2.3 million in the third quarter of 2020 and stabilized at 2.4 million in the third quarter of 2020. 2021. This, he points out, translates to 150,000 SMEs down from 150,000 compared to 2019, before the onset of the pandemic and subsequent lockdowns.

The report also indicates that while only 56% of small and medium enterprises employ more than one individual, in 2021 they provided employment for more than nine million people, which represents 68.3% of all jobs in the country during this period.

In a similar way, another form of entrepreneurship made popular by the facilities of remote working, especially during a difficult lockdown, is the rise of “side hustle”. The study indicates that entrepreneurs who work in the side business already have a major source of income, and start their own businesses – formal and/or informal – to add an additional source of income.

The Momentum/Unisa Family Finance Survey (2022) found that the number of households receiving additional income from a side activity also decreased to about 11.4% (2,138,282 households) in 2021, compared to 14% in 2020.

According to financial economist and senior lecturer at the University of Cape Town, Dr Thanthee Mthanti, the decline in SMEs and collateral hardships is largely attributable to a lack of financial support especially during the onset of the pandemic.

“Some small and medium-sized companies, along with large companies, took out loans before the Covid-19 pandemic became a reality. When Covid hit, it shook the financial condition of many companies, especially small and medium-sized companies. What we saw is that finances and cash flows It started to dry quickly.”

Larger companies have reserves and can get more loans. But a lot of small and medium-sized businesses lost their jobs and had to close their doors due to lack of financing.”

Mthanti says that despite their potential impact on employment and the economy, small and medium-sized businesses are not considered avenues for investment. “These SMEs are in a place where they are not really funded by the government and also where the private sector thinks it is too risky to invest in them.”

“If you look at the amount of financing available to SMEs, one of the things you pick up on is that the sector is large in terms of the economy and its contribution to GDP. But if you assess the size and figure out what kind of support the sector requires, it is simply not enough.”

Mthanti says that with South Africa’s economy estimated at R6 trillion, of which about R1.2 trillion is attributable to the SME sector, SME finance institutions or investors need to match this amount in order to support and subsequently strengthen the sector, which would benefit Economy turn significantly. “300 million rand of funding is not enough in this regard.”

Monique Schell, Strategic Insights Consultant at Momentum, notes that shedding loads, increased crime and civil unrest in July affected many small businesses.

Commenting on the added pressure from changing consumer behavior patterns, Schehle says another exacerbating issue for small and medium-sized businesses is the cheap domestic versus cheap international price points.

“Many South Africans prefer to buy from Shein or third-party suppliers, rather than shopping in local designer stores. This is understandable because it is cheaper to buy clothes, for example, from international online stores, but the cost of production is not cheap in South Africa. “.

While it acknowledges that a higher standard of living leads consumers to choose cheaper goods, “purchasing power should go towards local SMEs”.

Moreover, the report says that the government and society at large are putting “intense pressure” on small and medium-sized businesses to play a role in rebuilding South Africa’s economy.

Although they are not the largest contributor to the economy, small and medium-sized companies are essential to job creation, especially when they are successful, says Wayne McCurry, economist and portfolio manager at Ashburton Investments.

However, he warned that big business, government and trade unions needed to work together to mobilize the capital needed to boost South Africa’s small and medium-sized business landscape and the economy in general.

“The big thing missing is a coordinated plan between the major players. There is a lot of uncertainty surrounding the future of startups and the economy, and that includes issues around energy, TransNet, water, and dysfunctional municipalities.”

“What the country really needs is for everything to run efficiently. Only then will we see South Africa get more investments that will boost aspects of the country’s economy especially the financing of small and medium enterprises.

Nondumiso Lehutso is an intern at Moneyweb.

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