Small and medium-sized enterprises (SMEs) are the lifeblood of the South African economy – they make up a fundamental part of our nation, driving innovation, providing unique products and services and reaching people in ways that larger companies cannot, says Colin Timmis, country manager of Xero South Africa.
McKinsey & Company, the management consulting firm, notes that SMEs across South Africa represent more than 98% of businesses, employ between 50% and 60% of the country’s workforce across all sectors, and are responsible for a quarter of job growth in the private sector.
GDP contributions from South Africa’s SMEs amount to 39% – making them a critical engine of the economy.
And despite their best efforts, small businesses have borne the brunt of the Covid-19 pandemic’s ruthlessness, with the sector having sacrificed more than two million jobs, Timmis pointed out.
“Unfortunately, we’re not out of the woods yet. The economic damage inflicted by Covid-19 will continue indefinitely and for some, the impact will be irreversible.”
Research conducted by Xero indicates that small business owners are still experiencing profound uncertainty, with 68% citing economic instability as their biggest challenge. The pandemic, energy crisis, and limited access to digital technologies have understandably exacerbated their anxieties.
Ahead of the state of the nation address on Thursday evening, said Timmis said that the SME community will be looking to the government to provide some much-needed guidance and resolve to help fight against the economic slow-down.
The economy needs healthy SMEs to thrive, and president Ramaphosa must ensure that support for them is central to the government’s strategy, he said.
Late payments and an ombudsman office
One of the biggest threats to any small business is any disruption to cashflow. Xero’s research shows that 47% of South African SMEs cite cash flow issues and late payments as two of the biggest obstacles to their growth.
“The SME community is concerned about the government’s newly proposed regulatory framework that would see the appointment of an ombudsman to oversee the regulation of SA’s small, medium and micro enterprises (SMME) industry to address issues like late payments.
“We need to see a bolder and enforceable approach to break the impasse on late payment. This is going to need a combined effort from big corporates, technology firms, government and behaviour change amongst SMEs too,” said Timmis.
Xero said it supports the call from organisations like the Small Business Institute, BLSA and the SA SME Fund for regulation that would speed up payments for small businesses to within 30 days, and for an increase on the current R20,000 limit for claims to pass through the small claims court.
Tech adoption support
Timmis said that resident Ramaphosa emphasised the digital economy as a driver of job creation and business growth in his 2020 address. The appointment of a presidential commission to oversee fourth industrial revolution (4IR) initiatives further clarified the government’s intentions.
“Unfortunately, the pandemic put paid to those good intentions. Although many businesses have turned to tech to survive during Covid, there is still much more the government could be doing to incentivise tech adoption and make it a key driver in the country’s economic recovery.
“We’ve seen how instrumental tech has been in SME growth. Adoption of tech like cloud accounting has surged in recent years from 13% of SMEs using it in 2017 to 61% in 2020. This is a clear indication that most businesses can now manage their finances remotely.”
Access to funding
Last year the government announced Covid-19 support, including a R200 billion scheme to fund banks to make low-interest loans to businesses to help protect jobs and spur on the economy.
However, Timmis noted, there has been relatively low uptake of these loans from small businesses. Towards the end of last year only 10-20% of those loans had been deployed, he said.
“It would be great to see the government consider adding ‘alternative lenders’ to the scheme to augment the financing options offered by traditional banks.”
He said that having a blended approach of using traditional banks alongside fintechs/alternative lending platforms like Bridgement, Retail Capital and Lulalend will help to increase access to efficient and affordable funding.
“This would mean more options for SMEs that better represent what they need,” he said.
In a column written for Business Day by Business Leadership chief executive, Busi Mavuso, she said that the energy policy is the most pressing issue for businesses as they look to plan for the recovery.
“Eskom’s maintenance programme will continue to result in load-shedding for months to come. What would aid the situation would be an urgent, fast-tracked amendment to schedule 2 of the Electricity Regulation Act, raising the threshold for the licensing of self-generation to 50MW and crowding in 5GW of new electricity capacity.
“This would be hugely catalytic to jobs, a clean energy transition and the creation of manufacturing capacity. We need electricity and we need investment,” Mavuso said.
Mavuso also told Business Day TV that businesses will need further clarity on the country’s vaccine strategy as a means to negate any further stringent lockdown measures, especially ahead of the winter season, which does spark fears of a possible third wave of the Covid-19 virus.