Financial distress caused by the effects of the Covid-19 pandemic has seen the majority of small, medium and micro-sized enterprises (SMMEs) come under severe strain, with their future survival uncertain, new data from TransUnion suggests.
The study shows that nine in 10 (90%) small businesses in South Africa are struggling or temporarily closed as a result of the impact of the Covid-19 pandemic.
Just 9% report that they are operating as normal.
96% of small business owners reported a decrease in revenue, with 78% saying they have seen a significant decrease in their business revenues since the start of the Covid-19 pandemic.
The research was done through an online survey of 659 small businesses in South Africa with the aim of better understanding how small businesses have been impacted by the pandemic, the changes they have experienced, and their expectations for how the crisis would affect their operations.
One in three (32%) small businesses report that they will be able to operate for less than three months at the current rate, and one in two (50%) reported extreme concerns with being able to fulfill critical payment obligations.
Nearly two thirds (59%) said they will have to cut staff salaries, 44% said they will be unable to pay rent, and 33% said they will have to start downscaling monthly services such as telecommunications and insurance in the next two months.
Nonetheless, small business owners remain optimistic about their ability to continue, with 53% indicating that it is likely that they will recover from the impact of the pandemic.
Lee Naik, chief executive of TransUnion Africa, said: “The current global crisis has caused major economic and financial distress for consumers and businesses everywhere.
“For the estimated 2.5 million SMMEs that form the backbone of the South African economy and represent our best hope for economic growth, many jobs have already been impacted as consumers rein in spending.”
He said that coupled with government funding and grants from the business community and private individuals, the SMME community has avoided mass liquidations thus far.
“But with almost half of all SMMEs uncertain if they will survive for longer than six months, it suggests that cracks are starting to form.”
Small businesses that were primarily operating on digital/online platforms before Covid-19 also appear to be less affected by office/facility closures.
Which payment obligations will you be unable to pay in full over the next two months?
Government, business and private-relief funding have proven relatively successful, with only 27% of businesses not receiving some form of relief – primarily as a result of not applying, or receiving a response and not meeting required criteria for government-funded relief.
Looking to the future to understand what support these small businesses need to survive, most owners cited access to funding, cash flow and new revenue generating customers as their key needs.
“Revenue generating customers and secure cash flow are, however, in very short supply with consumers under severe strain and delinquencies on the rise. This potentially places an unsustainable reliance on external funding sources to support the SMME community,” said Naik.
The study suggests it is inevitable that liquidations will become more widespread and that SMMEs will continue to operate in a very difficult environment for the foreseeable future.