The biggest problem for small businesses in South Africa – and it’s not load shedding

While Small, Medium, and Micro Enterprises (SMMEs) face various challenges in South Africa – such as a stagnant economy, load shedding, and access to capital – the main hurdle right now is competition.

This is according to InfoQuest’s latest survey, which conducted 1,000 interviews amongst owners of micro-enterprises with turnovers of R700,000 and less per annum.

“We realise that this sector plays such an important role in the South African economy and wanted to gain a better understanding of how this sector operates,” said Claire Heckrath, managing director of infoQuest.

According to the data, around half of the businesses interviewed had been operating for less than three years, while the other half had been in operation for over three years (23% for more than five years).

Microenterprises in South Africa face many challenges that hinder their progress, but it was interesting to note that the main challenge cited by the businesses was competition.

“These small businesses not only have to compete with larger enterprises for a share of the consumer’s wallet but also need to contend with other micro businesses who may be offering similar products and services,” said the report.

“Resources to enable small businesses to remain competitive are lacking,” they said.

Cash flow and access to capital/funding are also constraints for these businesses.

“They are often operated by individuals or small teams and face difficulties in securing loans from traditional financial institutions due to limited collateral, lack of credit history, and perceived high-risk factors,” it said.

This financial bottleneck impedes growth opportunities and perpetuates a cycle of limited economic advancement for micro-enterprises.

“Innovative financial solutions and support tailored to their unique needs are crucial,” said the report.

Outlook

According to the report, three in four micro-enterprise owners are positive about their business’s growth and performance over the next year (76% giving a rating of 7 and higher out of 10).

Businesses with higher annual turnovers (R400,001 to R700 000) are more positive than those with lower turnovers.

However, it is clear from the report that there is a need for guiding and mentoring these enterprises and collaborative efforts from governmental bodies, non-profit organisations, and the private sector itself.

“The private sector can provide the much-needed assistance in the form of training programmes, mentorship initiatives, and accessible financial services tailored to the unique needs of micro-enterprises,” it said.

“These businesses are not merely economic entities; they are the lifeblood of local communities, contributing to job creation, fostering innovation and promoting diversity in the marketplace.

“Recognising their significance should go hand in hand with a commitment to overcoming the challenges that hinder their progress to ensure that remain and grow as an integral player in South Africa’s business ecosystem,” said Heckrath.

Read: Positive turn for businesses in South Africa – but the ‘big three’ problems still stand in the way