The high cost of living coupled with an alarming unemployment rate means that many South Africans are mired in what some call “earning their bread” through entrepreneurship, inadvertently, according to Momentum and Unisa’s ( University of South Africa) Science of Success report.
“Because of this, many of them are not trained or are not ready to enter the world of self-employment. If given the chance, they would rather work for an employer than be an entrepreneur.
However, even for people who imagine themselves empowered by starting their own business and having something of their own and an extended self-expression, the truth is this: it’s still hard to be successful and thrive as a business owner in South Africa, the report notes.
“It is a daily battle for SMMEs (small, medium and micro enterprises) to stay in business in South Africa.”
The report says the impact of the Covid-19 pandemic continues to be felt on SMMEs, which are often the main source of income for business owners and their employees. It noted that the sector has yet to recover to pre-Covid levels.
It says that while there were a total of over 2.6 million SMMEs in the third quarter of 2019 (Q3 2019), that number dropped slightly to around 2.3 million in Q3 2020 and stabilized at 2.4 million in Q3 2021. This, it noted, translates with 150 000 fewer SMMEs compared to 2019, before the start of the pandemic and the subsequent lockdowns.
The report further states that although only 56% of SMMEs employ more than one individual, that in 2021 they provided employment to over nine million people, accounting for 68.3% of all employment in the country at the time that.
Similarly, another form of entrepreneurship that has been popularized by remote working concessions especially during the hard lockdown is the rise of the “side hustle”. The study says that side hustle entrepreneurs already have a primary source of income, and they start their own business – formally and/or informally – to add an additional source of income.
The Momentum/Unisa financial survey (2022) found that the number of households earning additional income from a side hustle also decreased to around 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 Thanti Mthanti, the decline in SMMEs and side hustles is largely related to the lack of financial support especially during the onset of the pandemic.
“Some SMMEs, including large enterprises, took out loans before the onset of the Covid-19 pandemic became a reality. When Covid hit, it shook the finances of many companies and especially SMMEs. What we saw was finances and cash flow quickly dried up.”
“Big companies have reserves and can get more loans. But many SMMEs lose their jobs and have to close due to lack of funds.
Mthanti said despite their potential impact on employment and the economy, SMMEs are not considered spaces for investments. “These SMMEs are sitting in a space where they are not really funded by the government and also where the private sector believes it is too risky to invest in them.”
“If you look at the amount of funding available to SMMEs, one of the takeaways is that the sector is huge in terms of the economy and its contribution to GDP. But if you look at the scale and learn about the kind of support the sector needs, it’s not enough.”
Mthanti said that of South Africa’s estimated R6 trillion economy, of which about R1.2 trillion is attributed to the SMME sector, funding institutions or SMME investors need to match that amount to support and grow the sector, which which will benefit the economy significantly. “The R300 million fund is not enough in that respect.”
Momentum’s strategic insights consultant, Monique Schehle, further notes that load shedding, an increase in crime and civil unrest in July have affected many small businesses.
Commenting on the pressure added from changing consumer behavior patterns, Schehle said another issue exacerbating the situation for SMMEs is local price points compared to cheap international price points. price.
“Many South Africans prefer to buy from Shein or external suppliers, as opposed to shopping at local designer stores. And this is understandable because it is cheaper to buy clothes, for example, from international online store but the cost of production is not cheap in South Africa.
Although he admitted that the high standard of living is pushing consumers to choose cheaper goods “the purchasing power should go towards the local SMMEs”.
Furthermore, the report says the government and society at large are putting “intense pressure” on SMMEs to play a role in rebuilding South Africa’s economy.
Wayne McCurrie, economist and portfolio manager at Ashburton Investments, said despite not being the biggest contributor to the economy, SMMEs are important for job creation, especially when they succeed.
However, he warned that big business, government and trade unions need to work together to mobilize the capital needed to strengthen the SMME landscape and the economy at large.
“The big thing missing is a coordinated plan between the key players. There is a lot of uncertainty surrounding the future of start-ups and the economy, including issues related to electricity, Transnet, water, and non-functioning municipalities.
“What the country really needs is for everyone to work efficiently. Only then will we see South Africa getting more investment that will strengthen aspects of the country’s economy especially funding for small to medium enterprises,” he said.
Nondumiso Lehutso is a Moneyweb intern.