Gig economy sees SMMEs ‘fighting to stay in business’

According to Momentum Success Science and Unisa (University of South Africa), the high cost of living combined with alarming unemployment rates means that many South Africans are turning to what some call “earning their living through entrepreneurship” through It is called entrepreneurship. the report.

As such, many lack the skills or preparation to enter the world of self-employment. If given the opportunity, they would rather work for an employer than become an entrepreneur.

However, even for those who thought they were empowered by starting their own business and having something that was uniquely theirs and a broad expression of themselves, the reality is: it’s still hard to be successful as a business owner in the South. to be and progress. This report notes that Africa.

It is a daily struggle for SMEs (small, medium and micro enterprises) to continue operating in South Africa.

The report says that the impact of the Covid-19 pandemic will be felt most on small and medium-sized enterprises, which are often the main sources of income for business owners and their employees. He points out that the sector has not yet recovered to pre-Covid levels.

While there were a total of just over 2.6 million SMEs in the third quarter of 2019 (Q3 2019), this number fell to around 2.3 million in the third quarter of 2020, the report said. And in the third quarter of 2021, it reached 2.4 million. , compared to 2019, before the start of the pandemic and subsequent quarantines, represents 150,000 fewer SMMEs.

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The report also shows that while only 56% of SMEs employ more than one person, in 2021 they created jobs for more than nine million people, accounting for 68.3% of the total jobs in the country during this period. Forms.

In a similar way, another form of entrepreneurship that has become popular due to the gentleness of remote work, especially during the strict quarantine, is the rise of “side hustles”. The study points out that sideline entrepreneurs already have a primary source of income and start their own business – formal and/or informal – to add an additional source of income.

The Momentum/Unisa Family Finance Survey (2022) found that the number of households earning extra income from a side hustle also dropped to around 11.4% (2,138,282 households) in 2021, compared to 14% in 2020. .

According to Dr Tanti Mtanti, a financial economist and senior lecturer at the University of Cape Town, the decline of SMMEs and side hustles is largely due to a lack of financial support, especially at the onset of the pandemic.

“Some SMEs, along with large businesses, took out loans before the Covid-19 pandemic became a reality. When the covid spread, it shook the financial situation of many companies, especially small and medium-sized companies. What we saw was that funding and cash flow began to dry up quickly.

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Larger companies had reserves and could borrow more. But many small and medium-sized companies lost their jobs and were forced to close due to lack of funds.

Despite their potential impact on employment and the economy, SMEs are not being considered as an investment space, Matanti says. “These SMEs are in a space where they are not really funded by the government and also the private sector believes it is too risky to invest in them.”

“If you look at the amount of funding that is available to SMEs, one of the things you will notice is that this sector is huge in terms of the economy and its contribution to the GDP. But if you scale and learn about the kind of support this sector needs, it’s simply not enough.

Mthanti says with South Africa’s estimated R6 trillion economy, of which about R1.2 trillion is attributable to the SMME sector, SMME investment institutions or investors should use this amount to support and subsequently strengthen the sector, which in turn benefits it. match The budget of 300 million rials is not enough in this regard.

Monique Schehle, Strategic Insights Consultant at Momentum, also notes that July’s load shedding, increased crime and civil unrest have affected many small businesses.

Commenting on the pressure from changing consumer behavior patterns, Schleh says another issue that is increasing the situation for SMEs is local prices versus cheap international prices.

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“Many South Africans prefer to shop from China or foreign suppliers, rather than local designer stores. And this is understandable because it is cheaper to buy clothes, for example, from international online stores, but the cost of production in South Africa is not cheap.

While he acknowledges that the high standard of living will lead consumers to choose cheaper goods, “purchasing power should go to local small and medium-sized enterprises.”

In addition, the report says that the government and society at large are putting “intense pressure” on SMEs to play a role in rebuilding the South African economy.

Wayne McCurry, economist and portfolio manager at Ashburton Investments, says despite not being the biggest contributor to the economy, SMEs are essential to job creation, especially when they are successful.

However, he cautions that big business, government and trade unions must work together to mobilize the capital needed to boost the prospects of SMMEs and the South African economy.

“The big thing that’s missing is a coordinated program between the main players. There’s a lot of uncertainty around the future of startups and the economy, including power, Transnet, water and inefficient municipalities.”

“What the country really needs is for everything to work. “Only then will South Africa see more investment that will strengthen aspects of the country’s economy, particularly financing for small and medium-sized businesses.”

Nondumiso Lehutso is a Moneyweb intern.


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