CELESTE LE ROUX: Small business sector in desperate need of economic hope

It has now been more than a year since the first Covid-19 lockdown forever changed the face of SA and its business environment. Certain sectors such as tourism, property and events bore the full force of the economic downturn and entrepreneurs like me were affected.

In January, Stats SA announced that the overall number of companies that have been liquidated increased by 20.5% in the fourth quarter of 2020 compared with the same period in 2019. This decline has resulted in a 14.2% year-on-year increase in the number of liquidations. The list of well-known companies that are intending to shut their doors permanently is also growing. These are more than empty numbers, but people’s lives. 

The Mail & Guardian reported that the impact of business failures had a ripple effect on jobs. It quoted Commission for Conciliation, Mediation & Arbitration (CCMA) statistics indicating that between April 1 and December 31 2020, it had received 985 large-scale retrenchment referrals compared with the 555 it received in the same period of 2019. There are some estimates that the small business sector has lost more than 2-million jobs. 

As we look forward to government’s vaccination drive as the panacea that will get us back to normal in whatever version that may be, our focus now must be on recovering from this scourge – government must provide the support system to enable SMEs to recover. SA is going to need its economic cluster leadership to pull out all the stops to effectively support the survival and growth of small, medium and micro enterprises and co-operatives in a sustainable way.

As a business owner I was therefore disappointed to note that finance minister Tito Mboweni paid scant attention to small business in his 2021 budget speech, noting only that the department of small business had allocated R4bn to the sector. For employment, Mboweni focused on the cumulative R83.2bn available for the public employment programmes since the 2020 special adjustments 2021 budget. He also allocated an additional R11-billion for the Presidential Youth Employment Initiative, taking the total funding for employment creation to nearly R100bn. 

We are a nuts-and-bolts business. We service properties across the country and have a very real view of what is taking place in shopping malls, office parks and residential properties. While we have escaped the worst of the economic onslaught through innovation, we are not blind to the struggles of many of the businesses we service. What SA is missing here, however, is that businesses both large and small are the biggest creators of employment. McKinsey & Company, the management consulting firm, notes that SMEs across SA 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.

As an SME owner, I had hoped to see more detailed measures to support small businesses. We need to create an environment that encourages people to establish their own businesses; incentivise entrepreneurs to invest and help established SMEs to scale up. We wanted to see tangible steps to remove red tape; simplify tax compliance measures and in our low-skill economy a significant investment in education, training and incubation hubs. 

Instead, a few days after the budget speech the North Gauteng High Court in Pretoria granted Eskom an order which allows the power utility to increase electricity prices by 15.63% on April 1. Now small businesses that are already facing serious financial pressures have yet another input cost to factor in. The unstable electricity grid coupled with its above-inflation price increases is the kind of uncertainty that SMEs, and large companies too for that matter, simply could do without in our mission to build sustainable businesses where jobs can flourish. Such issues do little to instil confidence.

Confidence is in short supply and creating the right perception by addressing, or at least appearing to address, Covid challenges is vital. Though it was not without its issues, the R200bn Credit Guarantee Scheme, which provided loans to struggling companies in 2020, is the kind of initiative that we now require to help companies and entrepreneurs scale up or invest in new initiatives that could bolster the economy. At the same time, it could spark the kind of positive mentality that is so lacking in our public discourse in the wake of the pandemic and the other economic challenges we had already been facing before the virus hit SA’s shores.

Amid all these challenges there is hope on the horizon for SMEs. President Cyril Ramaphosa in February recommitted his government to supporting SMEs as a core element to achieve the goal of the National Development Plan for SMMEs to create at least 90% of the targeted 11-million new jobs by 2030. He said government “would need to introduce new business processes, technologies and equipment” to assist SMMEs to adjust to the new reality. In his discussion with SMME groups, Ramaphosa announced a “new business viability scheme” that would help to position SMMEs to drive his economic recovery plan that had been developed in 2020. We keenly await the details of this scheme.

According to the World Bank, SMEs represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies. Despite little emphasis on SMEs in the 2021 budget speech, reassurances such as these by Ramaphosa indicated to the market the value and importance that SMEs hold in his administration. We need more of this. It is no small measure in letting the entrepreneurs and business owners of SA know that we will be supported during these unprecedented times. More importantly there is, at the very least, the promise of a plan to extricate us from our current financial and mental malaise. And for battle-hardened entrepreneurs a little hope goes a long way.

*Celeste le Roux is co-founder and CEO at React24. Le Roux, recently became the recipient of the prestigious Top Woman Entrepreneur Award at the 2020 Standard Bank Top Women Awards. She has played a pivotal role in the SA construction sector, exhibiting a deep-rooted passion for implementing transformative strategies, and contributing towards change for gender empowerment in SA.