World Entrepreneur Day: Reliable data on struggling SMMEs needed to stimulate Covid-19 recovery

DURBAN – Celebrating World Entrepreneur Day (21 August) will be bittersweet in 2020.

While many big businesses are visibly struggling and even considering delisting from the JSE, anecdotal evidence suggests that thousands of informal small, medium and micro enterprises (SMMEs) are being wiped out altogether amid the Covid-19 pandemic.

This will have significant and wide-reaching implications for the real economy. Without reliable data it’s difficult to determine the extent of damage to the real economy.

Without this information, it’s challenging to assess the impact of the pandemic on SMMEs and determine how best to help these businesses recover and grow,.

As long as informal SMMEs remain on the sidelines, the country will also struggle to drive the sustainable growth that encourages business owners to formalise their affairs.

SMMEs operate on the periphery. This is highlighted most starkly in the Small Business Institute’s 2018 Baseline Study of Small Businesses. A major finding in the report was that formal SMMEs make up 98.5 percent of the firms in our economy but account for only 28 percent of jobs. This is in contrast to the global average of small businesses contributing between 60 percent or 70 percent of formal employment.

However, these figures are distorted because the data used was sourced from Sars (South African Revenue Services), which, by definition, excludes the informal economy.

This study illustrates the unique challenge we face in helping small businesses move from the informal, survivalist space into the formal economy. One of the biggest tasks facing us even before Covid-19 is finding effective ways to get the vast number of informal businesses to take this step.

One solution is getting larger corporations to procure services from smaller suppliers.

Corporates need to revisit their supply chains, procurement practices and supplier onboarding to lower the barriers that prevent suppliers from securing business with larger clients.

There is no clear answer to this problem, but building an understanding of SMME needs and challenges will ensure that interventions are targeted and practical.

Another form of assistance that can have a tremendous positive impact is to offer SMMEs access to business skills and skills programmes.

This can be done with relative ease through mentoring and skills development programmes that help entrepreneurs sustainably grow their business.

Technology will continue to change very rapidly, and SMMEs might not have the skills or capital to invest in new technology continuously. Instead, they will have to innovate, so bringing them into the big-business value chain could unlock that potential.

For financial institutions, the responsibility to support small businesses is magnified because of the positive impact that access to finance can have.

When we offer these companies finance, we need to guard against applying a one-size-fits-all approach and avoid treating a business needing R5 million the same way we treat a business that needs R500 million.

Old Mutual is looking to see how it can tailor its funding assessment approach to SMMEs.

While SMMEs are managed individually, the combined impact of their failures could be catastrophic and require intervention.

All around the world, we see that small businesses drive innovation and competition. Their size makes them hungry and allows them to try new things. By exploring ways to support and grow SMMEs, we can stimulate innovation and take our economy forward.

Prabashini Moodley, Managing Director: Old Mutual Corporate

by Business Report –