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Will level 1 revive much-needed hope and business activity for local SMEs?

By: Business Partners Limited

A potential light at the end of the COVID tunnel as SA business confidence hits an all-time low

Just as South African small and medium enterprises (SMEs) were on the verge of losing hope, President Cyril Ramaphosa announced the further easing of lockdown restrictions, with a nation-wide move to Level 1 as of midnight Sunday, 20th September 2020. But whether these relaxed regulations – along with Government’s promise of an urgent economic recovery programme – will be enough to reignite hope within the sector, remains to be seen.

This is according to Ben Bierman, Managing Director of Business Partners Limited (BUSINESS/PARTNERS), who was commenting on the latest results of the company’s SME Index – a quarterly measure of the attitudes and confidence levels of South African SME owners – which revealed that SME confidence plunged to its lowest point since the index was initiated in 2012.

“The second quarter 2020 Business Partners Limited SME Index revealed that respondents have confidence levels of only 56 percent that their business will grow within the next 12 months – a staggering 18 percentage points lower when compared to the levels recorded in the second quarter of 2019. This is, of course, due primarily to the ongoing COVID-19 crisis, with 89 percent of respondents noting that COVID-19 and the lockdown has had a negative impact on their business confidence levels.”

Despite being the result of a global pandemic, with the country’s GDP having contracted by 51 percent in the second quarter of 2020, Bierman notes that this drastic drop in confidence does not bode well for South Africa’s economic growth prospects – particularly since the country’s economy was already struggling before the pandemic. “More than anything, the country needs to improve its dismal employment level, and we know that SMEs typically play a major role in job creation. For example, despite the ongoing challenging economic landscape, 43 percent of respondents had appointed new employees within the last year.

“However, considering that 38 percent of businesses are now admittedly struggling to the point that they may not survive, it’s safe to assume that any growth in employment achieved by respondents over the past year, will likely have been reversed over the lockdown with temporary layoffs and retrenchments, ” he explains.

While Government has committed to placing the protection and creation of employment at the centre of their upcoming urgent economic recovery programme, Bierman notes that respondents have very low confidence levels (24 percent) that – Government is doing enough to foster SME development in the country. By the same token, only 42 percent of respondents believe the private sector is doing enough to support SMEs in the country (down 7 percentage points from Quarter 2 of 2019).

Bierman points out that SMEs’ declining confidence levels in both Government and the private sector could be attributed to their attitudes and experiences of COVID-19 relief initiatives. “Only 22 percent of respondents reported to having benefited from any of the COVID-19 relief initiatives; 13 percent are still waiting for feedback, while 43 percent did not even apply.”

Considering this low number, Bierman calls on both public and private financiers to pay special attention to SMEs in order for them to survive. “As the country prepares to move to Level 1, we expect to see more business activity picking up, and hope that this ignites a renewed sense of optimism within the SME sector. But it’s important to remember that reviving the economy is not the reserve of Government alone.” 

Bierman also cautions that there is no quick fix to South Africa’s recovery from the effects of the COVID-19 pandemic. “While the public sector drives their economic recovery programme over the coming months, the private sector should also take the lead and implement long-term initiatives that will contribute to the recovery of SMEs and the country’s economy, such as the recent recovery plans proposed by Business for SA (B4SA),” he says. 

Bierman adds that the pay-it-forward approach of the Sukuma Relief Fund is a sustainable model that promises availability of funds to support SMEs at favourable terms for many years to come. He recommends that the model, with modifications based on lessons learnt from similar public and private sector initiatives, can be adopted by many of the COVID-19 relief funds, including the R200 billion loan guarantee scheme, to accelerate the recovery of the SME sector.

“All parties, from Government to the private sector; labour; civil society; and citizens need to make the much-needed investments into local economy and businesses, in order to help pick up the pieces of the devastation caused by the COVID-19 pandemic and subsequent lockdown. From citizens buying local products to the private sector institutions financing and procuring products and services from SMEs, we all have a role to play in South Africa’s economic recovery,” Bierman concludes.

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