Gig economy sees SMMEs ‘fighting to stay in business’

The high cost of living coupled with the alarming unemployment rate has meant that many South Africans have plunged into what some call “earning their bread” through entrepreneurship, unintentionally, according to Momentum and Unisa (University of South Africa) Science. of Success. report.

“As such, many of them are not qualified or prepared to enter the world of self-employment. Given the chance, they would rather work for an employer than become an entrepreneur,” he reads.

However, even for those who imagined themselves empowered by starting their own business and having something that is uniquely theirs and an expanded expression of themselves, the reality is this: it is still difficult to succeed and prosper as a business owner in South Africa. , the report states.

“It is a daily struggle for MSMEs (small, medium and micro enterprises) to stay in business in South Africa.”

The report says that the effect of the Covid-19 pandemic continues to be felt most in MSMEs, which are often the main sources of income for business owners and their employees. He notes that the sector has yet to recover to pre-Covid levels.

It says that while there were a total of just over 2.6 million MSMEs in Q3 2019 (Q3 2019), the number slightly decreased to around 2.3 million in Q3 2020 and settled by 2.4 million in the third quarter of 2021. This, he points out, translates into 150,000 fewer MSMEs compared to 2019, before the start of the pandemic and subsequent closures.

The report further indicates that while only 56% of MSMEs employ more than one person, in 2021 they provided employment to more than nine million people, representing 68.3% of all jobs in the country. during the period.

Similarly, another form of entrepreneurship that has been popularized by the indulgences of remote work, particularly during strict lockdowns, is the rise of the “hustle.” The study points out that secondary entrepreneurs already have a main source of income and start their own business, formal and/or informal, to add an additional source of income.

The Momentum/Unisa household finance survey (2022) found that the number of households acquiring 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 MSMEs and side hustles is largely attributed to a lack of financial support, especially during the onset of the pandemic.

“Some MSMEs, along with large companies, took out loans before the start of the Covid-19 pandemic took hold. When Covid arrived, it shook the finances of many companies and especially MSMEs. What we saw is that finances and cash flow began to dry up quickly.”

“The bigger companies had reserves and could get more loans. But many MSMEs lost their jobs and had to close due to lack of funds”.

Mthanti says that despite their potential impact on employment and the economy, MSMEs are not considered investment venues. “These MSMEs are in a space where they are not really funded by the government and also where the private sector thinks it is too risky to invest in them.”

“If you look at the amount of financing that is available to MSMEs, one of the things you see is that the sector is large 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 requires, it’s just not enough.”

Mthanti says that with South Africa’s estimated R6 trillion economy, of which around R1.2 trillion is attributed to the MSME sector, MSME finance institutions or investors need to match that amount to support and subsequently boost the sector, which in turn would benefit the economy significantly. “R300 million of funds is not enough in that sense.”

Momentum’s strategic insights consultant, Monique Schehle, further notes that the reduced load, increased crime and civil unrest in July affected many small businesses.

Commenting on the added pressure of changing consumer behavior patterns, Schehle says that another problem exacerbating the situation for MSMEs is local price points versus cheap international price points.

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

Although he admits that the high standard of living pushes consumers to opt for cheaper goods, “purchasing power should go towards local MSMEs”.

In addition, the report says that the government and society at large are putting “extreme pressure” on MSMEs to play a role in rebuilding South Africa’s economy.

Wayne McCurrie, economist and portfolio manager at Ashburton Investments, says that despite not being the largest contributor to the economy, MSMEs are essential to job creation, particularly when they are successful.

However, he cautions that big business, government and unions need to work together to mobilize the capital needed to boost South Africa’s MSME landscape and economy in general.

“The most important thing that is missing is a coordinated plan between the main actors. There is a lot of uncertainty around the future of start-ups and the economy, this includes issues related to energy, Transnet, water and dysfunctional municipalities.”

“What the country really needs is for everything to work efficiently. Only then will we see South Africa receiving more investment that will boost facets of the country’s economy, especially financing for small and medium-sized businesses,” he points out.

Nondumiso Lehutso is a Moneyweb intern.