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More innovative start-ups to come from lockdown, report says

Right now, SA faces an unprecedented threat to small and medium enterprises, but also face an unprecedented opportunity to fast-track decisions that otherwise would take years to push through countless layers of bureaucracy say the writers. (Photo: REUTERS / Rogan Ward)

In the wake of South Africa’s lockdown, many small businesses are scrambling to move their business online or to receive funding from the SMME Relief Fund. A small survey indicates that more start-ups in technology will be on the rise.

The lockdown means many businesses will have to move their work online or think of innovative ways to stay in the market. What’s going to help small, medium and micro enterprises (SMMEs) is digital technology, says Ganesh Rasagam, the lead private sector specialist at the World Bank. 

Rasagam was speaking during a webinar on SMMEs hosted by the start-up campus, 22 on Sloane on Wednesday, 29 April. 

Shortly after the lockdown, 22 on Sloane released a report based on a survey on how small businesses were affected by the lockdown. The survey had 120 respondents. 

“The limitation, therefore, is that it cannot be generalised. It is now necessary to mount a bigger representative survey to support this current study,” reads the report. 

Of the respondents, 63% said they could provide services virtually, while 11% did not have support mechanisms to provide their services virtually. 

Figures vary on how many small businesses exist in SA. In 2018 the Small Business Institute said there were 250,000 registered small businesses in the country and the Small Enterprise Development Agency (Seda) reported that around six million people work for SMMEs.

Most of the respondents in the 22 on Sloane survey employed between one and 10 people. More than 70% of them said they did not have enough money to keep their business operational for the next three months, 29% of the businesses that do have enough money will be tapping into their reserves, while 17% will be receiving money from loans. 

Businesses that are continuing are thinking of new ways of bringing in revenue. 

“From the people that I’ve spoken to in the used car markets, many of them have turned to make hand sanitisers. In Britain, there was a shortage of coffins, so I know people in the furniture industry who are turning to making coffins,” said Taher Moosa, the co-founder of a software start-up. 

The Department of Small Business Development set up the SMME Relief Fund, which Mtho Xulu, the president of South Africa’s Chamber of Commerce, says “will never be enough [for SMMEs].”

On Wednesday, 29 April, the Minister of Small Business Development, Khumbudzo Ntshavheni, told the Small Business Development Committee that the department was in talks with National Treasury for additional money for the fund. 

Moosa said his business is 66% black-owned, “but one of our partners is a foreign national and the relief measures exclude foreign ownership, so that meant we have to dig into our reserves”.

Moosa said he doesn’t know of anyone who has benefited from the relief fund: “Maybe it’s still early days but also maybe it’s because we aren’t networking as often as we used to.” 

According to the Department of Small Business Development, to date, 665 businesses have benefited from the relief fund. 

In a webinar with Daily Maverick earlier this month the CEO of the Small Business Institute, John Dludlu, acknowledged that those applying for the SMME relief funding may be having problems, but that they needed to be patient.  

“Unfortunately, information has been trickling down slowly and SMMEs say their applications for help filed on the government website have not even received an acknowledgement. We call for patience from business owners. All new systems are bound to encounter teething problems in the beginning and we want the government to be sure it is giving our money to actual businesses in need,” said Dludlu. 

Sandile Zungu, from the Black Business Council, says the lockdown was a necessary measure to flatten the curve, but the longer it is enforced, the more difficult it will be for small businesses to reopen. 

“The longer [the lockdown] is dragged out for, SMMEs will say ‘I don’t have money to advertise that I’m back in business. I don’t have money to pay my operating costs,’” said Zungu. 

Last week President Cyril Ramaphosa announced that there would be “a gradual and phased recovery of economic activity”. This will be done through five levels of lockdown.

On Friday, 1 May, South Africa moves from Level 5 to Level 4

Level 4 allows the sale of cigarettes and some industries will be operating at half of their capacity.

Rasagam argued that the crisis presents many opportunities for small businesses. 

Leveraging the use of digital technology will be key. There will be changes in consumer behaviour. This economic environment will change and we don’t know how it will look. We’re at a stage of crisis response now and we need to think of the recovery phase as well,” said Rasagam.

22 on Sloane’s research report states there’ll be an increase in telecommuting and online learning, which will disrupt a number of sectors. 

“Innovative start-ups will be on the rise as they seek to leverage the disruption created by the pandemic, such as non-contact deliveries, telemedicine, artificial intelligence and big data analytics,” reads the report. DM

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