Small and medium enterprises (SMEs) are adopting digital platforms to promote and grow their businesses, with WhatsApp being the go-to platform for attracting new clients, according to a Standard Bank inaugural study on the informal economy, released this week.
Based on interviews conducted between March and May this year,the study surveyed small and medium-sized businesses accounting for 7,500 jobs — with annual turnovers of between R100,000 and R50m — across Gauteng, the Western Cape, KwaZulu-Natal, Limpopo and the North West.
WhatsApp was found to be the most popular marketing and communication tool among informal businesses — 74% of respondents followed by Instagram at 47% — reflecting both cost constraints and limited digital skills.
The use of websites and business apps was lower at 30% and 36%, respectively.
Nokhanyo Ntshingila, senior manager of enterprise and supplier development at Standard Bank, said SMES in townships mainly based their choice of marketing tools on cost.
“WhatsApp is the go-to tool for its ease and low cost, though having a website, business app, or using tools such as MS Office signals professionalism and legitimacy. These are seen as markers of a serious, established business,” she said.
The appetite is there; it’s just about finding ways in which we can create simple and easily accessible channels to leverage the solutions we have right now
— Muzzafar Nagvadari, head of merchant solutions sales and services at Standard Bank
According to the report, cash remains the primary method of trade for township businesses — influenced by customer preference — though some use mobile money services and mobile digital platforms.
Over half of businesses preferred EFT/bank transfers for safety and record-keeping, especially for bigger transactions. “With crime being a concern for some businesses, having transactions via EFT/bank transfers is seen as a safer alternative. Interestingly, cash and point-of-sale transactions are perceived to carry similar risks of robberies,” the report noted.
Muzzafar Nagvadari, head of merchant solutions sales and services at Standard Bank, said there are opportunities to grow digital financial tools for SMEs operating in the informal economy. “The appetite is there; it’s just about finding ways in which we can create simple and easily accessible channels to leverage the solutions we have right now.”
Recent estimates by value the township economy at almost a trillion rand or around R900 billion.
Eight out of 10 businesses in the sector were unregistered, the study found, making access to finance to grow their enterprises impossible.
Informal businesses often targeted the same customers and operated in saturated markets. This led to intense price competition, resulting in thin profit margins. On average, there were 20 businesses in a community chasing similar customers, with sectors such as information and communication technology, as well as logistics and retail being the most crowded.
The cost of running an online store in Soweto is expensive because every courier company or logistics car that comes into the township is followed by a security vehicle, so who is forking out that cost? The consumers
— Wandile Zondo, co-founder of Thesis Lifestyle
Most of the businesses were self-funded — either using personal savings or with financial help from family members.
Wandile Zondo, co-founder of Thesis Lifestyle, a Soweto clothing line, said in order to help township businesses thrive, the government should arrange access to warehouses at subsidised prices, and help enterprises establish online stores.
“The cost of running an online store in Soweto is expensive because every courier company or logistics car that comes into the township is followed by a security vehicle, so who is forking out that cost? The consumers.”
Zondo said township-based businesses were often on the back foot compared to their peers in the suburbs because of their location.
The report found males aged 35 to 54 dominated informal sector businesses, and mainly operated from homes or on pavements to cut costs.
Kani Rajuili, research director at Foshizi — which conducted the research on behalf of Standard Bank — said many businesses operating in the informal sector did not know that, unless you were generating income above a certain level, you did not have to pay tax.
“The anxiety is that once I have a business bank account, I’m now formally registered, I’m barely making ends meet, and now the taxman is going to take it. That is not so, that is why access to information needs to be localised,” she said.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.