It will be years before we fully understand the economic impact of the coronavirus, but one thing is painfully clear right now: small businesses across the country are facing an existential threat.
According to a report by TransUnion in July, 90% of small businesses in SA are struggling or have temporarily closed because of Covid-19. Just 9% reported that they were operating as normal and fewer than 1% of businesses said they were thriving.
For small businesses to roar back after the pandemic and serve as engines of economic growth and job creation, they will need more than just lip service and debt relief.
According to StatsSA, the economy shed 2.2-million jobs in the second quarter, more than half of them in the formal sector. It can be safely assumed that a fair number of small and medium enterprises (SMEs) laid off workers due to their inability to trade during the lockdown and an equal number could not hold onto staff due to cash flow challenges.
While the government reacted swiftly with debt relief and funding for businesses impacted adversely by the pandemic, the chaos that followed delayed the promise and potential of the relief.
The government's inability to provide relief fast enough means some businesses will not return to trade when the threat abates. This has consequences for employment and in all likelihood for the SME landscape, auguring slower growth and less innovation.
If we allow small
businesses to go
under every time
someone sneezes,
we would worsen
the jobs outlook
While Covid-19 has exacerbated the plight of SMEs, pushing them over the precipice, the blame must be equally shared between large corporations and the government - their inordinately long payment cycles often compromise cash flows.
It is telling that the government and the private sector need to run campaigns to motivate themselves to pay SMEs within 30 days - a sector that, according to the Small Enterprise Development Agency SMME Quarterly Update 2019, accounts for 66% of economy-wide employment.
According to the 2019 "State of late payments" report by online accounting platform Xero, large corporations on average owe more than R100,000 per small business at any given time. The pandemic only worsened the payment cycle, with small businesses now having to wait much longer to be paid for services.
Another way of looking at this is that small business is, effectively, funding large corporations. The money owed is interest-free capital for corporations to deploy for their own benefit. SMEs that offer services are among the worst affected because they must pay their providers in advance to fulfil the client brief.
The stakes are huge. Without a cultural shift and soul searching by larger companies and state-owned enterprises, every public health crisis in the future will turn into an economic one. If we allow small businesses to go under every time someone sneezes, we would be worsening the jobs outlook, decimating South African ingenuity and dampening the spirit of entrepreneurship.
SA will see a second wave of small business failure if the government does not introduce a policy to mandate prompt payment for services rendered. The domino effect cascades into communities - when businesses liquidate, they lay off employees, who in turn cannot participate in their local economies, making communities weaker, causing further layoffs. Business failures thus act as a catalyst in a downturn, making temporary damage permanent.
The goals of the government's industrial policy action plan and the objectives of radical economic transformation will not be met unless SMEs, the firelighters of our economy, are ignited with hope. This hope can be fuelled by policy decisions that promote financial stability, enterprise and corporate supplier development, and funding and interest-free loans.
The post-Covid business landscape requires that entrepreneurs chase their passions, rather than overdue payments.
• Hattingh is the founder of 'exponential leadership' firm Cycan
