SMEs resilient in recession - report
67% regard business as profitable Only 5% have no or low confidence in surviving
July 30, 2009
By Lucky Biyase
Although small and medium-sized businesses (SMEs) have been hit by the tumultous economic climate, they have proven to be remarkably more resilient than large corporates, according to the findings of a study into the impact of the recession on this sector.
The study, based on interviews with 2 500 business decision makers, was sponsored by Standard Bank in conjunction with Fujitsu and the Umsobomvu Youth Fund (operating as the National Youth Development Agency).
The research, released last week, also sought to test the sector's confidence levels, and small enterprises' ability to remain sustainable in a recession.
Principal researcher Arthur Goldstuck said small businesses were coping well amid tough conditions, which had seen South Africa experience its first recession in nearly two decades.
Said Goldstuck: "Make no mistake, they are bowed, but not completely beaten."
He said only 5 percent of SMEs were making a loss, whereas 67 percent regarded their entities as profitable, indicating a resilience on their part. Twenty-four percent of SMEs were breaking even, representing a 2 percent increase compared to last year.
"This percentage is fairly high and it indicates that any additional shock could knock these companies further over the borderline. But if they hold onto strategies that work for them, they should survive," Goldstuck said.
Only 5 percent of these businesses indicated that they had none or very low confidence to weather the recession, while about 36 percent said they were neither optimistic nor pessimistic, he said. He added that 28 percent reported that they had high confidence while another 31 percent recorded a very high confidence.
He said the aim of the survey was to provide a barometer of expectations for SMEs in the coming year, particularly as many business owners had never before done business in a recession.
Thami Mazwai, the director at the Centre for Small Business Development at the University of Johannesburg, and Nicholas Biekpe, the president of the Africagrowth Institute, said the findings were not surprising as not all sectors had been affected by the downturn.
Mazwai pointed out that as the research was not sector specific, its findings were likely to have limitations.
"It would be interesting to look at small business in terms of sectors. For instance, small businesses in the automotive and textile sectors are bleeding heavily and many have closed shop," he said.
Biekpe said the apparent resilience of the small business sector had more to do with managing costs rather than organic business growth.
"To keep their heads above water, most SMEs are now cutting back on costs, which includes redundancies, marketing and delays or cancellations in investment on new projects," he said.
Biekpe added that every economic cycle had both positive and negative growth sectors.
"This means that some SMEs are better placed than others. In addition, some owners are naturally good at attracting and keeping clients during lean times."
Ezekiel Madigoe, the managing director of information technology company Mamapo Solutions, complained, however, that business was drying up and that banks were not willing to fund small firms.
He said government tenders were hard to come by as these were given to businesses with political connections, while big corporates preferred to work with small enterprises with sound financial standing.
His views were echoed by Titus Molefe of glass and aluminium company, Tit Glasses in the North West.
"People are postponing orders, some do not pay for months and months," he said.
Molefe had last year said he would employ about five contract workers in addition to his two permanent employees, but this had not happened this year.
However, Hlekani Mahlaule of Xongi General Trading, which manufactures duvet sets and clothing, said her business was booming and she had hired five people.
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