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SMME support should not be seasonal but sustained

KIZITO OKECHUKWU | APRIL 20, 2020

The global economic havoc that COVID-19 is unleashing on a brutal scale spares no business – and SMEs, with their often tightly-belted business purses and no-margin- for-error market strategies, are right in its firing line and the first to fall.  

Given that SMMEs employ most of the world’s population, the recent findings of the International Labour Organisation (ILO) are quite alarming. The ILO estimates that the impact of COVID-19 will see a rise in global unemployment of between 5.3million (low scenario) and 24.7million (high scenario), signalling that sustaining business operations will be particularly difficult for Small and Medium Enterprises. I believe this number is way too conservative, given that the world’s economic powerhouse (the US) recently recorded 22million new filed unemployed cases – the worst in its history and wiping out all job numbers created since the Great Depression.

The Organisation for Economic Cooperation and Development (OECD) report last month looked at how the pandemic affects the economy, especially SMEs, regarding supply and demand. On the supply side, companies experience a reduction in the supply of labour, as workers are unwell or need to look after dependents, while schools are closed and movement is restricted. Measures to contain the disease by lockdowns and quarantines lead to further and more severe drops in capacity utilisation. Furthermore, supply chains are interrupted leading to shortages of parts and intermediate goods.

On the demand side, a sudden loss of demand and revenue for SMEs severely affects their ability to function, and/or causes severe liquidity shortages. Furthermore, consumers experience loss of income, fear of contagion and heightened uncertainty, which in turn reduces spending and consumption. This is further compounded because workers are laid off and firms are not able to pay salaries. Some sectors, such as tourism and transportation, are particularly affected, due to limited freedom of movement, also reducing business and consumer confidence. More generally, SMEs are likely to be more vulnerable to ‘social distancing’ than other companies.

Many countries are now implementing various SMME support programmes. Our recently- released research study lists various government programmes for consideration, such as Emergency SME Funding initiatives. Lower interest rates and fees, tax holidays, grants and easier lending policies could also help SMEs stay afloat during this low market demand period, as will Treasury/Reserve Bank’s lending rate cuts.

SMEs could also start ‘doing it for themselves’ by diversifying their business platforms – such as going online and/or offering virtual services. A report by the Rand Corporation in the US recommends that policymakers could bring tax breaks and technical guidance to help SMEs restructure their business operations.

On the continent, one third of workers is likely to lose their jobs according to the World Economic Forum (WEF) Africa. They added that 80% of workers are in the informal sector, and that a third of them, as well as a third of formal-sector workers, are likely to lose their jobs. 

Business for South Africa, a new organization that emerged recently has called on large businesses to ensure that payments owed to SMEs are paid immediately, while government has echoed this, also calling on many institutions to advance support for SMEs. The UN system in Nigeria, in collaboration with the government, has launched the COVID-19 Basket Fund to complement ongoing efforts to mobilise resources in support of the National COVID-19 Multi-Sectoral Pandemic Response Plan, developed by the Presidential Task Force on COVID-19. In the United States, a government approved USD$350billion loan for SMMEs has officially ran out and government is currently negotiating to add another USD$250billion.  

As we know, this pandemic is bringing with it in its wake drastic and devastating life changes such as massive unemployment, business burials and shutdowns (mostly SMMEs), rises in poverty and adverse living conditions. Yet it will also create disruptive new spaces for technology to thrive in as a multi-faceted enabler across all industry sectors. This will see innovative start-ups seizing the moment to leverage the disruption created by the pandemic, with many SMEs perhaps also adjusting their models to embrace and ride this new technological wave into the future. 

Our latest report used a sample of 120 SMEs and yes, it does paint a dire situation for them. It also relied on the Small Business Institute report that noted there are 250 000 SMEs in South Africa, a quarter (55,000 businesses) of which our report projected could be lost due to the pandemic. One could also look at a minimum of 42 350 jobs lost, which is a low case scenario and a high of around 423 500 jobs plus – could be lost in a worst-case scenario. 

Whichever way we look at it, SMMEs will remain fragile and vulnerable until this pandemic disappears. Many SMME support systems are activated now across the globe, yet I must vehemently state that for the sustainable future, these programmes must not be quick-fixes to simply off-set the pandemic’s consequences, but rather as a long term solution for business survival. 

To conclude, the pandemic has brought with it, many demoralising, depressing and destructive side-effects. Yet, it’s also served as a wake-up call to ‘carpe diem’ and cherish what we have in families and friends and remember that generosity and strength of spirit and collaboration will ultimately prevail.

To download a copy of our report on the impact of COVID-19 on South Africa’s SMMEs, please visit: www.22onsloane.co

Kizito Okechukwu is the co-Chair of the Global Entrepreneurship Network (GEN) Africa; 22 on Sloane is Africa’s largest startup campus. 

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