Rising interest rates, fuel hikes and load-shedding are considerable challenges facing the South African small business sector and more support is needed for these businesses to take their rightful place as engines of growth and job creators for the economy, says Business Leadership South Africa (BLSA) CEO Busi Mavuso.

Assistance from government, the private sector and civil society will be key to their recovery, she notes in her latest weekly newsletter, published on July 18.

Mavuso stresses that small businesses, which play a crucial role in employment, growth, competition, inclusion and innovation in every major economy in the world, must be supported and developed.

According to a 2020 report by management consultancy McKinsey, small and medium-sized enterprises (SMEs) across South Africa represented more than 98% of businesses, employed between 50% and 60% of the country’s workforce across all sectors and were responsible for a quarter of job growth in the private sector.

However, SMEs are often the least resilient in weak economies, as they have smaller client bases and limited cash reserves.

"The civil unrest that broke out more than a year ago in KwaZulu-Natal and Gauteng saw businesses big and small looted and vandalised. What concerns me is the devastating effect [this] had on small businesses," Mavuso points out.

Big businesses that were directly affected suffered tremendous damage even with South African Special Risk Insurance Association insurance cover, “but they have the muscle to recover”.

"Many smaller ones, however, did not have insurance or the financial reserves to rebuild their businesses and the floods added to the woes of those in KwaZulu-Natal. Some will never open their doors again and those that did reopen are struggling to achieve pre-unrest levels of operation," Mavuso says.

Government recognises the importance of SMEs and, in this year’s State of the Nation address, President Cyril Ramaphosa said the Business Act and other legislation that affects small, medium-sized and microenterprises were being reviewed to lessen the regulatory burden for small businesses.

He also acknowledged that there are too many regulations in South Africa that are unduly complicated and difficult to comply with, preventing small businesses from growing and creating employment.

This led to the creation of a dedicated capacity in the Presidency, headed by the chairperson of the Small Business Institute Sipho Nkosi, to reduce red tape across government entities.

Further, the mission of the Department of Small Business Development is to focus on enhanced support for small business and cooperatives, with an emphasis on programmes to advance entrepreneurship among women and youth.

The Department of Trade, Industry and Competition also has several funding schemes available for new or existing ventures, while the National Youth Development Agency raises funding for small enterprises and the Small Enterprise Finance Agency fosters the growth of SMEs while also contributing to poverty alleviation.

"Government cannot do all the heavy lifting and BLSA is doing much work in this space to improve the prospects [for SMEs].

“We’re taking a long-term view of the SME sector as we believe that, if it is bigger and more powerful, it will help to dramatically increase employment, enabling more people to support themselves and their families and, thus, rely less on the government for support," Mavuso says.

This will also broaden the tax base and grow government revenue, allowing for more funds to be directed to a smaller pool of welfare recipients, she notes.

"One of our key initiatives in this sector is in partnership with the US Agency for International Development. Through the Beyond Advocacy Fund, we have teamed up with startup campus 22 On Sloane to equip entrepreneurs with necessary business skills.

“The campus' Capacity Building Programme’s key offering is the accelerator model that aims to support startup businesses and help integrate them into the mainstream economy by creating opportunities for them to access markets, as well as funding.

"Many other initiatives to support SMEs are being conducted by organised business and other entities across the economy but, in the context of the battering the sector has suffered since the Covid-19 outbreak, the one element that can accelerate its recovery is the red tape unit in the Presidency.

“We need to start seeing the results of its work, particularly on small businesses, as soon as possible," Mavuso emphasises.