The Covid-19 pandemic and the current lockdown are already having a devastating impact on South Africa’s economy, with informal and small businesses in townships likely to feel the brunt of the impact.
A study by postgraduate students at the University of Cape Town (UCT) and entrepreneurs from social enterprise development initiative Phaphama has found that 87% of small business owners did not know how to access the emergency relief funds that the government has set up.
The group of UCT students and Phaphama entrepreneurs spent the first week of South Africa’s lockdown investigating how these vulnerable businesses could be assisted most effectively, and whether and how they are able to access available emergency funding.
The group states that informal businesses have been left in a precarious position as a result of not adequately taking into account “large gaps” that are present between the categories of informal businesses and small businesses.
This middle category typically employs between one and twenty people with turnover ranging anywhere between a survivalist income and less than R2-million a year. The group notes that this category is likely registered as a business but is often not fully compliant.
The group has noted four major gaps that exist in helping these business access financial assistance.
The first gap involves eligibility. In this instance, most funding requires businesses to be registered, tax compliant and Unemployment Insurance Fund-compliant. It also requires at least six months banks statements and business financial projections – something businesses in this category are unlikely to have.
Gap number two involves asymmetrical and misleading information. “There is a gap in funding information,” the group notes, explaining that entrepreneurs do not know where to find assistance and that funding requirements are often ambiguous. This can lead to business owners assuming many funding options are grants, when in actual fact they are loans.
Gap number three involves exclusion of foreign-owned business and, in this instance, there is no funding for foreign-owned small businesses that employ South Africans.
Gap number four deals with time lag and, in this instance, the waiting period between the funding application and the disbursement is too long for businesses in distress, the group states.
“Most of these small informal businesses do not meet some of these requirements,” the group notes.
The group of students sent questionnaires via WhatsApp through their connections to business owners in Khayelitsha and Philippi and asked them to forward these to their networks.
In total, 233 questionnaires from business owners in six provinces were completed and returned.
The questionnaires revealed that 77% of respondents are female, with the average business employing six people and 85% not receiving government grants.
Of the respondents, 95% reported that they will not be able to pay employees during the lockdown, or for at least the duration that their business must stay closed. Half of the respondents think their business will not survive the lockdown period and 93% have no source of income other than from their closed business.
Results thus far show that businesses that have applied for funding, are yet to receive any feedback, even after three weeks.
The group suggests that clear communication on the nature of the funding must be provided. “Grant funding is preferred to loans as loans already place an extra burden on already vulnerable businesses.”
To assist township business owners, the group set up a central resource – www.fundingthelockdown.live – which outlines all available government and private sector funding options.