Consultancy unpacks civil unrest aftermath for small business

2nd August 2021 By: Marleny Arnoldi - Creamer Media Online Writer

Consultancy Redflank has, through its BeyondCOVID research initiative, determined that small, medium-sized and microenterprises (SMMEs) have been hit hardest by the impact of riots in recent weeks.

SMMEs account for 89% of the businesses impacted by the civil unrest in parts of Gauteng and KwaZulu-Natal in the middle of July.

These businesses, which provide more than 70% of the jobs in South Africa, stand to lose R3.4-billion a month in revenue as they attempt to resume operations.

This while they need at least R16-billion in operational funding to recover.

Redflank says small businesses now face a 63% drop in revenue since looters ran rampant through the streets, over and above their struggles with access to markets and affordable funding during the Covid-19 pandemic.

The consultancy adds that 62% of riot-impacted SMMEs do not have business insurance and, of those that have closed their doors in recent weeks, only 5% have business interruption insurance.

Only 6% of impacted businesses are open as usual, while 51% of impacted business in the two riot-affected provinces have closed, of which 7% have closed permanently and 44% have closed temporarily. 

Cognisant of the critical role SMMEs play in the economy and job creation, the BeyondCOVID board of directors, led by Advocate Fay Mukaddam, is engaging with government, the private sector and civil society to grow BeyondCOVID into a national cause.

“While government and large business interests are critical to the success of BeyondCOVID, it’s also true that all citizens can contribute.

“Avenues for crowdfunding contributions, along with the innovative approach to derisking SMME Collectives and related funding partnership opportunities, are being made available,” she says.

But it is not just the SMMEs that need help, Mukaddam states.  

The findings of the latest survey, based on 1 070 responses from informal, micro, small and large businesses, show that the unrest has left businesses across all sectors in dire financial straits.

“As expected, the most affected are in KwaZulu-Natal, where 76% said they have been impacted in some way by the unrest.

“In Gauteng, the percentage is slightly lower at 54%. But this is still more than half of businesses in the country’s commercial and economic hub,” says Redflank director Lings Naidoo.

What is alarming for him is that more than half of the impacted businesses in Gauteng and KwaZulu-Natal have either closed permanently or temporarily.

The impact of these closures on the economy, and the livelihoods of communities in those areas, is significant.

“Businesses have been forced to retrench, on average, 10% of their staff. For SMMEs, the retrenchments are even higher, at 11% of the workforce,” says Naidoo.

Damage to property during the riots was extensive. Of the businesses  surveyed, 42% reported damage to their premises and 8% said they have lost everything.

”The most affected were the retail, accommodation and food, health and social services sectors. One of the stand-out scenes from footage of the unrest is of the South African National Blood Service being vandalised in Durban. The unrest affected not only businesses, but the provision of healthcare too,” Naidoo notes.

He estimates that the total cost of the damage to property, based on the extent of the destruction listed by respondents, to be about R126-billion.

“SMMEs are looking at damage of about R55-billion, while the cost to informal businesses alone is R4-billion.”

More than a third of businesses surveyed had their stock looted during the rioters’ rampage. More than half of those who lost revenue through looting were large corporates.

Naidoo says businesses that have to repair damage to their premises say it will take six to eight months to recover. For others, it will take about five months to get back to business.

Larger businesses are in a better position than their SMME counterparts when it comes to insurance.

Of those surveyed, 73% said they have some cover. However, even among this group, one in four will have to reopen without the income compensation possible through business interruption insurance.

Revenue for all impacted businesses across sectors has dropped by 59% since the riots, with informal businesses grappling with a drop of up to 70%.

The country is now in the grips of the third wave of the pandemic, and there’s no doubt that businesses that have been affected by the unrest will need an urgent lifeline.

“Unfortunately, it is not possible to help all businesses at once, and the SMME sector certainly needs particular attention. BeyondCOVID will initially focus on several key sectors to build momentum before expanding to other industries. 

“The goal is, however, to grow the number of small business collectives, and to provide a safe harbour to small businesses as far as possible,” says Mukaddam.