The main difficulty for small businesses in South Africa—and it’s not load shedding
While South Africa’s Small, Medium, and Micro Enterprises (SMMEs) confront a number of obstacles, including a stagnating economy, load shedding, and limited access to financing, competition is currently the most significant barrier.
This is according to InfoQuest’s most recent poll, which included 1,000 interviews with owners of micro-enterprises with annual revenue of R700,000 or less.
“We realise that this sector plays such an important role in the South African economy and wanted to gain a better understanding of how this sector operates,” said Claire Heckrath, managing director of infoQuest.
According to the data, around half of the businesses examined had been in operation for less than three years, while the other half had been in business for more than three years (23% for more than five years).
Microenterprises in South Africa confront numerous problems that impede their success, however it is worth noting that the primary challenge highlighted by the businesses was competition.
“These small businesses not only have to compete with larger enterprises for a share of the consumer’s wallet but also need to contend with other micro businesses who may be offering similar products and services,” said the report.
“Resources to enable small businesses to remain competitive are lacking,” they said.
These businesses face difficulties in terms of cash flow and access to capital/funding.
“They are often operated by individuals or small teams and face difficulties in securing loans from traditional financial institutions due to limited collateral, lack of credit history, and perceived high-risk factors,” it said.
This financial bottleneck stifles expansion potential and maintains a cycle of slow economic progress for micro-enterprises.
“Innovative financial solutions and support tailored to their unique needs are crucial,” said the report.
According to the survey, three out of four micro-enterprise owners are optimistic about their company’s growth and success in the coming year (76% rate it 7 or higher out of 10).
Businesses with larger yearly turnovers (R400,001 to R700,000) are more optimistic than those with smaller turnovers.
However, the research makes it apparent that these firms require guidance and mentoring, as well as joint efforts from government authorities, non-profit organizations, and the private sector itself.
“The private sector can provide the much-needed assistance in the form of training programmes, mentorship initiatives, and accessible financial services tailored to the unique needs of micro-enterprises,” it said.
“These businesses are not merely economic entities; they are the lifeblood of local communities, contributing to job creation, fostering innovation and promoting diversity in the marketplace.
“Recognising their significance should go hand in hand with a commitment to overcoming the challenges that hinder their progress to ensure that remain and grow as an integral player in South Africa’s business ecosystem,” said Heckrath.
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