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TOUGH TIMES AHEAD FOR SMEs IN 2015 – BUT THERE’S TIME TO PREPARE FOR ECONOMIC HEADWINDS

JOHANNESBURG – South Africa’s tough macroeconomic environment will likely persist through 2015, making it difficult for small and medium-sized enterprises (SMEs) to stay afloat and flourish.

The threat in the economy for starters lies in weakening of the rand, which according to head of Sanlam business market Jannie Rossouw, is currently undervalued against the major currencies.

More threatening to South Africa’s growth, expected to be less than 2% in 2014, is the country’s political and labour stability.

Rossouw, speaking to Moneyweb on the sidelines at the Sanlam and Business Partners entrepreneur of the year awards on Wednesday, says the failure to contain labour and political instability will send out the wrong message to global investors.

“What we need in difficult economic times is to send out the right stable message about the South African economy,” he says.

Another problem is the labour legislation in South Africa relating to hiring, bargaining, remuneration and the process of dismissing employees is “cumbersome” to small business.

“We have to keep labour costs intact. The spiralling labour costs is also a threat to building a stable economy, which would require small businesses to down size and by doing that you are destroying jobs and not creating jobs,” Rossouw adds.

And by not creating Jobs, South Africa will have a pool of unemployed individuals who are not participating in the economy beyond the 25.5% unemployment rate recorded by Statistics South Africa (Q2: 2014).

Not only will South Africa face increasing unemployment but on a consumer front, high inflation (July: 6.3%) which has surpassed the Reserve Bank’s 3-6% target band. Inflation, Rossouw says, will likely hit consumers and if this economic trend remains resilient together with high consumer indebtedness, SMEs might be in for tough times.

“A lot of economic things have a secondary spin offs making difficult for business owners. The most important thing is to attract clients who are going to afford what they (SMEs) sell,” says Rossouw.

There has been more heightened awareness of SMEs and their potential create jobs. The National Development Plan (NDP), South Africa’s policy road map, targets skills development through mass infrastructure roll-out.

The policy also earmarks an annual average 5% GDP growth, which should be realised by 2030. For those skills and jobs to materialise, the NDP makes special mention of SMEs to create jobs.

“We know the value and role of SMEs to create jobs in South Africa. We have an exclusive focus on SMEs, as they are the cornerstone of most economies around the world,” Business Partners managing director Nazeem Martin explains.

“Entrepreneurs see problems and solve them. They want to generate wealth for themselves [and] for others, while growing the economy,” he adds.

Batten down the hatches

With the tough macroeconomic picture ahead, enterprises can prepare themselves for 2015.

Rossouw says SMEs should go back to basics by being diligent in procuring new opportunities in the market. In company operations, SMEs need to manage their cash flow to insulate themselves from external economic headwinds. This involves managing the debt of the business.

“When you attract new opportunities and projects for your business, try to keep costs of the business as low as possible…. Even in a bad economy there are still opportunities because you have consumers in the economy,” he advises.

Furthermore, enterprises need to be niche players, as they cannot at times compete with big players. “You need to find a niche which is not possible for them (big competitors) to pursue, because you are agile and small and you can focus on making a success of opportunities.”

The start of the new year, will also see the Ministry of Small Business Development in full swing, mandated to offer support to SMEs. Rossouw says the ministry headed by Lindiwe Zulu is “long overdue and there is a huge expectation to deliver.”

“The intention of the ministry is a step in the right direction. Are they going to get it right? I hope so. It’s going to be a long process; it’s not going to change overnight. But I do think the right intent is there. If the intent is there, the funding is there and ability to deliver is there.”

Author: Ray Mahlaka|

04 September 2014