SA’s small companies brace for bitter lockdown
While government has undertaken to help small and medium-sized firms there is a lack of clarity on qualifying criteria
Even before the announcement of the nationwide lockdown, which will shutter SA businesses for three weeks, Winny Makhombothi, owner of a small nail and beauty salon in Melville Johannesburg, had lost 90% of her clients in two weeks.
This was despite stocking up on sanitiser, cleaning products, wearing face masks and gloves and washing her hands so often they were rubbed raw. Clients were simply afraid in the face of the spreading coronavirus, and her diary emptied out.
On a particularly bad day last week she made R60, a fraction of what she needs to cover her overheads, including the salary she pays to one employee.
The salon has been in business since 2016, when Makhombothi struck out on her own and has been doing well enough to get by. “I was not making huge profit, but I was OK,” she said.
But with the virus? “It’s going to stop my living, this thing,” she told Business Day.
Makhombothi is one of the many small businesses across the country that will bear the brunt of the lockdown announced by President Cyril Ramaphosa on Monday.
Though necessary to halt the spread of the coronavirus and avert the overwhelming of the health care system, the lockdown will have a debilitating effect on an economy that had fallen into a recession by the end of 2019.
According to information from the Small Business Institute (SBI), small businesses make up about 98.5% of the firms in SA, while formal micro, small and medium-sized firms employ 3.9-million people — 28% of all formally employed people.
SA, with unemployment at record highs of nearly 30%, cannot afford to have these firms close, and never reopen after the lockdown.
To the government’s credit, the economic support package announced by Ramaphosa carried with it clear commitments to target small firms. These included R500m to be made immediately available to assist small and medium enterprises in distress through a simplified application process.
The reality of that application process has, however, been less simple than hoped for.
After the lockdown declaration, small business development minister Khumbudzo Ntshavheni announced two facilities intended to help SMEs cope. The first is a business growth and resilience facility to support businesses that make supplies needed to support the fight of the virus — including medical and hygiene products — but also food manufacturers, to help ensure food security.
The department also gave details of an SME relief finance scheme, which will make working capital funding available to small businesses that are 100% SA-owned and employ 70% locally.
Before the announcement, speculation swirled that this support would be available only to 51% black-owned firms. But Ntshavheni told the media that “we are supporting all small business in SA across the demographic spread of our population”. The speculation on ownership was “fake news”, she said.
She followed her comments with the statement, saying: “We will make sure that there is geographic spread and demographic spread that is representative.” The department would give priority to businesses owned by women, youth and people with disabilities
The lack of outright clarity on the qualifying criteria has prompted DA interim leader John Steenhuisen to write to Ramaphosa calling for an end to the “barrage of mixed messages on the eligibility of businesses seeking relief — particularly around the racial requirements of these businesses”.
He said fear was fuelled by a leaked document from the department outlining the support measures, which indicated that 51% black ownership would be a requirement for support
“Despite being disingenuously dismissed as ‘fake news’, this was clearly considered a requirement until recently,” said Steenhuisen in the letter.
“On the department’s website applicants are required to answer questions on shareholders, race and gender,” he said.
Steenhuisen also said comments by Ntshavheni that “demographic representivity” would be considered equated to imposing BEE requirements of funding applicants. He asked Ramaphosa to apply means-based criteria for relief assistance, starting by assisting “the most distressed businesses and work our way up the chain from there”.
To add to public frustration, the website where small businesses must register to apply for funding has been plagued by technical problems.
Makhombothi told Business Day she applied for assistance though the website initially sent several error messages before she could complete the process. But on Thursday when Business Day checked, the website was again down.
The department of small business development did not respond to requests for clarity regarding the qualification criteria or the website’s problems.
The ultimate cost of the lockdown is yet to be tallied. But SBI CEO John Dludlu said: “Now that we have taken these drastic measures to save lives, we need more drastic economic action to save the livelihoods of the 3.9-million people employed by SMEs in our country”
Makhombothi, meanwhile, has gone into lockdown to wait, in the hope that her application is successful. “What else can I do?”