DAVID MPARUTSA: SMMEs need policy support to enhance resilience

Despite commendable efforts and interventions by state and private sector entities, there is no silver bullet to how economies across Africa and the small, medium and micro enterprise (SMME) sector will recover from the global health pandemic.

Across the continent we see a K-shaped recovery as different economies and sectors recover at differing rates from the worst effects of Covid-19 through stimulus packages and global support funds. Countries that acted early and decisively and have the mechanisms to channel support to sectors in critical need of assistance are better placed to lead the recovery.

From a business perspective, sectors such as tech and telecoms are running ahead, while leisure & tourism and aviation have a long road to regain lost ground. One year on from the pandemic there is no linear or homogeneous road to economic recovery.

So where does this leave the critical SMME sector in Africa? According to the African Development Bank (AfDB) report “African SMEs Through Covid-19”, SMMEs account for more than 90% of businesses and almost 80% of employment in African economies. Most of these enterprises are to be found in the informal sector. Small business owners, particularly in the informal sector, can start afresh and pivot their business offerings according to the market needs.

However, this adaptability and agility — the very qualities that make SMEs such a feature of the African economic landscape — are also the sector’s biggest Achilles heel. Anyone with an idea, the drive and the perseverance can start a small business in support of their families and even communities, but this does not guarantee sustainability.

Borrowing money

A 2020 “Catalyst for Growth” report found that the impact of the pandemic was felt to a far greater extent in emerging markets due to SMMEs in these markets being constrained by institutional inadequacies. Depending on size, when Covid-19 hit some were unable to pay their own or employee wages, others were forced to retrench and many were unable to meet financial obligations.

SMMEs with few investments or liquid assets and high gearing struggled for survival during the pandemic. It goes back to only borrowing money for necessary projects and where the business owner has a line of sight of cash flow to service that debt.

The April 2021 AfDB report stated that in addition to immediate support and relief measures governments should also “consider mid-to-long term structural policies for African SMEs that would enhance their resilience after the crisis”.

Key recommendations include strengthening awareness of opportunities for SMEs, investing in skills and capacities, speeding up the adoption of digital technologies, and strengthening credit reporting institutions.

Education to support the SMME sector will be crucial, and this is where corporates play such a critical role through enterprise supply chain development programmes and supporting initiatives. Africa is a vibrant and growing economic pot, but still subject to regular economic shocks and bouts of turbulence, be that due to political instability or natural disasters.

Succession planning

The SMME sector, in particular microenterprises, will have to learn the importance of contingency reserves and a culture of saving instead of a hand-to-mouth approach, which leaves zero room to manoeuvre and excessive exposure to external factors.

SMMEs can adapt to changing circumstances, but the sector needs to incorporate contingency and succession planning as critical parts of its makeup. In addition, adequately documented procedures that allow their business to continue to operate in executives’ absence, as well as optimal stocking and resourcing levels to drive efficiency will have to become part of the fabric of the SMME sector.

Support of this critical economic sector requires multi-stakeholder involvement from the public and private sectors.

The economic green shoots of recovery can be seen all over the continent in data points such as the GDP outlook — which the AfDB predicts will grow at 3.4% in 2021, as opposed to a contraction of 2.1% in 2020 — and there has also been a solid rebound in commodity prices. Allied to that are vaccine rollout programmes, which will help boost confidence in various economic sectors.

As a small-business owner can adapt quickly, it is imperative that SMMEs keep their ears close to the ground in terms of sector recoveries and quickly try to plug into those sectors that are potentially doing well and leading the economic recovery. Understand what a business can offer and link into the value chains of large firms in those sectors, maybe as a supplier or as a distributor.

The opportunities will be there. However, the SMME sector will need to be agile and resilient in ensuring its long-term sustainability and ability to withstand any future shocks.

• Mparutsa is head of enterprise & supply chain development at Absa regional operations. Absa is the sponsor of the Absa-Business Day Supplier Development Awards.