MIGUEL DA SILVA: SMEs battling a perfect storm, but a few key decisions can change their course
It’s certainly pouring of late, but SMEs can weather this storm if government, larger businesses and entrepreneurs act now
The proverb, “it never rains but it pours”, may well have been written for SA in 2022.
On the morning of June 14 truck drivers blocked the N3 between Warden and Villiers. The N3 is the primary route between the Durban port and the country’s economic and industrial heartland. This matters because it is yet another real time example of the nightmare thousands of small and medium enterprise (SME) owners navigate daily.
The first storm showed up during the so-called New Dawn in the shape of the Covid-19 impact. All of us will remember the backlogged ports and supply constraints. While some local suppliers stepped in to fill the void, backlogs in electronics and other imported goods had a long-term effect that is still being felt today.
It was recently reported that the cost of shipping a container on the world’s transoceanic trade routes increased seven-fold in the 18 months after March 2020, while the cost of shipping bulk commodities spiked even more. This cost is eventually passed down the supply chain. In July last year large-scale unrest brought Durban and surrounds, and parts of Johannesburg — again the arterial N3 route — to its knees. Billions of rand were lost in property, goods and business confidence.
A month ago the same region was hit by devastating floods that tragically claimed lives and destroyed even more infrastructure, which has wreaked havoc with supply chains yet again. The war in Ukraine has caused a knock-on effect of food supply disruptions, while the oil price and a myriad other factors have put pressure on the rand and inflation at home.
Petrol is at a record high and interest rates are on an upward cycle. It does not take a degree in economics to appreciate what this is going to do to food price inflation and shortages, as well as increased road freight costs, which again get passed down the supply chain. It’s not rocket science — our almost nonexistent rail network means that almost every commodity, including food, is transported on our roads.
Stop and breathe, one may say, and let that all sink in. Not quite. This is SA, there has to be more, and there is. Eskom continues to represent the single biggest threat to our economic survival. While there appears to have been a lull in load-shedding recently, it would take a brave pundit to suggest we have moved beyond our status quo: large swathes of the fleet are under “routine maintenance”, meaning there is a fine line between one or two breakdowns and national rolling blackouts.
Just recently fears of a national shutdown put schools and businesses on edge — what does one expect, and how does one plan? Anecdotally, there are significant supply chain issues in industries as diverse as wood, spares, electronics and food, and where there is supply the prices are erratic, making it almost impossible for small businesses to plan ahead, buy upfront or not pass increases onto customers who are also feeling the pinch.
Everyone in this country is paying the price for indecisive governance at the national level that has gone largely unchecked for many years, and the volatile atmosphere this and the growing inequality and unemployment have created. The global pandemic, the social unrest, the floods, the war in Ukraine, global inflation and supply chain shocks, expensive sea freight costs and delays, Eskom’s incompetence, and much more.
Hardly a pretty picture, and not one that any of us would choose to face, but there we are. What now?
There needs to be as much investment in private power generation as possible. All businesses should investigate funding to take themselves as close to off the grid as possible, or at the very least able to withstand unannounced power cuts. President Cyril Ramaphosa must make good on his promises to reduce red tape and there absolutely must be labour law reform and tax breaks and incentives for small businesses, particularly those in industries worst affected by the pandemic with high job-creation potential. Enough of the talking. Enough of the vagaries. It’s time for action.
Small businesses may have little choice but to test passing some input costs onto customers. If there are a few product lines, there may be an opportunity to increase prices on a piecemeal basis because a business can only absorb increasing input costs for so long. There’s a lot of talk in retail about the so-called endless aisle — businesses absolutely need to consider e-commerce and having their products available where and when customers want them. This is not an inexpensive exercise, as warehousing and logistics are complicated processes.
On the marketing front, perhaps a walk down the aisle of Woolworths, Builders Warehouse or Dis-Chem will teach SME owners a useful trick. What can you do to increase the basket size of your customers? How can you incentivise them to buy more? Larger businesses must treat SMEs with respect — if you have the means to settle accounts timeously, do so. Squeezing SMEs by withholding payment is like cutting air supply to a human — pay within 30 days.
The most important intervention is educating SME owners about the difference between bad debt and funding, and why access to capital is vital to scale and survive one knock after the other, and then thrive when conditions turn. Perhaps it’s no surprise that thousands of entrepreneurs don’t spend time understanding the smart use of credit lines because micro enterprises almost always stand little chance with mainstream banks, so why bother?
This is not to attack the banks — they have a mandate, and backing an organisation that’s only been going a few months is not part of it. Small business owners the length and breadth of this country should be educated about the power of fintech and digitisation, managed by private companies, in driving financial inclusion in the SME sector. They should be encouraged to educate themselves and set up credit lines when the going is still good enough to build the runway required to buy in bulk when prices allow it, invest in equipment and scaling strategies, or bide time to keep the business afloat while they fight off potential cash flow crises.
While these may sound like so-called “soft skills'', we have seen that in our network the after steps are crucial for SMEs to thrive. Entrepreneurs should join networks and platforms that connect them with other businesses and experts in their fields, undertake scenario planning, if only at a simple level, and adopt an opportunity mindset. If your supplier cannot supply stock at a price that suits you and you have always sold in a certain way to a certain customer, what can you do differently? How can this challenge become an opportunity? This is not wishful thinking, this is how disrupters change industries.
It certainly is pouring of late, but SMEs can weather this storm if government, larger businesses and entrepreneurs act now. Why do we need SMEs to survive and thrive? Anyone who thinks our long-term economic growth and sustained job creation will come from anywhere other than small businesses has their head in the sand.
• Da Silva is MD at Retail Capital.
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