The recently released, State of South African SME report, produced by Lula, paints a painful picture of the struggling SME sector within a stagnant economy.
The data provided in the report indicates that SME business turn-over fell by a shocking 50% over the 2024 year, reflecting an economy that is in pain and a wider systemic downturn rather than isolated industries.
Experian’s Business Debt Index (BDI)confirms Lula’s data, showing a marked downturn from Q3 in 2023 to Q3 of 2024 with the BDI declining by as much as 75% since 2022.
Manufacturing Production Index Down
The South African Manufacturing Index has also showed s a steady decline with the second half of 2024 consistently below the first half and down compared to 2023. November in 2024 in particular was down -2,6%.
Specific sectors with decreases in production were Agriculture, renewable energy, and entertainment, with the restaurant industry particularly hard hit.
Employment Numbers Underscore Downturn
The clearest picture of the impact of this downturn in economic activity has been that on the number of formal jobs in the country. There has been a loss of over 294 000 formal jobs between June and September of 2024, representing -2,7% in the non-agricultural formal sector.
The knock-on effect is enormous with consumer spending and tax numbers having a direct impact through the loss of these jobs.
Where to Now?
A key requirement for a turn-around will be the government’s progress towards limiting spend on wasteful expenditure and focused spend on areas such as improving infrastructure and removing bottleneck’s in the ports and rail infrastructure.
The impact of these issues is larger than most politicians would have people believe, Volkswagen South Africa, has just warned that it cannot produce vehicles at a sufficiently cost effective price due to the additional cost of production in South Africa with issues such as unstable energy supply and the issues at the SA ports, where they struggle to get export vehicles out of the country efficiently, adding extra costs to the business .
While there has been a gradual decrease in interest rate, that could have acted as a catalyst for some economic recovery, the additional 1% added to the VAT rate on all goods basically wipes out the impact.
Business Unfriendly Policies Persist
A priority for the government of National unity (GNU) should be unlocking investor interest in the country and not creating further hurdles. Supporting small business, has to become more than a tick-box process for government and should become a key priority as this and this alone is the foundation on which the economy could be rebuilt at this stage.
Government cant create jobs and large corporations can’t create the growth that small businesses can, and if any progress is to be made, Small business growth has to become the clear objective of all government collectively.
Resilience Tested
The resilience of the SME sector in South Africa is remarkable, and despite agonizing times, the SME sector has time and time kept afloat, damaged and struggling but still kicking and innovating to survive.
Its time for some recognition and a big hand up from a government that has for too long ignored this crucial and dynamic sector.
