Following on from the creation and launch of the Government of National Unity (GNU) in July and the appointment of a multi-party cabinet that now includes members from the DA, IFP and Patriotic Alliance – sentiment among South African SMEs has experienced an uptick as members of parliament prioritise key policies and regulations – such as the highly-skilled working visa as spearheaded by new Home Affairs Minister Leon Schreiber. This important piece of legislation could unlock access to a greater pool of talent for businesses, enabling our country’s SMEs to better innovate and scale.
This could just be the start of myriad legislation revisions that will positively impact SMEs from this year onwards and is something SiMOdisa’s StartUp Act has been lobbying for since 2014. Twenty years on, it seems that the time has finally arrived for real, actionable change to take place.
With all of this in mind, here Miguel da Silva, Managing Executive of Retail Capital, a division of TymeBank, unpacks what lies ahead for SMEs in the August 2024 Retail Capital SME Forecast.
“Optimism around the GNU and the anticipation of a review and renewal of previously ineffective economic policies is palpable, especially among the SME sector, and as evidenced by the revival of the Business Act. The lofty goal of the NDP to have 90% of all jobs created by SMEs by 2030 is widely known, and perhaps, with the GNU now steering the country, it may be possible. Time will tell of course, but there is certainly a revival of commercial opportunity, which I hope will remain as policies are revised to enable easier access for SMEs to set up shop – and keep their doors open,” says da Silva.
It’s increasingly a Woman’s World – in Business
This month the focus shifts to women, with Women’s Day on 9 August. The 2024 theme is “Invest in women: Accelerate Progress” and the campaign’s aim is to highlight the importance of gender equality, women’s and girls’ empowerment, and their rights to healthier lives. August is certainly a time for female entrepreneurs to shine, not least because formal female-led businesses represent only 21% of the SME sector, demonstrating the need to invest in this key cohort and drive small business opportunities among women, who in turn can add to the GDP and importantly, create more jobs.
Very positively, despite the relatively small size of the sector, South Africa is one of only 12 economies around the world where there has been an increase in women SME activity with +- 11% of working-age women involved in early-stage entrepreneurial endeavours.
While this is encouraging, there is a significant opportunity for the GNU to play a key role in shaping legislation that is angled better to enable entrepreneurship among women.
The highs and lows of the USD
To say the Rand has been on a rollercoaster with the US Dollar is an understatement. In 2022, just a couple of years back, it was R14.50/USD, today it is R18.27 (at the time of writing). The USD/ZAR relationship has had its peaks and troughs, and each fluctuation is felt on the ground among our SME base.
SMEs who import or export goods feel the currency moves more acutely as the cost of buying and bringing in items to the country gets more or less expensive due to import taxes and USD/ZAR rates.
Right now, the USA is in a financial conundrum, one that is expected to worsen. With trillions worth of debt, a sitting President who somewhat abruptly exited the presidential race and put forward his VP, Kamala Harris, to take his place, and the opposition’s presidential nominee barely avoiding being assassinated, the USD has taken a steep knock, rattling global markets. While Biden’s move to step aside was somewhat priced in by investors, their attention is now on how Harris performs against Donald Trump in the opinion polls – this is assuming she is appointed the presidential candidate at the Democratic National Convention on 19-22 August 2024.
With this in mind, SMEs who are importers or exporters would be wise to renegotiate their contracts with foreign wholesalers, with an understanding that the dollar may weaken or possibly strengthen depending on the outcome of the Convention, and then later in November, the election.
There is also the need to consider the US’s trade agreements with South Africa should Trump win at the polls, given his stance on ‘Make America Great Again’ and turning inward, away from globalism to nationalism – again. As an SME importer, looking for local producers and wholesalers is a good idea, even if it’s for a “just in case” exercise.
Semigration trends and its opportunities for SMEs
Since the COVID-19 pandemic firmly made remote working a thing, there has been a steady flow of people moving from one province to another in South Africa. While the core age group of those moving is between 49 and 64, younger South Africans between 36 and 49 years old make up the second-largest cohort. There is also an increasing trend among those who emigrated in their teens or early twenties to return home to SA too.
Although the Western Cape is arguably the province of choice for most, there is also a noteworthy interest to move to Gauteng, especially among younger emigrants, with Jo’burg’s Northern Suburbs the most attractive area, impacting the sub-luxury sector of between R5-million and R10-million-worth homes[1]. Reasons for this are likely due to the economic opportunities that the City of Gold presents, with the region accounting for a third of the country’s GDP (between 2013 – 2022).
KwaZulu-Natal also makes up part of the semigration picture with citizens leaving the coastal province because of a pronounced lack of service delivery, with Gauteng the desired destination for most KZN movers.
This interprovincial migration leads to an increase in property purchases, with the Western Cape’s personal and professional property market showing the most growth. When looking at the data, Lew Geffen Sotheby’s International Realty notes that 6,406 households moved to the Western Cape during 2023. Households making the move typically come from middle-income to higher-income segments as they are most likely to be able to afford the move.
What this means for residing and aspiring business owners in the province is opportunity. More residents in key areas such as the Winelands, coastal towns and even the City of Cape Town means more commercial activity for existing SMEs, those who have relocated their businesses or opened up entirely new ventures.
How long will semigration from Gauteng to the Western Cape continue? This is dependent on several factors, including an improvement of the economic climate up north following the GNU formation, unaffordable property prices in the Western Cape (specifically Cape Town) forcing remaining Gautengers to stay put, and how well the Cape’s infrastructure can cope with a continued influx of residents. One thing is clear, for SMEs there are business opportunities in both provinces, presenting an abundance of untapped potential.
Time to gear up for Black November
Dare we say it: November… Somehow, we find ourselves in the eighth month of the year. Now that we are fast approaching Spring, it is time for those SMEs whose trade pick-ups during the warmer months to start planning for The Season, which is historically marked by Black November, now less than three months away.
While Black Friday only happens on 29 November, the entire month has become a ‘sales’ period with merchants selling their wares at lower prices and discounts, possibly to move old stock but also to give their revenue a boost even if it’s close to cost.
In 2023, Black Friday weekend failed to live up to its annual expectations, falling by as much as 12%, according to Ecentric’s payment dashboard. It monitors sales of South Africa’s largest retailers and processed more than R1.1bn in deals, although y-o-y there was a 5.06% decline in transaction volume.
What this means for SMEs is a few things:
- Consumers are cash-strapped and are searching for not good, but great deals. Their disposable income is not as much as it used to be thanks to the ongoing cost-of-living crisis, so SMEs need to note that their customers or prospects are searching far and wide for the best price. What this means for SMEs is that they can cut their prices to meet the market’s demands, but this could very well just cover costs. However, if an SME is in financial trouble, getting any money in to help cover overheads is a bonus – they just must not undervalue their products too much as it’s hard to hike prices again when the time comes.
- Finding a way to cut wholesale costs now can pay off come November. This may be a good time to look around to see if there are other suppliers who can match the price the SME was accustomed to. To make Black November work for you, renegotiating now with suppliers or finding new ones is key.
- SMEs with eCommerce sites need to drive as much traffic to their sites as possible – and then convert. This requires investment and an understanding of what is holding their site back from performing at its best. With competitors like Temu and Amazon having bullishly entered the retail market, it’s even more critical for local SMEs to ensure that their websites work properly, that there is no friction in the user and payment process, and that – outside of the site – the delivery is quick and seamless.
- Among the positives of Black November is the opportunity to move old stock. If it didn’t sell at full price after it launched, and is now taking up space at a factory, warehouse or rented garage facility, at a cost, Black November allows business owners to put these items on sale to recoup their money and even forego the need for the storage. As said above however, SMEs must avoid devaluing their brand and should not go below cost even if tempted to because it could have negative consequences down the line as customers will continue to want deep discounts for non-sale goods.
Black November has become fully entrenched in the South African shopper’s psyche. They want and hunt for deals. Use the opportunity wisely and don’t sell out due to desperation. Get your house in order now and ensure that whatever you can do to improve your on- and/or offline service is attended to now, and not left too late in the year.
With so much change going on all around us – new government, new legislation, a fluctuating currency etc., SMEs are at the coalface but they have demonstrated significant resilience as they find innovative ways to make it through the tough times.
As we barrel towards Q3, it is going to be an interesting time for SMEs as the USD is hit by the United States’ political outcome. And if locally the interest rate cycle is finally broken (which some analysts predict will happen in the near term), it will be a welcome change for all.
