SME’s Suffering from A Sluggish Economy

Small and medium-sized enterprises (SME) are being hammered by bad news, as they suffer from a sluggish economy and negative sentiment. The sector has been affected by political uncertainty, high cost growths, increased fuel prices and racial boycotts, amongst other things. This makes the investment case for growing the business and hiring people very difficult.

“We’ve had a sluggish economy for a while, but for the first time we are seeing businesses experiencing year-on-year declines in turnover – some by up to 30% – which is unsustainable in a sector where there’s a high fixed cost component needing to be serviced, ” says Karl Westvig, CEO Retail Capital that funds national SME retailers and restaurants. “With our access to SMEs payment systems and their real trade trading figures, we can see how they are trading on a daily basis as well as if and when they plan to invest in their businesses.”

Investing in SME’s – especially those that are black-and women-owned – is critical to the development and well-being of any society, altering the way it functions. SMEs contribute significantly to the growth of the economy, driving and shaping innovation as well.
“It’s very tough being an SME retailer right now,” Westvig says. “Consumers aren’t spending as they are servicing their debts built up over 15 years. Many industries are retrenching which takes cash out the economy. Large corporates are hoarding cash in this uncertain environment.”

In fact for South Africa to achieve inclusive growth, these businesses should be treated as national assets to be cultivated, motivated and recognised to the greatest possible extent.
The prospects for growth is laid upon the shoulders of SMEs – that collectively contribute 50%-60% to GDP – but they can only succeed if the public and private sectors work together to bring about change and foster opportunities for economic growth with this development being encouraged through a favourable policy environment.

Both the public and private sectors need to focus on a collaborative effort to support the work of SMEs that make up more than 80% of formal business in SA – by providing them with procurement opportunities.

“A generation ago, young people only thought of following well-defined career paths. Now our education system needs to equip young people with skills required to be successful entrepreneurs,” he advises. “We need to promote entrepreneurship as a viable career option as the formal sector’s employment opportunities are unable to support the growing number of young people looking for jobs every year.”
Large businesses need to start reinvesting in the economy, appreciating the contribution made by SMEs and aiding in job creation within the sector.

“The developmental effect of investing in SMEs can be increased by access to finance to enhance their sustainability,” Westvig concludes.

For more information on getting access to working capital, visit www.retailcapital.co.za

Erin Louw

Author Erin Louw

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