Over half a million new businesses were registered in 2020, an increase of more than 30% from the previous year, according to Companies and Intellectual Property Commission (CIPC) reports. This seems counterintuitive given the economic destruction that has been caused as a result of the Covid-19 pandemic. John Dludlu, chief executive officer of the Small Business Institute talks about the hardships and pain experienced by many in the Small, Medium and Micro Enterprises (SMME) sectors in South Africa following the data released by the CIPC. Dludlu explains that many of these businesses are being opened due to pure desperation as many look to regain their livelihoods. Dludlu unpacks the tough operating environment experienced by SMMEs over the past twelve to eighteen months, with availability of funding and lack of government support a headwind for the sector. – Justin Rowe-Roberts
John Dludlu on the record number of businesses being created in the midst of a global pandemic:
Yes, it does sound very counterintuitive because our research shows a very different picture, a picture of devastation. But this is also very understandable that in a country where as many as a million jobs were lost during the first hard lockdown of the pandemic last year, some people ended up resorting to setting up their own businesses. What is, however, very surprising is the numbers that are recorded by the CIPC – in other words, this is the formal sector economic operators. One of two things is a possibility here. The first one, is people are chasing livelihoods – having lost their livelihoods – because only about half a million people did return to their jobs. The rest did not return to their jobs. So I’m not suggesting for a minute that all people started their own businesses. But the second possibility, is that people wanted two things – they wanted access to funding and they wanted access to opportunities. And we know the opportunities that arose last year were around the Covid related PPE procurement, which would then suggest that perhaps we really did not create entrepreneurs. We might have created ‘tenderpreneuers’. But we need to drill down on these numbers to find out the key motivations of these people. But it’s not surprising that during a very stressful period that people take their life savings to set up something to provide livelihoods to their families.
On the reasons behind a record number of businesses being created:
Complete desperation, as well as opportunistic reasons to take advantage of the government procurement. For example, you need to be registered and there is no better way of accessing these opportunities than setting up a new enterprise which is not encumbered by debts and employees. So what else would have happened in the economy? If you look at the liquidation numbers, they have gone up. So you’ve had new people coming in. But those may actually be the same people who have just deregistered their businesses and set up new enterprises and laid off workers. I think it’s a very good lesson because in 2008, what you did see was a bloodbath. Yes, there may be new businesses that would have been registered, but this did not contribute to two things – they did not contribute to economic growth and they did not contribute to employment creation. So essentially, all you had was – and I don’t mean to be disrespectful here – but I think you had quite a few shell companies and very opportunistic ‘tenderpreneuers’.
On whether SMMEs are receiving the necessary support from banks and government:
No, sadly. It’s not the case. So the National Development Plan says the following – it says that as many as 90% of new jobs must come from the small business segment of the economy by 2030. Where we now? According to our research of 2018, we found out that that the backbone of the economy is SMMEs in South Africa. 224 000 of those that were registered at the time with the CIPC Revenue Service and the UIF. However, how much employment were they creating at the time? 3.9 Million jobs. Now, that was 28% of formally employed people at the time. It makes us an outlier economy because successful and progressive economies tend to have 60% to 70% of those jobs coming from the SMME segment.
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Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa’s rise to presidential power, narrated by our very own Alec Hogg.
Narration by Alec Hogg