SMMEs On Brink Of Collapse, Feel COVID-19 Brunt
Pauline Dikuelo | Monday August 17, 2020 15:17
Business Monitor has established that most SMMEs are heavily traumatised by the impact of COVID-19 on their liquidity position and business survival.
Since the outbreak, most of the SMMEs have been operating under uncertainties, with some forced to lay off their employees as they could not afford to pay salaries anymore.
Maitumelo Mafoko, who owns Mabapi Fire Training School fears she would soon be out of business if lockdown lingers on.
“The pandemic has affected our strategy as almost everything is on standstill. Our business is dependent on the construction industry which has stopped and our fire trainings have also stopped as we adhere to the social distancing protocols,” he said.
Mafoko added they are also struggling to get their equipment which is currently stuck in South Africa as transportation charges have skyrocketed.
“Pricing is also an issue because almost every business has been affected and companies are cutting down their budgets,” he said.
Another entrepreneur Moroba Tsagae, a street vendor who sells fruits and vegetables said she has not been able to generate income for the past four months despite being a breadwinner.
“I am depressed, I have struggled to get a permit to go and get my products, and even selling during lockdown is not easy as I don’t even have a car to deliver my products, Tsagae highlighted her plight.
Sametsi Kgatsele is another street vendor whose business has been badly affected by the COVID-19.
She said she normally sells food around bars but that has not happened because of the lockdown.
“It’s very sad because I cannot even afford to pay rent and have now used all my savings,” she said.
A small business owner who preferred anonymity said he had to let go some of his staff last month because his cleaning company could not afford them anymore.
A recent snap survey by the Local Enterprise Authority (LEA) has found that about 63% of the sampled SMMEs had suspended operations due to the COVID-19 crisis.
Meanwhile, the impact of the pandemic could also have the potential spillovers into financial markets with further reduced confidence and reduction of credit in SMMEs.
Effect on SMMEs is severe, particularly because of higher levels of vulnerability and lower resilience to their size.
For the past decades, high numbers of local SMMEs have failed in their first phase of operation, which is normally the first three to five years.
Those that survive usually continue to operate in conditions of uncertainty due to market volatility, intense competitive rivalry, lack of marketing skills and shortage of serviced land.
The International Labour Organisation estimates the impact of COVID-19 to result in a rise in global unemployment of between 5.3 million (“low” scenario) and 24.7 million (“high” scenario), signalling that ‘sustaining business operations will be particularly difficult for SMMEs.
Meanwhile, the International Monetary Fund's latest Economic Outlook updates projects a decline in global GDP by 4.9 percent in 2020, 1.9 percentage points below the April forecast, followed by a partial recovery, with growth at 5.4 percent in 2021.
The June 2020 World Investment Report (Unctad, 2020) forecasts a decline in global foreign investment by up to 40% in 2020, with a further decrease by 5-10 percent in 2021.