SMMEs are crucial in the development of the economy. These are the three reasons why this sector is struggling in South Africa.

Article by Andile Sicetsha on The South African

The status of Small, Medium and Micro-sized Enterprises (SMMEs) is crucial in the development of a country’s economy. In South Africa, this sector struggles to draw in the sufficient capital and employment contribution to grow the economy.

It is hard enough to start and run a business in our poor economic climate, and there is not enough data to answer the ‘Why’ question. That is why we have come up with three critical reasons why SMMEs struggle in South Africa.

SMMEs are never paid on time

Xero conducted research on the financial challenges that this sector has to deal with. One of the factors that stood out was that South African small businesses spend around 6% of their time (working days) chasing payments.

It takes an average of ten days for small businesses to get their invoices paid. Customers and clients, alike, are hardly able to clear their debts to small businesses on time and the common denominator is: they are also waiting for payments themselves.

For SMMEs, this issue affects cash flow and reduced morale in the workplace.

SMMEs cannot afford to pay for skilled labour

With small businesses struggling to chase down payments from the government and macro-sized businesses, it gets harder for this sector to attract skilled labour.

According to Business Unity South Africa, while 25% of SMMEs are able to pay the minimum wage, three-quarters of them either struggle or can just not afford to pay the salaries needed to acquire skilled employees.

The scarcity of funding is hurting business continuance

According to Benard Swanepoel, the former CEO of Harmony Gold and Village Main Reef, SMMEs are responsible for 28% of employment in South Africa.

However, this is the sector that has the highest staff turnover and that is because small businesses struggle to stay afloat. Swanepoel surmised this issue perfectly when, in a recent interview, he said“In South Africa, we are an anomaly. We (the economy) are dying instead of growing”.

Banks and other lenders are only interested in funding small businesses in later stages of development.

Lenders are often reluctant to fund a business when it is still at its start-up phase. According to a report compiled by GEM South Africa, these are the chief reasons why business discontinuance is rife in the country.