Like everywhere else small businesses in South Africa face a myriad of challenges, with an estimated 70% to 80% of them failing within their first five years. Their uphill battles are well documented as well as the state’s multitude and continuous interventions (some with success) to help them thrive. But unlike its competitor economies, South Africa has a unique set of problems that complicate life even further for small businesses. The most important is the availability and stability of electricity.
No matter how much the government does to reduce the red tape of doing business, ensure access to financing and help with upskilling entrepreneurs unless it ensures a stable power supply, the rate of failure amongst our SMMEs will no doubt be even higher. No one can argue that South Africa is facing an electricity crisis and its knock-on effects will be felt for many years to come.
While it is difficult to find statistics on the impact of load-shedding on small enterprises, nearly every day we hear stories across our country about a small business that has had to shut its doors due to load-shedding. And Vutivi News has covered many stories of power cuts eating into business profits, destroying retailers’ products and leading to the deaths of livestock that depend on heated pens to survive, or automated feedlots that will fail without reliable power.
And while their large counterparts can afford generators to keep the lights on, it is a very different picture for most small businesses. According to research published in the Academy of Entrepreneurship Journal this year, which focuses on SMMEs in one of the country’s six metros, Nelson Mandela Bay, load-shedding had a negative impact on their costs and sales.
Respondents said that costs to cover power cuts came directly from their bottom line, which reduced profitability and robbed them of funds that could have been better used for expansion. And with regards to minimising the impact of load-shedding, they spent more money on internal and external security breaches, those who could provide backup generation had to make huge capital investments, and revenues were affected as many stores stop selling during load-shedding.
Also, a drop in consumer demand, reduced capacity to deliver services and problems in handling payments contributed to a decrease in revenue even when stores could begin trading again. Some participants in the research reported an improvement in revenue as some customers returned, but this could only account for a small recovery in lost sales.
Every other week a list of tips is published by private sector consultants on how SMMEs can survive. These include having their generators insured, ensuring that their information is stored in the cloud to avoid losing work, purchasing a UPS (uninterrupted power supply), adopting flexibility and staying up to date with schedules. But in reality, most South African SMMEs do not have the capacity to do this.
The growth of small businesses is a key national development goal for the government. The state is looking to small businesses to create at least 90% of our jobs by 2030. That is impossible without a stable power supply. South Africa’s electricity crisis means our world-leading rates of unemployment will stay right where they are and SMMEs will continue to battle.