Research by McKinsey & Company cites that SMMEs represent more than 98% of businesses in South Africa, employing between 50% and 60% of the country’s workforce across all sectors, and are responsible for a quarter of job growth in the private sector.
This is according to Bonga Xulu, Johannesburg regional portfolio manager at TUHF, who believes SMMEs have a crucial role to play in South Africa’s economic recovery as the Covid-19 pandemic remains an ongoing concern.
However, SMMEs in South Africa have been hit hard by the pandemic. In fact, analysis by McKinsey & Company predicts that more than half of local SMMEs may close their doors permanently before the crisis passes. Given the significant direct and indirect contribution of SMMEs to the economy, their survival and rebound will be critical to the country’s overall recovery.
What makes entrepreneurs so important
There are several reasons for this, Xulu says. “The first is the proven ability of small businesses to have a positive impact on unemployment rates.”
“There are many international studies that indicate the importance of a thriving SMME sector in creating jobs and contributing to reducing unemployment,” Xulu says. “This is because they are often less cautious about hiring people, with little or even no experience, than their large corporate counterparts. SMMEs also tend to promote on-the-job skills development for less experienced individuals, who are willing to grab opportunities and make the most of them.”
The second is SMMEs’ ability to be agile and responsive to changing market conditions and client needs. “Large enterprises often have a lot of policies, processes and procedures that are necessary to manage large workforces and product or service portfolios. But these can hamper their ability to adapt to change or provide tailor-made solutions for clients – particularly in a crunch,” he says.
Xulu indicates that SMMEs are seldom hindered in this way, allowing them to be more innovative, at a faster pace, and even disrupt the industries in which they operate. “Amazon, Uber and Airbnb are just some of the most well-known examples of entrepreneurial vision. Once introduced to market each of these businesses quickly disrupted traditional dynamics of their respective industries – and have since grown to become multinational businesses operating across territories.”
Lastly, in tougher market conditions, smaller businesses offering niche and specialised services through an outsourcing model can, and should, be leveraged by larger entities, to effectively support their growth strategies. “By partnering with SMMEs to outsource non-core business functions, or to access niche skills that may not be available in-house, established large organisations can invest constrained resources in their own recovery and business continuity. In doing this, established companies also play a role in enterprise development by empowering up-and-coming small entities,” says Xulu.
Opportunities for budding property entrepreneurs
“Urbanisation in South Africa is ongoing, as young people continue to flock to our three major cities – Johannesburg, Cape Town and Durban – to seek out opportunities,” Xulu says. “This trend makes investing in residential property in these inner cities a good opportunity for aspiring entrepreneurs because they show consistent above average demand and returns.”
Residential rentals are increasingly in demand in the inner cities as people seek out affordable accommodation with access to amenities and reduced commutes to work. “Systematically developing a property portfolio – such as starting with one’s own small apartment and adding to this as one’s finances grow – puts budding entrepreneurs in a position to build capital that could open doors for becoming property entrepreneurs,” he continues.
Capital and a good track record of managing rentals on a smaller scale is an important first step towards becoming a property entrepreneur. “Entrepreneurs have a responsibility to start out with their own capital, and demonstrate their dedication and ability to run a business successfully, before they approach investors,” Xulu believes, “and a small property portfolio is a great way to do this.”
From here, and with access to funding and the right support and advice, it is possible to grow a profitable, successful SMME.
Funding and advice
“Entrepreneurs who want to grow in the property market should look for funders who understand their market, not only because they are more likely to invest with them but, perhaps more importantly, to gain access to niche business and financial advice,” Xulu recommends. “Because entrepreneurs are often not financial experts – and budding property entrepreneurs come from all walks of life – this access to niche financial and business development advice becomes more and more important as the business grows.”
As an example, entrepreneurs who want to acquire a property for refurbishment in the inner city are more likely to succeed in their application for funding and gain access to expertise in this market from a specialist in inner city rejuvenation than from a traditional commercial bank. Take for instance how one approaches construction and tenanting for the inner-city environment, which could differ greatly from how to approach these in the suburbs.
The right finance provider will also provide the most appropriate financial education for the entrepreneur’s area of interest, ensuring a good working relationship between the two and ultimately increasing the chances of successfully growing an SMME.
“Despite the ongoing difficulties SMMEs face in surviving the pandemic, there is still opportunity to thrive in a post-Coronavirus future, however, focus needs to be given now to supporting SMMEs – through sustainable and scalable initiatives. Without this, positioning the country better for economic inclusion and enablement becomes far more challenging,” concludes Xulu.