According to the 2020 World Competitiveness Yearbook (WCY), South Africa reached its lowest competitiveness rankings when it fell three notches to 59 out of 63 countries. The drop in South African competitiveness rankings was mainly attributed to a drop in economic performance and government efficiency factors.

SMMEs are expected to be the driving force behind South Africa’s social and economic stability because of their labour absorptive capacity and valuable contribution to output and employment creation. SMMEs in South Africa absorb about 63% of the employed population and contribute less than 4% to export earnings, leaving a large margin for growth.

The Impact of Covid-19 on SMMEs

However, with the lockdown regulations resulting from the Covid-19 pandemic, SMMEs have been negatively impacted, with many closing operations indefinitely, shedding jobs and negatively impacting their productivity. This has been aggravated by the slow adoption of the 4th Industrial Revolution (4IR) way of doing business, which could virtually mitigate the negative impacts by ensuring continuity of operations.

A persistent productivity gap exists between SMMEs and larger enterprises. Larger enterprises can exploit economies of scale and invest more in machinery and skilled workers. But, in developing countries likes ours, the dispersion of productivity across enterprises is further widened by the presence of a large segment of informal enterprises.

Productivity SA conducted an online survey in 2020 on the impact of the Covid-19 pandemic on SMME Productivity and Competitiveness and the role of digital technology. Ex-post studies are still limited, and our study seeks to fill that gap by evaluating the impact of Covid-19 on SMME’s productivity and competitiveness. Because of their important role in job creation and promotion of economic growth, protecting and enabling SMME growth during this period of economic turbulence is important, not least because their survival and recovery are likely to be a forerunner for the economy.

If you are interested in access to the full survey report, please contact +27 11 848 5300 or email info@productivitysa.co.za.

Highlights of the Key Findings

SMMEs are very diverse; they vary by size, sector, age, informality status, structure and location:

1. SMME Profile

  • Size: Micro-enterprises account for the largest proportion (45%) of all SMMEs participating in the study, followed by small enterprises (33%). Medium and Large businesses account for 18% and 4%, respectively. In South Africa, more than 45% of total employment can be attributed to the smallest size classes of enterprises of between five (5) and hundred (100) employees.
  • Provincial Distribution: 37% of the respondent SMMEs were in the Western Cape, followed by close to 26% in KwaZulu-Natal and 16% in Gauteng. Mpumalanga (2%), Eastern Cape (4%) and North West (4%) accounted for the lowest participation rate in the survey. There were no survey participants from the Free State, Northern Cape, and Limpopo provinces.
  • Economic activity: More than half of SMMEs in the survey operated in the manufacturing sector (56%). The agriculture, wholesale and retail sectors had an equal distribution (9%) of SMMEs operating in these sectors.
  • Ownership: The majority of SMME owners were male (70%), while 30% were female-owned.
  • Enterprise age of SMMEs: Almost all of the participating SMMEs were older than 3 years.

2. Impact on Labour Force

  • Retrenchments: The impact of the lockdown and the subsequent restrictions had negatively impacted the SMMEs labour force, with 38% stating that they had to retrench staff. Most of the retrenchments have occurred in the micro-enterprises (48%), followed by the Medium and Small enterprise at an equal distribution of 24%.

3. Business Operations

  • Operations: The impact of the lockdown on business operations had been significant, with half of the SMMEs (50%) indicated that they had to stop operations. In particular, 44% of the micro-enterprises indicated that they had to temporarily stop due to government restrictions, reduced orders from customers and Covid-19 cases in their businesses. Over a third of medium businesses were seemingly resilient, with 33% stating that they remained fully operational during the lockdown.
  • Revenue: 82% of SMMEs experienced a reduction in revenue, with micro-enterprises saying they lost more than 50% of their revenue. An overwhelming majority of the respondents (86%) indicated that the reduction in sales was due to low customer spending driven by reduced demand.
  • Operational costs: Apart from the reduced demand, business owners indicated that the effect of the Covid-19 pandemic increased their input costs by 64%. Over half (53%) of micro-enterprises indicated that operating costs increased by more than 20%. Almost 50% of input costs for micro-enterprises consist of PPE costs, raw material, electricity costs, labour costs, fixed overheads, price increase from suppliers, and shortage of raw material.

4. Health and Safety

  • Contracting the virus: 67% of the business owners indicated that none of their employees contracted the virus. To protect workers, business owners had adopted preventive health measures such as providing PPEs to their employees (80%), observing government health protocols (90%, e.g. social distancing), negotiating with workers for revised shifts (80%).

5. Technology

  • Access to technology: 59% of the sampled SMMEs indicated that they did not employ digital technologies in their operations, with micro-enterprises (45%) constituting the most significant share for not employing technology.
  • Remote working: Covid-19 had accelerated the transition to a virtual working arrangement. Only 47% of the respondents indicated that they could accommodate remote working, whereas 53% could not accommodate remote working.
  • Access to online webinars: Almost 85% of the respondents indicated that they could access online webinars/training, with only 15% unable to access online training.
  • Business technology requirement post-Covid-19: The top three reasons cited by respondents when asked what support they needed for their business technology include online presence (digital marketing, media coverage, 42%); technology infrastructure (machinery and equipment, 35%) and cheaper and faster technology (18%).

6. Outlook of the Pandemic on Business

  • Business recovery and resilience: Almost 70% of the respondents indicated that their businesses were most likely to remain operational. In comparison, 31% specified that if the pandemic continued for 6 months, they would not be able to continue operating. The impact of the pandemic and subsequent lockdown restrictions had been significant on micro-enterprise business operations, with 53% suggesting that they were least likely to remain operating for the next 6 months.

7. Government Action Needed by Enterprise

  • Government assistance (business funding): Most respondents (70%) indicated that their businesses qualified for government support measures while 30% didn’t qualify. However, qualifying for government assistance didn’t necessarily result in access to financial support.
  • Government assistance (employee funding): In terms of employee support, the findings indicate that approximately 63% of the SMMEs had their employees receiving TERS support from the UIF, as opposed to 37% who reported that their employees could not receive TERS support.
  • Experience in accessing government assistance: Of those business owners who applied for government assistance, 37% said they found the application process very frustrating due to red tape, and an equal distribution of respondents indicated that they did not receive any response about their application status as well as lack of understanding of the qualification criteria. Some good reviews were given to TERS (8%) though some pointing out that the business relief funding was already exhausted by the time they made applications.

8. What Support Do Enterprises Need

  • Business support needs: The top three priority needs of businesses include improvement in operational efficiency (59%), business advice on diversification of products and sales channels (57%), as well as business improvement planning such as business continuity and turnaround (49%). Least on the rankings in prioritisation by the SMMEs is advice on administrative training and application of labour regulations during the crisis (from CCMA, UIF, Compensation Fund, and Compensation for Occupational Injuries and Diseases).

Recommendations on the Impact of Covid-19 on Productivity

From the survey’s findings, the following summary was recommended by Productivity SA:

Improvement in SMME productivity and competitiveness requires a holistic approach at national, sectoral and enterprise levels. Clear policy priorities must be identified at national level, while sector level strategies are needed to address productivity challenges and enterprise strategies to enhance operational productivity related improvements.

Furthermore, the analysis clearly shows that the SMME sector is very diverse. A key consideration for policy-making is that policies for SMMES need to be based on a differentiation between different segments of the size groups. Specific measures should be considered for micro-enterprises alongside evaluating whether expected positive quantitative and qualitative effects on employment are achieved. Support for micro-enterprises should be continued since they play an essential role in providing income stability and livelihoods, especially a lack of sufficient wage employment.

For recommendations on a national policy level, sector level, and enterprise level, get in touch with us today.