Why small and medium businesses are key to economic recovery in SA

The COVID-19 crisis has led to more than just health issues. With shops shutting down and travel becoming almost impossible, the South African economy has taken a hit that will not be easy to recover from. Small and medium enterprises (SMEs) in particular have been struggling to stay afloat. These businesses play a vital role in supporting the South African economy, and will be key to its survival if they receive the support that they need. 

The South African population is young, and increasingly so. The OECD estimates that around three million young people have entered the workforce over the last few years, and 11 million more will do so by 2030. SMEs play an enormous role in providing these jobs, employing almost half of the workforce. This is not surprising, as SMEs all over the world have been shown to do the lion’s share of reducing unemployment.
The cost of creating a job in an SME is also lower than the same in a larger company, making SME’s the most cost-efficient place to generate employment. Finally, where large multinational companies will often bring employees in from abroad, SMEs rarely use anything other than local labour. The additional benefit is that these are often entry-level jobs that provide training so that the new employee can learn key skills along the way. This ensures not only that they will be employed for now, but will also improve their employability in the future.
By supporting SMEs during the aftermath of the global pandemic, South Africa would be investing in the future of its employment. A growth in SMEs will ensure that the employment situation steadily improves, and will eventually lead to economic recovery, if done sustainably. 

Another key characteristic of SMEs is their affordability. SMEs, on the whole, offer their products and services at lower rates than larger companies. Maintaining affordability will be key to economic recovery, the lower prices set by SMEs will allow many of those who have suffered financially to continue consuming what they need. Making consumption easier will ensure that cash continues to circulate through the national economy, and will strengthen it when dealing with the aftermath of the pandemic. SME’s are also more likely to use local resources, and in doing so they also give back to the national economy. 

Finally, SME’s also have the advantage of flexibility. In a rapidly-changing economic and technological environment, SMEs can adapt faster and more aptly to change. This will be particularly useful for recovery in the coming year or so, when the long-term economic effects of the virus begin to make themselves known. 

SMEs make up more than 98 percent of the nation’s businesses, and different sources estimate that SME’s contribute to between 20-42% of the South African economy. Despite SMEs playing such a large role, South Africa has one of the lowest SME success rates. Though the government has several initiatives in place to promote SME growth, many small business owners are still unaware of these resources. It is important to change this, and to make sure that SMEs have everything at their disposal that they need to thrive. If small and medium businesses can survive and grow stronger in the coming months, then maybe so can the South African economy.