SMEs surviving recession

Johannesburg - Small businesses are surviving the recession - but perhaps only because there is no safety net.

"They have to survive," says Professor Nicholas Biekpe, president of the Africagrowth Institute. "They have no choice. There is nothing to fall back on."

This is Biekpe's reaction to the provisional results of the 2009 SME Survey, which indicates that only 5% of small and medium enterprises (SMEs) are currently trading at a loss while about 67%, according to the owners, are still profitable.

Of these, 39% say their businesses are only just profitable and 28% reckon their businesses are very profitable.

According to Arthur Goldstuck, managing director of World Wide Worx and chief researcher of the 2009 SME Survey, a far worse picture had been expected.

He says the study has found that SMEs faced increased challenges last year.

First there were the power cuts, then the rapidly increasing fuel prices, and finally it seemed the interest rate had no ceiling.

Biekpe reckons the 5% of the SMEs showing losses are a significant proportion in terms of the number of SMEs in this country.

The surprising strength of the SME sector has more to do with management of costs than with normal, organic growth.

"Most SMEs are now cutting costs to keep their heads above water - this includes lay-offs, marketing and the postponement or cancellation of investments in new projects."

He also believes it is important to remember that most small-business owners rely solely on their enterprises to pay their accounts and, for instance, motor-vehicle instalments.

"In times of deep recession the only basic instinct that works for SMEs is their owners' survival instincts," Biekpe observes. Goldstuck says the study makes it clear that confidence and survival go hand in hand.

Some 5% of the respondents have no or very little confidence they can survive the recession, while 28% show high confidence and 31% very high confidence in their abilities.

In all, 36% say they have neither high nor low confidence and this, in Goldstuck's view, is concerning since a further weakening could drive these businesses over the edge. "Any significant shock to the enterprise could threaten its viability."

Africagrowth recently announced that business confidence among small, medium and micro enterprises (SMMEs) was essential at the lowest level. Its index has declined for the second successive quarter, and business confidence for the second quarter of 2009 was at 40.23% - 0.79% down on the first quarter.

The SME Survey is sponsored by Standard Bank, the National Youth Development Agency (previously the Umsobomvu Youth Fund) and Fujitsu.

The study has been conducted for the past six years and 2 500 business owners are questioned on aspects affecting their businesses.

This year's study investigates SMEs' ability to deal with the first recession in 17 years, while most of them have, according to Goldstuck, never before done business in a shrinking economy. The final results will be announced in October.


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