Article provided by Lulalend
In President Cyril Ramaphosa’s address to Parliament on 15 October 2020 regarding South Africa’s Economic Reconstruction and Recovery Plan, he highlighted the importance of Small, Medium and Micro Enterprises (SMMEs) in rebuilding the country’s economy.
Central to his plan is the goal of reindustrialising the economy by focusing on growing the approximately 3.5 million small businesses.
According to data from the World Bank, SMMEs represent about 90% of businesses and more than 50% of employment globally. In emerging economies, like South Africa, it showed that formal SMMEs contribute up to 40% of national income. Add the informal economy to this statistic and this amount goes up even higher.
Apart from income, research from the Organisation for Economic Co-operation and Development (OECD) puts the contribution of total employment by SMMEs between 45-50%.
Trevor Gosling, Co-founder and CEO of Lulalend, believes the role that SMMEs play cannot be underestimated. “Investing in and helping to grow these companies makes sense for our country. Not only do they contribute significantly to South Africa’s GDP and job creation, but even more importantly they are critical to driving more inclusive economic growth. For example, studies have shown nearly 40% of SMMEs are owned by women.’’
SMMEs also act as a cushion against recessions by adapting faster to changing market conditions.
“Leaner, smaller companies are versatile enough to execute ideas faster than larger companies. This works to their advantage, allowing them to contribute substantially to the development of various sectors such as manufacturing, retail, and ICT services,” Gosling adds.
Since the move down to Level 1 of the lockdown regulations, Lulalend has seen growth-related funding applications increase in each of these sectors. By 41% in manufacturing, 30% in retail and 35% ICT.
He says that two of its clients understood the need to reengineer their operating models to meet the demands for products used to help combat the Covid-19 pandemic.
WEBPRINTER successfully switched from its core business of paper and printing during the national lockdown to supplying PPE face shields to schools in need. A similar move was made by Y2K, which moved out of supply chain management for industrial equipment to focus on ICT and hand sanitizer supplies.
Apart from changing their business models, going digital has had enormous benefits for many SMMEs.
Gosling explains that while malls have seen a marked decrease in in-store foot traffic and spending, many omnichannel SMMEs have been able to offset this through the significant increase in online sales. “During South Africa’s national lockdown, for example, eCommerce grew by around a staggering 40%.”
“We saw similar patterns with a notable increase of 20% in loans made to online retailers,” he adds.
Despite some of the advances being made, Gosling says that small businesses are often held back by poor cash reserves or a lack of funding. “According to a recent TransUnion survey, almost 50% of SMMEs listed access to funding as the main barrier to growth. The reality is in most instances, traditional lending options aren’t always available to small businesses.”
“Small businesses need to be cautious and have a contingency plan,” Gosling points out. “With the current market volatility, they need to ensure that they manage their cash flows and build up sufficient cash reserves to improve their liquidity.”
“For SMMEs to thrive, not just survive, it starts with having the capital they need, when they need it, to achieve their short and long-term goals. Not only is this important for their business growth, it is just as important for the country’s economic growth,” says Gosling.