South Africa has one of the highest failure rates for SMEs, with five out of seven companies going bankrupt in the first year, according to specialist advisory service Cova Advisory.
During a webinar held at the end of April, the group highlighted the crucial importance of SMEs in job creation, due to their greater capacity to absorb labor, with a lower average cost of capital per job created.
âSMEs play an important role in solving the big challenges of unemployment and inequalities in our country, but we are not doing well,â said Cova Advisory director Tumelo Chipfupa.
âThe failure rate in South Africa is higher than in many other places in the world, with access to finance a major obstacle. Only 6% of SMEs say they have received government support. “
Tanya Fouche, head of business development at Aurik Enterprise Development, suggested that the government “is under great pressure to create jobs and is trying to use business and supplier development programs to stimulate start-ups.”
âHowever, we are finding that working with existing businesses and bringing them into a more sustainable growth model creates more jobs and a greater contribution to the economy.
âCurrently, the biggest gap for businesses in reaching their preferred sourcing points is sourcing from black women-owned businesses, as well as designated groups such as youth and people with disabilities. .
âIt appears that there is a great shortage of businesses in this space and so we are seeing a lot of start-up business programs designed to support the creation of these businesses.â
Data released by Statistics South Africa last week shows a sharp annual increase in liquidations across the country, largely attributed to the Covid-19 lockdown.
Liquidation refers to the winding-up of the affairs of a corporation or private company when liabilities exceed assets and it can be resolved by voluntary action or by court order.
216 companies were liquidated in March 2021, up from 178 the month before – a jump of 21%. Voluntary liquidations increased by 61 cases and forced liquidations by 10 cases.
This is 49% more than the total liquidations recorded in March 2020. The report also shows that the total number of liquidations increased by 18.9% in the first quarter of 2021 compared to the first quarter of 2020.
Of all sectors, finance, insurance, real estate, business services (77 liquidations), trade, catering and accommodation (47) and industry (10) are the hardest hit.
Commenting on the data, BeyondCOVID co-founder Lings Naidoo said it’s not that more and more companies suddenly find themselves in trouble, but rather that they have struggled for many months before having to shut down. . This is especially true for small and medium businesses.
âOur research has shown that small, micro and medium-sized businesses, in general, are 26 times more likely to close their doors during times of economic upheaval than their corporate counterparts,â Naidoo said.
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