According to a study done by Mckinsey & Company, South Africa’s SMEs make up 98% of South Africa’s businesses, employ 50% of the country’s workforce, and account for job growth in all sectors. Although Europe has a slightly better GDP contribution from SMEs (57%) and a higher share of employment within this sector (60%), there is no doubt that South Africa’s SMEs are the lifeblood of the economy and contribute 37% to the country’s Gross Domestic Product.
During Lockdown Alert Level 4 and 5, the country’s lockdown rules were among the strictest 25% of countries in the world found by data released from the University of Oxford’s Blavatnik School of Government.
As confirmed by PWC in their South African Economic Outlook Report released in February 2021; “Google Community Mobility data shows that during the second quarter, workplace activity was 45% lower compared to the pre-pandemic reference period. In addition to the millions of jobless in the country at the start of the year, an additional 2.2 million people were without work during the April – June period. PWC estimates that only 900,000 of them returned to a job by year-end, which resulted in a net loss of 1.3 million jobs by the end of 2020.” PWC also estimates that the South African economy contracted by 8.8% in 2020 as South Africa was in some form of lockdown for 279 days in 2020.
Looking ahead, PWC expects that South Africa’s economy could expand within 3.4% – 6.7% in 2021, with a possibility of 467,000 jobs to be recovered this year. As it stands in 2021, a total of 3 million jobs have been lost as a result of the global Pandemic. Statistics South Africa (Stats SA) has released the country’s unemployment rate that has shown a daunting increase to 32.5%. This is a grieving record for South Africa, as the number of unemployed citizens has now grown to a total 7.2million.
For Entrepreneurs still dreaming about building a successful SME to add value to our economy, Africa IT Hubs shares Mckinsey’s four areas where SMEs can take action to mitigate challenges during the crisis.
1. Leverage technology to reach new customers or provide a distinctive value proposition:
Digital and new technologies create an opportunity for SMEs to enhance their reach and efficiency at lower costs, overcoming the scale disadvantage they have relative to larger players. SMEs can focus on key areas of competitiveness in their value chain, product, and/or operations and identify the best technology levers to enhance competitiveness.
2. Develop clearer market access strategies:
SMEs can be more structured and holistic in developing their go-to-market strategies to increase their market share and also reduce the risk inherent in concentrating their sales with one to three large customers..
SMEs can be more structured and holistic in developing their go-to-market strategies to increase their market share and also reduce the risk inherent in concentrating their sales with one to three large customers..
3. Drive efficiency as well as sales:
Most SMEs focus on increasing sales and managing cash as priorities. SMEs that also focus on operational efficiencies can drive further competitiveness to support sales, while also potentially creating increased capacity in the business.
4. Develop team skills and capabilities and empower leadership:
SMEs on a fast growth track can struggle to scale up growth, particularly when founders are still actively involved in the business. By investing in capability building, particularly at a leadership level, SMEs can create more capacity for senior leaders to focus on growth and strategy to ensure sustainability.
A large number of South African SMEs have the potential to turn into the African unicorns this continent needs to continue on its path to economic growth. Africa IT Hubs strengthens entrepreneurs in Africa by equipping the next generation of business visionaries with the tools and knowledge to become global future pioneers in rural Africa. Visit www.africaithubs.co.za to learn more about our Entrepreneurs in Africa Mentorship Program.