As the nation prepares to hear from President Cyril Ramaphosa on the State of the Nation on Thursday, it is perhaps important to examine a subject that may not be high on his agenda: the state of small business and the plight of entrepreneurs.
Naturally, load shedding, high-interest rates, fuel prices and inflation will receive a fair amount of attention.
It is equally as important to look at the effects all these factors combined have had on small businesses, and it can be summed up in one word, disastrous!
Starting a small business is in itself a risky undertaking. The state of the South African economic landscape makes it even more perilous.
The past has seen a large number of entrepreneurs shut down their businesses as the situation has become increasingly untenable.
Load shedding
South Africa has been in the unforgiving grip of load shedding for the better part of the last quarter of 2022, and the country has experienced load shedding every day of 2023 so far.
The loss in productivity, as a result, is unprecedented.
According to Daily Investor, South Africa lost in the region R560 billion in 2022 as a result of load shedding.
Heartbreaking stories about how entrepreneurs have had to close their businesses as a result of load shedding have dominated media reports over the past few weeks.
Ironically, one such story is that of entrepreneur Thando Makhubu, who was praised by Ramaphosa at the last Sona for using his R350 Covid-19 relief grant to start a business.
“Mr Thando Makhubu from Soweto received the R350 grant for seven months last year and saved it to open an ice cream store that now employs four people,” said Ramaphosa.
Mr Thando Makhubu from Soweto received the R350 grant for 7 months last year, and saved it to open an ice-cream store that now employs four people.
— Cyril Ramaphosa 🇿🇦 (@CyrilRamaphosa) February 10, 2022
Today, Makhubu’s business, Soweto Creamery, a gourmet ice cream business, is at risk of closing down as a direct result of the persistent power cuts attributed to load shedding.
“It’s really, really terrifying because we are a small business, and we are trying to grow. Profit is really important for the growth of Soweto Creamery, and if it continues to hammer us like this, we won’t be able to grow,” Makhubu told Newzroom Afrika.
“As I was telling you, a week ago, we did not have electricity for like 72 hours, and we could not afford to lose our stock. We spent over R1 000 on petrol, obviously running the generator.”
This is but one of many stories depicting the plight of many small business owners.
Inflation
Inflation has hit entrepreneurs hard, and the price of food and other goods continues to increase. This has created an environment where entrepreneurs in the food industry have found it difficult to make a profit as their margins decrease.
Food prices rose significantly in December 2022, where a basket of goods cost 13.5% more than the previous year.
The Household Affordability Index by the Pietermaritzburg Economic Justice & Dignity group shows that food prices in South Africa continued to increase in December, resulting in South Africans facing a tough new year.
In December 2022, the group’s basket of nutritional foods came to R4 853.18, an increase of R17.21 (0.4%) from R4 835.96 in November 2022.
In comparison to December 2021, it had risen by R577.24 (13.5%) from R4 275.94.
Entrepreneur and The Wife actor Thando Majola closed down his food trailer when he could no longer afford to buy stock and break even.
“Today, I bid farewell to Humble Cafe. Inflation has proven to be the most crippling thing for us small business owners, and I’m sick to my stomach to have to close my doors. This is all I’ve ever had. My heart is aching,” Majola tweeted, announcing the closure of his food trailer business.
Today I bid farewell to Humble Cafe. Inflation has proven to be the most cripling thing for us small business owners and I’m sick to my stomach to have to close my doors. This is all I’ve ever had, my heart is aching, 💔 https://t.co/mwkqtCs5GD
— Linda Majola (@majola_lindah) February 2, 2023
Speaking to IOL, he lamented the conditions that led to his business failing.
“The biggest problem for me was inflation. I would go one week and buy some stock and then go back the following week, and it would cost me twice the amount I paid the week before.”
”Things like load shedding prevent us from buying in large quantities because we don’t want to see the food spoil. Fuel prices mean transport becomes costly. Electricity prices are rising, and people’s buying power has also decreased. Instead of buying from the trailer, they would rather make a sandwich and eat at home. So inflation has had a domino effect,” said Majola.
The closure of his business also means two more people no longer have employment.
Rising fuel prices
Fuel remains one of the most expensive operating costs for SMEs. Not only does it affect the cost of goods and services, as a result of load shedding, businesses now have the added burden of factoring in the cost of buying fuel to run generators, eating away at profits.
During stage 6 power cuts in September 2022, businessman and entrepreneur Angelo Zachariades expressed his frustration on Twitter.
Zachariades lamented having to spend R1800 or more a day on fuel just trying to keep his doors open.
“So when our new restaurant opens and we have stage 5 load shedding over a weekend our generator will be running for 8 hours a day using say 9l of diesel an hour = 72l a day at say R25 a litre = about R1800 a day” he tweeted.
So when our new restaurant opens and we have stage 5 loadshedding over a weekend our generator will be running for 8 hours a day using say 9l of diesel an hour = 72l a day at say R25 a litre = about R1800 a day
— Angelo Zack (@OldManZack) September 17, 2022
How? How are we supposed to operate like this
These are just some of the factors that have resulted in the carnage we are witnessing in the small business sector, and they cannot go unacknowledged. It is fair to deduce that if the status quo remains, it does not bode well for the prospects of South African entrepreneurs.
It remains to be seen what tomorrow’s Sona holds for small businesses. We can only hope that some interventions are put in place to assist this vital sector of the economy.
IOL Business