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With regard to the enterprises’ belief in surviving the initial lockdown
COVID-19: Economic prospects for SMMEs
Survey – how are SMMEs coping with the coronavirus lockdown and the measures taken to re-open the economy?
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The Inclusive Society Institute shares government’s concerns with regard to the spreading of the coronavirus and supports efforts aimed at flattening the curve. At the same time, it recognises that the current measures deployed by government are taking their toll, especially as they affect the SMME sector. The institute carried out its first COVID-19 SMME survey in April 2020, the results of which pointed to areas of serious concern. Since then, government has announced a phased approach to the re-opening of the economy, with the first steps taken with effect from 1 May 2020. This second survey assesses the SMME sector’s current position apropos the performance, sustainability prospects and opinions regarding their own and the country’s economic future. The survey was undertaken over the period 5 to 7 May 2020.
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Inclusive Society Institute
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DISCLAIMER
Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members.
All records and findings included in this report, stem from the survey on the impact of COVID-19 on the SMME sector, which took place over the period 5 to 7 May 2020.
CONTENT
1. Setting the scene and objectives of the survey
2. Key findings 2.1 Findings on how SMMEs coped during the initial lockdown ended 30 April 2020 2.2 Measuring the support of SMMEs for the phased opening of the economy and how they are coping with the gradual opening up thereof 2.3 Testing SMMEs confidence in the future of the economy and gauging SMME confidence levels in the country’s leadership with regard to the COVID-19 policymaking and management 2.4 General observations 2.5 Selected sectors’ performance in relation to the SMME sector in general
3. Methodology
4. Recommendations
5. Summary of detailed data 5.1 Summary of detailed data for all enterprises surveyed 5.2 Summary of sectoral data regarding phased re-opening of the economy 4
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List of figures
Figure 2.1: Breakdown of reasons given by SMMEs that are not in agreement with phased re-opening of the economy Figure 2.2: Reasons given by SMMEs that are in agreement with the decision to phase in the re-opening of the economy Figure 2.3: April vs May comparative analysis with regard to prospects for enterprise survival and cash flow Figure 2.4: Comparative analysis with regard to jobs losses under three scenarios Figure 3.1: Composition of SMME enterprises surveyed Figure 5.1: Comparative analysis of selected data: Sectoral vs All SMME average 7 8 8 9 11 18
6. References 19
SETTING THE SCENE
1. Setting the scene and objectives of the survey
On 31 December 2019, the World Health Organisation (WHO) was informed about the outbreak of a pneumonia of unknown cause, which was detected in the Chinese city of Wuhan. On 30 January 2020, the WHO declared the outbreak a Public Health Emergency of International Concern; and on 11 February 2020 it announced the name for the new coronavirus: COVID-19 (WHO, N.d.). On 12 March 2020, Dr Hans Henri P. Kluge, WHO Regional Director for Europe, confirmed that COVID-19 was declared a pandemic (WHO, 2020).
On 5 March 2020, South Africa’s National Institute for Communicable Diseases announced the first case of COVID-19 in the country (NICD, 2020). With more and more cases being declared on a daily basis thereafter, the President of the Republic of South Africa announced on the evening of Monday, 23 March 2020, that in terms of the Disaster Management Act, in a decisive effort to save millions of South Africans from infection, a nationwide lockdown for 21 days would come into effect at midnight on Thursday, 26 March 2020. During the lockdown, all South Africans, except for designated essential workers, would have to stay at home and would not be allowed to leave their homes except under strictly controlled circumstances (RSA, 2020).
The president acknowledged that the measures would have a considerable impact on people’s livelihoods and on the life of society and the economy, but believed that “the human cost of delaying…[the] action would be far, far greater” (RSA, 2020). Workers and enterprises exempted from the lockdown included health workers in the public and private sectors, emergency and security services personnel, other persons necessary in response to COVID-19 and “those involved in the production, distribution and supply of food and basic goods, essential banking services, the maintenance of power, water and telecommunications services, laboratory services, and the provision of medical and hygiene products” (RSA, 2020).
All other workers had to stay at home for the full period of the lockdown and enterprises not considered essential had to remain closed. While emphasising the importance of a lockdown, the president urged all firms that were able to continue their operations remotely, to do so (RSA, 2020).
In response to the impact that the lockdown will have on the economy, government announced various relief measures aimed at assisting enterprises to retain staff and remain afloat. These included amongst others, the setting up of a Solidarity Fund aimed at assisting small businesses to endure, the setting up of a temporary employee relief scheme and debt relief schemes for both enterprises and employees (Mail & Guardian, 2020).
Other measures included employer relief measures, such as the provision of a four-month tax subsidy for employees in the private sector. The aim thereof would be to encourage employers to retain workers during the lockdown. It was also announced that the payment of employment tax incentive reimbursements would change from twice a year to monthly, so as to ensure that cash got into the hands of compliant employers as soon as possible, and tax compliant businesses with a turnover of less than R50-million were, for a four-month period, allowed to delay 20% of their employees’ tax liabilities. A portion of their provisional corporate income tax payments could also, over a six-month period, be deferred without penalties or interest (Deloitte, 2020).
On the evening of Thursday, 9 April 2020, the president announced a further two-week extension of the lockdown (News24, 2020). At
the time of undertaking the initial survey, the lockdown was scheduled to run until 30 April 2020. But, on Thursday, 23 April 2020, the president announced a 5-level lift of the national lockdown. The first level reduction came into effect on 1 May 2020.
The Inclusive Society Institute, with a view to post-COVID-19 policy planning, undertook a survey of SMMEs over the period 5 to 7 May 2020. The timing of the survey allowed for the SMMEs to first become acquainted with the government regulations, which were published by the various ministers in the Government Gazette in the week following the president’s announcement.
The objective of this particular survey was fourfold:
To assess how the SMMEs coped during the initial lockdown; To assess how the SMMEs are coping under the gradual re-opening of the economy; To gauge the views of the SMME sector with regard to both their and the country’s economic prospects; and To gauge the level of support for the president, his cabinet and the measures they have taken to combat the coronavirus.
As previously stated, the survey period ran from Tuesday, 5 May 2020 and closed at the end of business on Thursday, 7 May 2020. It should therefore be viewed as a snapshot of SMME thinking during said period.
The institute will promote the survey to public policymakers as a further contribution towards consolidating national reflexion on economic recovery. The institute supports economic measures that will enhance equality, inclusiveness and solidarity.
KEY FINDINGS
2. Key findings
Once again, as in the survey amongst SMMEs carried out during the initial lockdown period, the urgency to issue the report, required the interpretation to be restricted to mainly a globular overview of all the enterprises that participated in the survey. It does, however, also provide a high-level analysis of the four largest sectoral components of the survey, namely manufacturing, wholesale and retail, construction and services. The report covers the data captured for 1 012 enterprises from across all sectors and all provinces. With minor exclusions, they are micro-, small- and medium-sized enterprises.
The enterprises surveyed represented a workforce of around 27,140 and a combined turnover of at least R18,846,424,705.
These findings restrict themselves to three main themes:
(i) How SMMEs coped during the initial lockdown ended 30 April 2020. (ii) Measuring the support of SMMEs for the phased re-opening of the economy and how they are coping with the gradual opening up thereof. The survey was conducted on the basis of the Level 4 lockdown being in place until 31 May 2020. (iii) Testing the SMMEs confidence in the future of the economy and gauging SMME confidence levels in the country’s leadership with regard to the COVID-19 policymaking and management.
From the SMMEs surveyed, slightly more than half – 53 per cent – were classified as essential services. Despite this, 82 per cent of the enterprises were not able to operate during the initial lockdown. In addition, to exacerbate the challenges, 78 per cent of the enterprises were not able to get up and running at the end of the initial lockdown, that is, when the phased opening of the economy was introduced. Sixty-three per cent of the enterprises did not have the necessary cash flow to see them through the initial lockdown and they had to dismiss 12 per cent of their workforce.
With regard to the loss of jobs, using the employment figures contained in the 2019 SEDA report as the basis for this survey’s estimations, up to 1,300,658 jobs were lost in the SMME sector during the initial phase. That is 12 per cent of the 10,838,819 number of jobs in this sector (SEDA, 2019).
However, as found in the previous survey amongst SMMEs, the negative impact on jobs will be considerably mitigated once the economy re-opens. Two thirds of the enterprises indicated that they would re-employ staff once the lockdown is ended and/or when cash flow allows. This would mean that at least 838,434 lost jobs will be recouped once the economy gains momentum. It is important to note that a far higher percentage of respondents – 15 per cent as opposed to 0,5 per cent in the April survey – were not sure of what they would do.
On the availability of cash flow to see the enterprises through the initial lockdown that ended on 30 April 2020, the actual position (63 per cent of enterprises) remained bleak but represented somewhat of an improvement over the sector’s initial expectation. However, it should also be noted that the number of employees retrenched increased substantially, which may have impacted the enterprises’ cash flow. The link between available cash flow and employee retrenchment was, however, not tested.
The majority of SMMEs continued to believe that the enterprise will survive the initial lockdown, although the percentage declined from the previous survey. Fifty-nine per cent believed that they would survive, whilst 38 per cent believed they would not. Three per cent were not sure.
1. With regard to workers: Whereas the previous report indicated the potential job losses to be in the region of 7,5 percent or 812,986 jobs, in reality this grew to 12 per cent, with the job losses closer to 1,3 million. Furthermore, in the previous survey some 90 per cent of the enterprises planned to re-employ retrenched staff once business re-opened and/or when cash flow permitted. This declined to only 66 per cent in this survey. The real job loss estimation, as at the end of April 2020, thus increased from around 80,000 in the previous survey to around 462,000 in this survey.
2. With regard to cash flow: In the previous survey undertaken during the initial lockdown period, 78 percent of the enterprises expected not to have sufficient cash flow to see them through the lockdown. The actual percentage logged at the end of April 2020 improved by 13 percentage points to 63 per cent.
3. With regard to financial assistance: At the time that the previous survey was done, 56 per cent of the enterprises had applied for financial assistance, whilst 84 per cent indicated at the time that they did not up till then receive approval. In this survey the number of applications for financial aid increased to 73 per cent. The approval rate, at 29 per cent, remained low.
4. With regard to the enterprises’ belief in surviving the initial lockdown: Fifty-nine per cent of the enterprises surveyed in this round were confident of surviving the initial lockdown. In the previous round, 69 per cent expressed confidence therein.
As indicated earlier, the survey was conducted on the basis of the Level 4 lockdown being in place until 31 May 2020. Findings in this section are, therefore, made on that basis.
Seventy-eight per cent of enterprises surveyed were not in agreement with the phased re-opening of the economy. Of them, 57 per cent would have wanted the economy fully opened, whilst 43 per cent would have wanted more businesses and sectors to have been included as businesses that could trade under Level 4 of the lockdown.
Figure 2.1: Breakdown of reasons given by SMMEs that are not in agreement with phased re-opening of the economy (Source: Inclusive Society Institute)
And of the 22 per cent of the enterprises that agreed with the phased re-opening of the economy, two thirds believed more could have been done for enterprises to become operational. Figure 2.2: Reasons given by SMMEs that are in agreement with the decision to phase in the re-opening of the economy (Source: Inclusive Society Institute) On the expected performance of the enterprises during Level 4 of the lockdown, the following key findings were made: Seventy-three per cent of the enterprises suggested that they would not have sufficient cash flow to see them through the Level 4 lockdown. And only 49 per cent believed they would survive the Level 4 lockdown, with an equal number suggesting they would not. This represented a 10 percentage points decline in business’ confidence of surviving the COVID-19 calamity.
Figure 2.3: April vs May comparative analysis with regard to prospects for enterprise survival and cash flow (Source: Inclusive Society Institute)
The decision to phase in the re-opening of the economy could result in a further material loss of jobs. Of the enterprises surveyed, a further 17 per cent of employees would need to be retrenched. An extrapolation across the SMME sector would therefore suggest a further potential of 1,842,769 jobs that could be lost. This is over and above the 838,434 dismissed during Level 5 of the lockdown. In total, therefore, the impact of the COVID-19 measures taken could affect the livelihood of as many as 2,681,203 workers. Again, on the same assumption that two thirds of the workers will be re-employed when the economy is fully opened and/or when cash flow permits, the actual number of long-term job losses will be considerably reduced to around 885,000. This, nevertheless, remains an extremely worrisome situation. Figure 2.4: Comparative analysis with regard to jobs losses under three scenarios (Source: Inclusive Society Institute)
A staggering 78 per cent of the enterprises surveyed were of the opinion that the economy would not recover over the next three to five years to the level it was at just prior to when the lockdown was announced.
Furthermore, should the economy remain largely locked down beyond the end of May 2020, economic prospects could further worsen. Eighty-six per cent of the enterprises indicated that they would in such instance not have sufficient cash flow to see them through, and 78 per cent would have to further reduce jobs.
On testing the confidence in government in managing the COVID-19 pandemic, there was an equal split between those enterprises whose confidence in the president had either remained the same or grown, as opposed to those whose confidence had declined. A large majority of the enterprises surveyed had reduced confidence in the performance of the ministers assigned to manage the disaster. The reasons behind this sentiment have not been tested and will require further investigation.
