The Recession and its Impact on SMEs

Fuad Cassim is an economist and a former special adviser to Pravin Gordhan – who recently shared some of his views with us.

Since slipping into a technical recession after the country’s GDP declined by 0.7% in the first quarter of 2017, preceded by the 0.3% decline in the fourth quarter of 2016, there have been many debates in the news about what this means for the economy.

Regardless of how we look at the decline, there is no escaping the negative impact that the recession will have on the overall economy – particularly for small business… or is there?

While we can expect economic activity to slow down, this does not in any way mean that the economy has died. What the recession does mean for South African business – and especially small and medium enterprises – is that now is the ideal time to start innovating and exploring more creative solutions for the market. Let’s consider a few things first.

Due to some of the challenges that we face in the South African environment currently, we are not sustaining higher growth. This is a difficult territory.

In comparison to the 2008 recession, the technical recession that we currently face is different in that we also need to recognise the potential of a credit downgrade, which would mean that the cost of borrowing will go up. This will obviously have a negative impact on SMEs and we cannot ignore this for a second however, we can find ways to navigate through the current environment.

While South Africa has become a ‘riskier’ investment, what we should consider is its strength. We also live in a highly innovative world that is more dynamic, more creative and more accessible through connectivity. With this environment, comes great opportunities. If we want to navigate this recession, we will need to start reading the market and look at areas in which we can grow.

Creativity and innovation have become the new trend. Relevance is the key driver for business to avoid stagnation and push limits to expand our capabilities to meet the new needs of the market. While a vision will take you from a start-up to an emerging business over time, growth opportunities require a change in mindset to truly understand what is important to the market and respond fittingly.

There is a level of diversification that could help businesses realise new opportunities.  Exploring the market to identify needs and associate current service or product offering that will meet these needs, whether through a partnership, collaboration or diversification of the business model, are important factors to becoming more creative during a difficult economic period.

Put simply, while we cannot ignore the economic challenges in South Africa, we can:

  1. Read the market for new trends and opportunities
  2. Create, innovate and collaborate to respond to the market
  3. Strengthen service/product offering to secure opportunities.

Consumers are spending less – businesses will inevitably experience this. At the same time, not all small and medium businesses will experience the same effects. Some will be heavily affected and others will respond differently. Which one will you be?

 

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