Survey – how are SMMEs coping with the coronavirus lockdown and the measures taken to re-open the economy?
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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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 or 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
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
6. References
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.
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.
2.1 Findings on how SMMEs coped during the initial lockdown ended 30
April 2020
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.
Comparison to previous survey undertaken during the initial lockdown period:
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.
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
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)
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
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.
2.4 General observations
From the trends contained in the two surveys undertaken by the institute, that is the first in mid-April 2020 and the second in early May 2020, the following general observations can be made:
The measures taken to combat the COVID-19 pandemic have been particularly harmful to both the survival prospects of the SMME sector and their ability to provide and grow jobs in the economy.
The recovery of the SMME sector will take some time: 78 per cent of the enterprises surveyed indicated it would take longer than three to five years to recover to the level just prior to the introduction of the COVID-19 measures.
There has been a marked decline in SMME optimism from the initial measures taken by government, and the phased-in approach to the re-opening of the economy. For example, in the survey done in April, 53 per cent of enterprises indicated that they would immediately be able to get up and running should the lockdown have ended on 30 April 2020. This declined to only 21 per cent of enterprise surveyed this time round.
Likewise, there has been a marked decline in the SMMEs level of confidence of survival and their ability to retain workers. For example, in the April survey, 69 per cent of enterprises were confident of surviving. This declined by 10 percentage points to 59 per cent in this survey. And whilst job losses were predicted at 7,5 percent in the April survey, it increased to 12 per cent in this survey, with more job losses predicted should the SMME sector remain largely excluded from economic activity beyond May 2020.
Confidence in leadership decision-making is starting to wane.
2.5 Selected sectors' performance in relation to the SMME sector in general
As mentioned earlier in the report, this research did not attempt to do a full analysis of each of the SMME sectors. It did, however, test selected data for the four largest categories of businesses, namely construction, manufacturing, services, and wholesale and retail. As can be gleaned from the detailed data in section 5.2 of this report, similar trends are to be seen across all the categories of businesses.
3. Methodology
The estimated SMME population size in South Africa is around 2,550,540, of which 736,198 are formal and 1,754,443 informal. Combined, they provide approximately 10,839,819 jobs (SEDA, 2019).
Sampling, data collection and data subjects
Sampling was carried out through the dissemination of the survey by electronic means to representative databases comprising SMME businesses drawn from across the country and from all sectors. In total, 1 012 responses to the questionnaire were obtained. Since “the quality of the sample will be higher, the more completely the sampling frame covers the target population” (European Social Survey, 2016), the database selected contained, with only a few exceptions, SMME enterprises, which was the subject of the study. Standard data cleansing and validation procedures were carried out. The chart contained in figure 3.1 below, reflects the composition of the SMMEs surveyed.
Figure 3.1: Composition of SMME enterprises surveyed (Source: Inclusive Society Institute)
Confidence level and margin of error
In determining the sample size, the research relied on the standard 95 per cent level of confidence and 5 per cent margin of error, which is common for social sciences studies (Royse, 2008:209).
Sample size
In determining the sample size required to achieve a confidence level of 95 per cent and a margin of error of approximately 5 per cent, the author was guided by the table published in Glenn (1992) and Cochran’s (1963) formula for calculating a sample for proportions.
The former suggested a sample size of 400 obtained responses and the latter, 385. Whereas the survey size should accordingly not be smaller than 400, the actual number of obtained responses amounted to 1 012, some two and a half the standard minimum. This would serve to strengthen reliance on the report, since the margin of error would be closer to 3 per cent (Creative Research Systems, N.d.).
Question set
The survey contained a total of 25 questions, which could be grouped into four parts:
PART A – Questions of a demographic nature
In part A, the series of questions designed was aimed at eliciting information that would assist in answering questions related to the nature of the enterprise participating in the survey. This would help the stratification of enterprises in terms of their size (micro or medium), sector, whether they are considered essential services or not, and the impact on the labour market. In so doing, findings could be made, amongst others, as to outcome differences between the various sectors, and the extent to which an enterprise being declared an essential service improves their ability to survive.
1. How many workers (including yourself) do you employ?
2. What was your annual turnover in the last financial year?
3. Are you classified as an essential service in terms of the current lockdown regulations?
4. In what sector or sectors does your enterprise operate?
5. How many years has your enterprise been in operation?
PART B – How did your enterprise cope during the initial lockdown phase that ended on 30 April 2020?
6. Were you able to do business during the initial phase of lockdown? Yes or No
7. Was your enterprise able to immediately get up and running once the initial lockdown
ended? Yes or No
8. Did you have sufficient cash flow to see you through the initial lockdown period that
ended 30 April 2020? Yes or No
9. How many workers did you dismiss during the initial lockdown period?
10. Will you re-employ the same workers once lockdown is over? Yes, No or When cash flow
again permits
11. Have you applied for any financial aid that has been made available to cope during
lockdown? Yes or No
12. If Yes in question 11, has your application been approved? Yes or No
13. If Yes in question 12, has cash reached your bank account yet?
14. Do you believe your enterprise will survive? Yes or No
PART C – Questions about the phased re-opening of the economy
The series of questions contained in the third part of the question set was aimed at assessing the sustainability prospects of the enterprises as they enter the phased re-opening of the economy. The enterprises were requested to make the assessment on the basis that the current Level 4 regulations will be in place until the end of May.
15. Are you in agreement with the President’s strategy to gradually open the economy? Yes
or No
16. If No in question 15, then indicate your preference:
a. Keep lockdown until COVID-19 risk is eliminated or sufficiently neutralised
b. Rules should be relaxed for more types of businesses and sectors
c. Fully open the economy
17. If Yes in question 15, then indicate, for your specific business, whether you believe the
arrangements are:
a. Adequate
b. Could have done more
c. Keep lockdown
18. Do you have sufficient cash flow to see you through to the end of May 2020?
19. Indicate the number of additional workers you will still have to retrench, if any, (over and
above those already retrenched in the initial phase) despite the new arrangements?
20. Do you believe your business will survive given the newly announced gradual opening of
the economy? Yes or No
PART D – Questions aimed at testing the enterprises' views on the economy future of the country and the government's management of the coronavirus pandemic
21. On a scale of 0 (weak) to 10 (excellent), what is your level of confidence in the current
decision-making processes of the authorities?
22. Looking ahead, where do you believe South Africa will be in 3-5 years?
a. Much weaker
b. A little weaker
c. Recovered to existing levels
d. Slightly improved
e. Better off
23. Will you have to retrench more workers if you are unable to open up beyond end May?
24. Will you have enough cash flow to see you through the gradual opening of the economy,
if it is extended beyond the end of May 2020?
25. With regard to your confidence in the leadership of the country:
a. For the President, has your confidence grown, stayed the same, declined?
b. For the members of the Cabinet, has your confidence grown, stayed the same,
declined?
4. Recommendations
Recommendation 1
It is clear from the two surveys undertaken that the SMME sector does not have the support structure or means in place to absorb the economic knock that the lockdown measures have given them. They do not have the necessary reserves in place to see them through an extended shutdown. This is bound to lead to a material loss in jobs and closure of firms.
Whilst support for social distancing and heightened hygiene measures to combat the spreading of the COVID-19 virus is evident and welcomed, the authorities will at the same time have to give serious and immediate consideration to ways of easing the means of doing business, since a further deferment will have irreversible consequences for the economy.
Recommendation 2
The responses obtained in the conducting of this survey have shown that the SMME sector is having serious cash flow problems as a result of the measures being taken to combat the COVID-19 virus. To overcome this, they have in large numbers applied for financial aid to see them through the COVID-19 calamity. The large number of applications that have not been approved or settled appears to be exacerbating their current financial woes. The reasons behind the non-finalisation of the applications is unclear. It may be administrative in nature, or an issue of too stringent criteria.
It is recommended that the authorities review both the administrative procedures and the qualifying criteria in order to enable a wider range of enterprises to gain access to the support.
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
Figure 5.1: Comparative analysis of selected data: Sectoral vs All SMME average (Source: Inclusive Society Institute)
6. References
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Cochran, W. G. 1963. Sampling Techniques, 2nd Ed. New York: John Wiley and Sons, Inc.
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Nirrandes, N. 2020. President announces 5-level lift on nationwide lockdown. [Online] Available at: https://www.capetownetc.com/news/president-announces-5-level-lift-on-nationwide-lockdown/ [accessed: 6 May 2020].
Republic of South Africa (RSA). 2020. President Ramaphosa announces a nationwide lockdown. [Online] Available at: https://www.sanews.gov.za/south-africa/president-ramaphosa-announces-nationwide-lockdown [accessed: 10 April 2020].
Royce, D. 2008. Research methods in social work, 5th edition. Belmont: Thomson Higher Education.
Small Enterprises Development Agency (SEDA). 2019. SMME Quarterly Update, 1st Quarter 2019. Pretoria: SEDA
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World Health Organisation (WHO). N.d. Rolling updates on coronavirus disease (COVID-19). [Online] Available at: https://www.who.int/emergencies/diseases/novel-coronavirus-2019/events-as-they-happen [accessed: 10 April 2020].
World Health Organisation (WHO). 2020. WHO announces COVID-19 outbreak a pandemic. [Online] Available at: http://www.euro.who.int/en/health-topics/health-emergencies/coronavirus-covid-19/news/news/2020/3/who-announces-covid-19-outbreak-a-pandemic [accessed: 10 April 2020].
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This report has been published by the Inclusive Society Institute
The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals.
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