POLICYMAKERS looking to boost support for small businesses may never know the full extent of the damage the recession has done to business owners, with next to no statistics on the sector to go by.
It’s a problem that the Minister of Trade and Industry Rob Davies is acutely aware of. In an interview with Business Day in November, Davies bemoaned the fact that other than a few reports based more on analogies than hard facts, there were was no concrete data on the impact the recession has had on small businesses.
The only accurate data to fall back on is Cipro’s figures for liquidations of close corporations (CCs), which jumped from 1 263 for the year of 2006 to 2 045 last year.
But Mike Schussler, director of Economists.co.za, said though the number of liquidations recorded last year was the highest since 2003, the rate of liquidations did not tell the full story of the effect of the recession, because it was often only big companies and those with large debts that went the route of liquidation. Many smaller businesses simply chose to shut shop or sell their business off cheap.
Vuyani Nkohla, the Companies and Intellectual Property Registration Office's (Cipro) acting registrar of companies and close corporations at Cipro, said added to this there were no clear statistics on small businesses, as the definition of what a small business was in terms of turnover or other criteria was not clear.
Nkohla attributed the decline in the registration of companies – from a high of 44 501 registered in the year 2005 to 24 844 last year – to a number of factors, such as the political instability before and post Polokwane, the recession and the new Companies Act of which has created some uncertainty until regulations are finalised.
“The same Act is going to do away with the registration of new CC’s upon being effective however allows those existing CC’s to continue to exist. This led to a number of potential investors to optimise the grace period hence increase in new cc registrations despite the recession,” he said.
Turning to studies, the only report that has revealed how the recession has affected small businesses was last year’s SME Survey.
In the study, which questioned 2 500 managers or owners of small businesses, 86% of small businesses reported that the recession had affected their business, with five percent of respondents saying they were unprofitable.
However the report may not have taken into consideration the full impact of the recession, as it was released in July last year, with the recession only ending in the last quarter of 2009.
Statistics provided in a presentation in October by Haroon Bhorat, the director of the Development Policy Research Unit at the University of Cape Town, revealed that the overwhelming majority of retrenchments – in most sectors close to 100% – had taken place at businesses with 50 or fewer employees.
In his presentation Bhorat suggested that perhaps more emphasis needed to be placed on small enterprises.
There’s also some anecdotal evidence on the effects of the recession, from the Africa Growth Institute’s SMME confidence index which surveys business confidence among small business owners.
The index for the last quarter of 2009, which quizzed 131 business owners drawn from a random sample, revealed that 42% of manufacturing firms, 41% of businesses in the services sector and 35% in the retail sector, reported that they had experienced a fall in demand in the last three months.
Compared with the second quarter of 2008 the results are quite different, where 24% of manufacturing firms, 30% of businesses in the services sector and 31% of businesses in the retail sector, reported a decline in demand.
The boom that auction houses experienced last year in the sale of commercial and residential properties is also evidence of the effects of the recession.
Rael Levitt, chief executive of Auction Alliance, said among commercial assets, restaurants were particularly hit hard.
He said the number of restaurants whose assets Auction Alliance auctioned off – jumped from 15 in 2008 to 50 last year. Motor dealers were also hit hard – with increase from about 5 in 2008 to some 60 or 70, last year he said.
We may never truly no the effect the recession has had on small firms. The lack of hard data on how many small businesses were effected by the recession, points to a larger problem of an absence in South Africa of sufficient statistics on small business.
In contrast to South Africa, the Indian government carries out a census of the small business sector every five years, which looks at among other things the number of businesses that are struggling as well as those forced to shut.
Schussler said it was difficult enough to even get an accurate number on how many small businesses were simply in survival rate, he said, adding that this wasn’t a statistic anyone tracked in the country – even before the recession. He called on Statistics SA, Cipro and the SA Revenue Service (Sars) to make more information on small businesses available.
Said Schussler: “One of the ironies is we want to get the SME sector going, but we don’t have any statistics on it.”
Sars spokesperson Adrian Lackay did not respond to a request for statistics on the effect the recession has had on small firms, by time of going to press.
This article appeared in Business Day on 16 February 2010.
Stephen Timm is a