According to recent research conducted by the Small Business Institute of South Africa, local small and medium enterprises (SMEs) are still economically fragile, with approximately 70% of emerging small businesses failing within the first two years of operation. While there is no quick-fix to the economic challenges that continue to plague South African small businesses, there are strategies that local SME owners can adopt to make their businesses more resilient to improve their chances of success.
One widely-publicised success story that is testament to this, is the growth of Ethiopian Airlines. In a region where most airlines have struggled to survive, Ethiopian Airlines surpassed its initial goals set in 2016 to become an award-winning international carrier.
Christo Botes, executive director at Business Partners Limited (BUSINESS/PARTNERS), says that there is a lot that local small business owners can learn from the airline’s success.
“Although Ethiopian Airlines is a state-owned enterprise (SOE), the airline is run by autonomous leadership and has attained its success through a strong management system and a cost-efficient business model.”
Botes lists three crucial areas that business owners need to focus on, in order to ensure their small business is resilient and sustainable in today’s tough economic climate.
1. Ensure good and ethical leadership
Cultivating strong governance practices is paramount, and central to this is being ethical and setting a good example, says Botes. “Having the right governance structures in place will contribute to a corruption-free and inclusive culture and will promote company growth from within. For example, there should not be a special dispensation for leaders compared to employees. Every service or privilege should have a price and form part of the remuneration package.”
2. Set ambitious, yet attainable goals for the business
Ethiopian Airlines set a goal to reach three million passengers and R15 billion in revenue by 2010. They surpassed this goal, and by 2016, the airline had reached 7.6 million passengers with revenue of R35 billion (R4 billion profit). “Bearing this in mind, entrepreneurs should note that the goals and targets set for their businesses should be challenging, but not unrealistic.”
He adds that an SME’s goals and targets should also be shared with the company’s employees to get buy-in and support so that they can assist with achieving these goals. “Open communication with employees is imperative as they are a key contributor to the company’s success.”
3. Invest in talent through upskilling
Botes also points out that there are significant benefits to growing skills inside one’s own organisation. “Ethiopian Airlines invested a substantial sum of money in becoming the masters of their own destiny by having fully-fledged schools for pilots training, aircraft maintenance technicians, marketing and finance and also for cabin crew training. On a smaller scale, South African SMEs can also be the masters of their own destiny by playing an active role in training and empowering their personnel.”
This, he says, will motivate staff to deliver better quality work and ultimately improve the product and service offering of the SME.
“It is not only the size of the remuneration package that keeps an employee engaged in the business. Job satisfaction, feeling valued, sharing in the success of the business through incentive bonuses, career development, and being part of a company with the right values are also vital,” he adds.
Lastly, Botes says that in order for entrepreneurs to grow their businesses, they should never pass up opportunities to keep learning.
“Ultimately SME owners should strive to remain optimistic and inject positive energy into their businesses. However, they should also never stop taking lessons from other entrepreneurs and businesses around them, big or small, as this can be beneficial in taking an SME to the next level,” Botes concludes.
Top Sectors For SMEs In 2019
“As such, SMEs in the construction, communications and electrical fields are all likely to benefit from supply and sub-contracting agreements over the coming years.”
While the South African economy has been underperforming for a number of years, the first positive signs of turnaround started to become visible by the second quarter of 2018, and by the end of the third quarter, data supplied by Statistics South Africa showed that the economy had indeed grown by 2.2 percent, compared to the previous quarter. This uptick is expected to have a positive effect on business confidence in 2019.
This is according to Jeremy Lang, regional general manager at Business Partners Limited (BUSINESS/PARTNERS), who says that certain business sectors have already seen an increase in opportunities for small businesses and start-ups.
“While these sectors will not be without challenges, the following four industries are likely to offer the best opportunities for small and medium enterprise (SME) owners to grow their enterprises in the coming year.”
The World Travel and Tourism report 2018, revealed that the direct contribution of the travel and tourism sector to South Africa’s GDP has been projected to rise from R136bn in 2016 to R197.9bn by 2028 – set to make up a total of 3.3 percent of the country’s total GDP, says Lang.
“Although this sector experienced some setbacks in 2018, such as the drought in the Western Cape and stricter visa regulations for children entering the country, both the water restrictions and visa regulations have been relaxed and the sector is once again poised for growth,” he says.
Statistics South Africa has credited this industry with being the biggest driver of growth in the country’s GDP, having expanded by 7.5 percent in September 2018, says Lang. “To bolster this, Government has made a concerted effort to stimulate small business growth in this area with initiatives such as the Black Industrialist Programme and the SA Automotive Masterplan.”
He adds that businesses in the manufacturing sphere could therefore likely see significant opportunities in the form of outsourcing contracts and new partnerships with large corporates.
“The debate around land expropriation has occupied most of the discussions surrounding the agricultural sector in 2018, with some questioning growth prospects of this sector. However, this industry has a lot of growth ahead of it, as demonstrated by its 6.5 percent growth over the last three months of 2018,” explains Lang.
“Further to this, the industry is also already taking significant advantage of seven climatic regions in South Africa, with the export of a wide variety of high quality fruit and vegetables increasing substantially,” he points out. The recent outbreak of foot and mouth disease that has resulted in the suspension of the country’s FMD-free status will however significantly impact meat exporters.
In terms of opportunities for SMEs, he says that these may most likely be found in the rural and underdeveloped regions, where the need for resources like efficient transport, state-of-the-art cold storage, better irrigation and private power generation will be key to making agriculture projects more productive and competitive in the export market.
Data and information technology
Connectivity and information technology infrastructure are both crucial to business and employment growth in South Africa, says Lang.
“With many municipalities and the Western Cape government committing to providing all of its residents with free data as part of a plan to expand public Wi-Fi network access, it is clear that this is also becoming a high priority on a state level.”
It has also been reported that South Africa is awaiting the arrival of three international data centres, and large players in the communications sphere, including Vodacom, Telkom and Vumatel, are making huge strides in drastically growing the country’s fibre optic backbone, he adds. “As such, SMEs in the construction, communications and electrical fields are all likely to benefit from supply and sub-contracting agreements over the coming years.”
In conclusion, Lang says that as South Africa’s economic growth has started to turn around, business owners should keep their ears to the ground as 2019 is highly likely to be a year of opportunity.
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SME Insurance Checklist For New Year
Malesela Maupa, Head of Product and Insurer Relationships at FNB Insurance Brokers, advises SMEs to consider the following factors when reviewing their policies.
Business owners who are planning for the year ahead should not overlook the importance of reviewing their insurance policies to ensure they are adequately covered against insurable risks.
Malesela Maupa, Head of Product and Insurer Relationships at FNB Insurance Brokers says, every year businesses face unique challenges ranging from credit and market risks, technological disruptions, compliance, operational and regulatory risks, amongst others. As a matter of precaution, insurance policies should at least be reviewed or updated once a year.
He advises SMEs to consider the following factors when reviewing their policies:
- Employee movements – if there are any employees who have left or joined the company, ensure that your policy is updated accordingly.
This type of cover normally depends on the role and contribution of the employee to the business. For instance, directors may be covered for Key Person Insurance and Directors & Officers Liability insurance.
- Protest Actions – this year is the national election year and leading up to elections we can expect to see an increase in the frequency and severity of protest actions, riots and strikes. Thus, it is essential to ensure that adequate special risks cover is in place from the South African Special Risks Insurance Association (SASRIA).
SASRIA provides cover to both individuals and businesses against special risks like civil commotion, public disorder, strikes, riots and terrorism at affordable premiums.
- Cyber risks – it is essential to communicate with your insurer or broker and find out if there are any new risks that your business should be protected against. Cyber incidents continue to be a major risk for businesses especially in the SME sector. Over the last couple of years there has been a major increase in the number of reported cyber incidences.
More businesses are now facing increased cyber threats due to their increased dependency on technology, relating to their internal and customer data being compromised by fraudsters. It is therefore essential to have some form of cyber risk insurance cover and/or enhancement of data security protocols.
- Regulatory changes – every year there are a number of regulatory changes that impact businesses directly or indirectly, which may result in fines and penalties for non-compliance.
- Natural catastrophes – the increase in the frequency and severity of extreme weather conditions, coupled with intensifying natural catastrophes will continue to have a significant impact on businesses.
Businesses should ensure they are adequately protected against these risks to avoid incurring sever financial losses.
- Business changes – should a business consider moving to a new location, purchasing new premises or venture into new business activities, these types of changes could have a major impact on its risks profile. As a result, the policy needs to be updated accordingly.
- New and Enhanced products – An innovative culture has taken over the insurance industry and ever so often we see the introduction of new products or the enhancement of existing products. Get in touch with you broker to advise you on any new products that might add value to your existing insurance portfolio.
“Reviewing your policy regularly gives you peace of mind knowing that you can focus on running your business effectively, without worrying about unforeseen risks,” concludes Maupa.
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