The experts weigh in on what small business owners can expect in 2012…
“The short-term global economic outlook is negative. Things are going to become darker before they become lighter.” While these words from American economist Nouriel Roubini are not ones we’d hope to start 2012 off on, they are well backed by evidence of insufficient recovery from the last recession, growing debt and worldwide confidence crises.
And as a global player, South Africa, and indeed local SMEs, cannot expect to avoid the effects of this world condition. “While the last recession affected South African small businesses far less severely than it did their global counterparts, many ventures were forced to close down or move to survival mode,” says Gerrie van Biljon, Executive Director for Business Investments at Business Partners. He goes on to say that today’s economy is so integrated that no industry is safe, although certain sectors will feel the brunt more than others. “Businesses offering products and services in the category of discretionary spend will always be more vulnerable, as consumers are forced to cut their level of luxury spend. Tourism is an example of such an industry.”
On a positive note are the comments from Cees Bruggemans, Chief Economist at FNB, in light of the 15 November release of the FNB/BER consumer confidence index for the fourth quarter of 2011, who says that consumers are somewhat less exuberant than a year ago, but still show high levels of confidence. “This latest survey suggests that for some consumers, perhaps fearing the worst around mid-2011, the worst did not in fact happen, restoring some strength to the positive convictions still driving consumer spending onward.”
Factors affecting SMEs
Purely economic factors, aside, Dr Mike Herrington, Director of the UCT Centre for Innovation and Entrepreneurship at the UCT Graduate School of Business points to some overarching factors that he believes will affect South African entrepreneurs in 2012. The first is political instability. “Strikes and talk of nationalisation are just two areas that are creating a lot of uncertainty amongst overseas investors,” says Herrington. “I don’t think there is going to be a lot of capital coming in and businesses are not re-investing in the way that they would normally invest.”
A second area for concern that he sees are the onerous labour laws. “There is a direct correlation between the level of entrepreneurial activity in a country and the labour law practices. The statistics show that if it’s easier to hire and fire people, it’s easier to start businesses.” Herrington acknowledges that these laws have been brought into effect to protect employees’ rights and as such there is no current solution; but it is something to
bear in mind.
The third factor that entrepreneurs need to take into consideration is the lack of availability of finance. “Let me quantify that, there is a lot of funding that is supposed to be available from government,” says Herrington: “But if you speak to people who have actually had any joy, the figures are infinitesimal.”
And it doesn’t look like 2012 will ring in any changes on the funding landscape either. “Unless organisations like the National Youth Development Agency stop allocating 45% of their budget on salaries, entrepreneurs can’t look to government for help,” says Herrington. And the banks? “The banks are trying, but they’re restricted. And they do asset-based lending so are never the best option for start-ups.”
Herrington says that business owners will more than likely look to private organisations that support entrepreneurs in all areas of their start-up, including finance. “Or microfinanciers, though they are not cheap. Or angel investors, though they expect good returns too and are few and far between.”
Against this somewhat gloomy backdrop, Van Biljon is confident that business opportunities still abound. “With the right frame of mind, a positive attitude and an eye for business, there are gaps to be spotted.”
Herrington still sees tourism as a major opportunity. “And anything to do with sustainability. We know that we need to build a lot of houses, and these houses need to use less electricity and reflect green principles; so there is a lot of money to be made by people supplying good, solid materials for this industry.” He recalls a recent comment made by a visiting British businessman: “There are amazing opportunities in South Africa – from agro-processing to hydroponics to IT; there are just so many gaps.”
And of course, Africa represents great prospects too. Maria Ramos, Group CEO of Absa Group Ltd, shared her view at the 2011 Discovery Invest Leadership Summit that Africa (together with Asia) has the potential to become the epicentre of the global economy. “The challenges now faced by developed economies also present a unique opportunity to close the gap between them and developing economies,” she said.
Quoting Harvard economist Dani Rodrik, she said that rapid growth in the developing world is the only thing that could propel the world economy forward and generate increasing demand for rich-country goods and services; it’s the only silver lining in an otherwise dreary future. “The questions we must now ask ourselves are the following: What are the drivers of unprecedented growth in Africa and Asia? And perhaps, more importantly, what must Africa and Asia do, immediately, to capitalise on this historic opportunity to converge on developed economies?”
These are questions that South African business owners need to be asking too, bearing in mind the advantage of proximity to the rest of the continent that they have playing in their favour.
Herrington’s advice for entrepreneurs looking to start up in 2012 is therefore to look for these huge opportunities and to go after them. “But look for something that has not been done, and that is different to what has been done. Because if you start another me-too business, you won’t succeed.”
If the advice of the experts is anything to go by, 2012 won’t be easy. But being a business owner is never about having it easy, and perhaps it is in difficult circumstances that entrepreneurs thrive most. We wish you all the best for a challenging, flourishing year ahead. YB