For Alex Etchells, co-owner of Blackstrap Craft Distillery in KwaZulu-Natal, South Africa, the country’s national lockdown could not have come at a worse time.
To contain the outbreak of the coronavirus pandemic, South African President Cyril Ramaphosa announced a lockdown right before the country’s Easter school holidays began. The Easter long weekend is usually one of the busiest and most lucrative for South Africa’s retail, tourism, and hospitality businesses.
“We are a seasonal business, and we rely heavily on Easter and Christmas holiday trade,” explained Etchells, who also owns Alchemy Bar and The Other Room, a retail outlet selling locally produced wine. Both businesses are based in a shopping centre in Ballito, a popular coastal town that itself relies on tourism and holiday season spending.
“The economy was in a really tough place even before the lockdown was announced, and we [Blackstrap] were still recovering from a very sluggish December,” Etchells said.
For small business owners across sectors, South Africa’s extended national lockdown has dealt a lethal blow to cash flows that were already drying up.
At the start of 2020, business confidence was at its lowest level in two decades. South Africa entered its second recession in two years in the final quarter of 2019, with frequent power outages exacerbating the economic contraction and further dampening business activity.
The steady decline across sectors has contributed to spiralling unemployment, particularly amongst the youth. In the fourth quarter of 2019, the unemployment rate was pegged at 29.1% by Statistics SA, with two-fifths of the country’s 20.4 million young people not in employment or enrolled in education.
“In the absence of substantial policy relief and reform from government, we could soon be reaching unemployment levels upwards of 35%,” said Adrian Saville, professor of economics and finance at the Gordon Institute of Business Science, South Africa.
In response to the pandemic and the resulting economic fallout, the government and private sector have announced a number of economic relief measures to help small businesses. These include the Debt Relief Finance Scheme and Business Growth/Resilience Facility; the SA Future Trust (salary support for SMEs); the Sukuma Relief Programme (grants and low-interest loans); and the Department of Labour Unemployment Insurance Fund (UIF).
Nadia Rawjee, director at Uzenzele Holdings, which provides capital-raising services for South African companies, said that one major risk is that SMEs take too long to apply for these relief measures as they address their day-to-day challenges.
“Many good businesses that have one to three months of overhead cover without income are going to come under pressure, and possibly realise too late to access the relief funds and loans,” she said. “With 10,000 applications submitted in just three days for the Sukuma Relief Programme, there is likely to be a shortage of funding in the market.”
Although some funds are now starting to trickle through to distressed small businesses, Saville said that the government’s policy responses have been very reactive — with an initial stimulus package that “did not even vaguely reflect the magnitude of the challenge facing business owners”.
Rawjee added that the government’s new loan guarantee scheme will bring cash back into the hands of business owners, but the processes and requirements still need to be developed and deployed to the market.
“Some of these relief programmes are operationalising and capacitating in as little as a week,” she said. “There is intention to get these funds out quickly, but there are also constraints and delays. To start meaningful discussions with their bank, business owners should have their monthly overheads categorised and easily accessible.”
Cash flow and new opportunities
Lyndy van den Barselaar, FCMA, CGMA, managing director at ManpowerGroup South Africa, said that there are potential strategies to limit the damage for struggling businesses amidst this uncertainty.
“One of the biggest challenges facing small businesses now is cash flow,” she said. “In terms of what we have experienced with our clients, options to consider include negotiating with creditors to delay payments due until cash flow increases, or to negotiate a payment plan. No company, I believe, would not be open to this.”
She also advised businesses to take advantage of the government’s Pay-As-You-Earn (PAYE) deferred tax payment scheme, which provides some cash flow relief for employers.
Besides these measures to protect cash flow, there are potential opportunities for businesses to become involved in the production of personal protective equipment that many companies will need going forward, van den Barselaar said. Companies can also explore opportunities in supplying other essential products and services.
“Businesses should also be staying connected with clients via online meetings so that they stay abreast of what is happening,” she added. “Depending on what industry they are in, they can also look at the possibility of moving their business and products to an online solution and setting up remote working facilities.”
For Etchells at Blackstrap Craft Distillery, it is local support — coupled with inventive thinking — that has kept the business alive.
Although Etchells and his business partner spent several days working through applications for loans from the government’s Debt Relief Finance Scheme (which required five years’ worth of financial records with a laborious breakdown of all expenses) as well as a once-off tourism sector grant, he has not received any communication from government as to the outcome of these applications.
With little choice but to pursue alternative measures of generating cash flow, Etchells turned to an initiative called Say Siyabonga, an online voucher-based system developed by local entrepreneurs to help SMEs cover their costs during the lockdown.
SMEs sell vouchers for products, services, competitions, and discounts that customers can redeem once businesses reopen.
After listing on the site, Etchells is seeing purchases from as far away as South America. In addition to the platform, Etchells has also been selling vouchers on Zapper, a mobile payments platform that has been running its own initiative to drive local business sales online during the crisis.
“We’ve had incredible support from our local community and regular patrons, who have made purchases using these different online mechanisms,” Etchells said.
Steakhouse turned butchery
At The Local Grill, a steakhouse in the affluent suburb of Parktown North in Johannesburg, owners Steve Maresch and Llewy Mateza are engaged in their own fight for survival.
Like Etchells, Mateza has applied for all the relevant government loans and grants but has received nothing beyond reference numbers for each application.
“Once you’ve applied online, you’re kept in the dark,” said Mateza. “As owners, you basically sit with bated breath as to whether these applications will be successful or not. There should be much more guidance and clarity around the process.”
In the face of this silence, the steakhouse owners have scrambled to find other ways of paying employees and covering costs. One solution has been to operate as a butchery, opening for one hour a day to fulfil orders for meat and frozen foods as well as selling vouchers for future dinners.
They have a long established and loyal following in their community, which has translated into a steady stream of sales during this time.
But the future remains uncertain for the businesses. “We’re very anxious to see what the [government] loan applications will yield,” Etchells said. “In the interim, we’re working hard to create other channels of income.”
— Jessica Hubbard is a freelance writer based in South Africa. To comment on this article or to suggest an idea for another article, contact Alexis See Tho, an FM magazine associate editor, at Alexis.SeeTho@aicpa-cima.com.