Last year, loadshedding emerged as one of the most costly challenges for small businesses in South Africa, and signs suggest that it will persist in the new year.
The most recent survey conducted by the Entrepreneurs’ Organisation (EO) South Africa chapter, found that loadshedding caused financial losses for six out of 10 businesses (58.7%).
Business Partners Limited quarterly SME Confidence Index drew similar conclusions. The company is one of the leading loan providers for viable SMEs. The Index found that for the majority of local small businesses, loadshedding caused major business disruption, with only a few of these ventures having a contingency plan in place to manage the financial implications.
Jeremy Lang, Chief Investment Officer at Business Partners Limited, says, heading into 2023, general small business sentiment was “cautiously optimistic”, with many small business owners looking to recover losses experienced during and as a result of the pandemic years.
But, he says, the ongoing and deteriorating energy crisis put a damper on these more positive prospects, with businesses scrambling to find ways to mitigate the effects of loadshedding on their operations. For many SMEs, investing in alternative energy supply, backup generators and inverters was a top priority last year.
“Apart from disrupting the flow of operations, the ongoing energy crisis has had a far-reaching impact on the small business sector. Our own research has also shown that crime is now among the top five challenges faced by small businesses – a situation that is exacerbated by rolling blackouts,” says Lang.
He says worsening loadshedding has also made electronic systems more vulnerable to damage caused by power outages and surges.
“The reality is that any forthcoming solutions to loadshedding will take at least a few more years to bear fruit. With this in mind, business owners need to review their funding options and find ways to acquire back-up energy infrastructure and tighten up their risk mitigation policies to prevent unnecessary insurance claims and irrecoverable damage to machinery and equipment.”
Tech innovations driving enhanced operational efficiency
Unpacking the major trends that have played out within the small business sector, Lang suggests that generative artificial intelligence (AI) has made its mark on the SME sector and will continue to do so as business owners find ways to use it to their advantage. One of the major advantages that generative AI can offer businesses is the potential for increased productivity.
Sage’s most recent Small Business, Big Opportunity report found that 78% of small businesses reported an increase in their productivity, compared to 68% in 2022. These businesses further reported that increased efficiency and productivity have been among the major drivers of business confidence this year.
Lang believes that much of this rise in productivity can be linked to the more ubiquitous use of technological tools and digital platforms to automate certain tasks, speed up the pace of work and provide accurate resolutions to common problems. But, as Xero’s Future Focus AI research found, small business owners remain concerned that the rate of growth in AI tools is outpacing regulation.
He says that within the South African context at least, this is a fair conclusion, particularly considering some of the main issues that come with AI adoption, including social biases, plagiarism, inaccurate information, and duplicate content.
Going into 2024, Lang advises that small businesses should proceed with caution when it comes to the large-scale adoption of AI. He says at this point, AI needs to be seen as a work in progress rather than a fully developed technological tool.
“Whether businesses use it to generate content, conduct research, manage customer relations, write code or spot errors, business owners need to remember that AI cannot replace human capital. As a tool, it can dramatically improve operational efficiencies, but we still need human cognitive abilities and oversight for fact-checking and to solve problems,” says Lang.
Harnessing the power of social media
A year ago, Business Partners Limited managing director Ben Bierman predicted that social commerce would open doors of opportunity for small businesses. In line with this, agency Rogerwilco, forecasted that social commerce in South Africa would account for almost R6 billion in sales revenue, with the potential of reaching over R21 billion over the next few years.
Lang says social media platforms like WhatsApp and Instagram have made significant inroads into changing the way consumers view and shop for products. He says the rise of social commerce also speaks to the increasing prominence of online reviews and testimonials as some of the primary ways that shoppers gather information on products or services before making a purchase.
According to Lange, this is a trend that will likely take over in 2024, as the interconnectedness of consumers across multiple platforms becomes more pronounced. He says, on the whole, shopping is becoming more social in the sense that digital platforms have enabled a more communal way of making buying decisions, based on the opinions and customer experiences of others.
“One could think of review sites and feedback posted on social media as the new word-of-mouth marketing – a medium that has, and will continue, to be the leading determinant of how consumers shop.”
Lang says, heading into the new year, small businesses need to leverage this trend by using “free platforms like WhatsApp to create compelling content that won’t involve a big financial investment but that has the potential to produce a good return”.
