Jabulile Msimango-Galawe and Lerato Palesa Mohodi-Nteo, How have the Challenges Faced by Gauteng-based Township Small Business Evolved since Covid-19? (2024)
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Jurnal Maksipreneur:
Vol. 14 No. 1 December 2024 p. 80 – 96
Manajemen, Koperasi, dan Entrepreneurship
How have the Challenges Faced by Gauteng-based
Township Small Business Evolved since Covid-19?
Jabulile Msimango-Galawe1
Lerato Palesa Mohodi-Nteo2
1,2
Wits Business School, South Africa
Corresponding author: jabulile.msimango-galawe@wits.ac.za
Abstract. This study examines the evolving challenges and potential solutions for township-
based micro, small, and medium enterprises (MSMEs) in Gauteng, South Africa which are
crucial in mitigating poverty and unemployment. Historically, MSMEs in townships were
overlooked by policymakers, limiting their growth and sustainability. Through semi-
structured interviews with 18 MSME owners, this study reveals that while some challenges
remain consistent, they have shifted in nature. Before Covid-19, internal factors such as
financial management, business operations, and human resources were predominant
obstacles. Post-pandemic, however, external factors such as market survival, consumer
buying power, and heightened unemployment emerged as significant threats. The pandemic
left MSMEs in survival mode, with many unable to attract customers due to the declining
purchasing power of their communities. Notably, mental health issues among business
owners became a pressing concern, highlighting a need for psychological support. The study
identifies job creation, skill development, and accessible government funding as essential
solutions for fostering MSMEs resilience. Addressing these evolving challenges with
targeted support could enhance the stability and growth of township MSMEs, promoting
economic empowerment in the long term. The findings underscore the importance of
adapting policies to the shifting needs of MSMEs in a post-pandemic landscape.
Keywords: Entrepreneurship; Post Covid-19; Small business challenges; Township
entrepreneurs; Township MSMEs.
Abstrak. Penelitian ini menganalisis tantangan yang berkembang dan solusi potensial bagi
usaha mikro, kecil, dan menengah (UMKM) berbasis perkotaan di Gauteng, Afrika Selatan
yang sangat penting dalam mitigasi kemiskinan dan pengangguran. Secara historis, UMKM
di perkotaan diabaikan oleh pembuat kebijakan, sehingga membatasi pertumbuhan dan
keberlanjutannya. Melalui wawancara semi-terstruktur dengan 18 pemilik UMKM, pene-
litian ini mengungkapkan meskipun beberapa tantangan masih tetap ada, tantangan tersebut
telah berubah. Sebelum adanya pandemi Covid-19, faktor internal seperti pengelolaan ke-
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uangan, operasional bisnis, dan sumber daya manusia menjadi kendala utama. Namun,
pasca-pandemi, faktor eksternal, seperti kelangsungan pasar, daya beli konsumen, dan
meningkat-nya pengangguran muncul sebagai ancaman yang signifikan. Pandemi Covid-19
membuat UMKM berada dalam kondisi bertahan hidup, yaitu banyak UMKM yang tidak
mampu menarik pelanggan karena menurunnya daya beli masyarakat. Khususnya, masalah
kesehat-an mental di kalangan pemilik bisnis menjadi perhatian yang mendesak, sehingga
perlu ada dukungan psikologis. Penelitian ini mengidentifikasi penciptaan lapangan kerja,
pengem-bangan ketrampilan, dan pendanaan pemerintah yang dapat diakses sebagai solusi
penting untuk mendorong ketahanan UMKM. Mengatasi tantangan yang terus berkembang
seperti saat ini dengan dukungan yang ditargetkan dapat meningkatkan stabilitas dan
pertumbuhan UMKM di daerah perkotaan, sehingga hal itu dapat mendorong
pemberdayaan ekonomi dalam jangka panjang. Temuan ini menggarisbawahi pentingnya
mengadaptasi kebijakan terhadap perubahan kebutuhan UMKM pascapandemi.
Kata kunci: Kewirausahaan; Pasca Covid-19; Pengusaha perkotaan; Tantangan usaha
kecil; UMKM perkotaan.
Article Info:
Received: December 10, 2024 Accepted: December 20, 2024 Available online: December 27, 2024
DOI: http://dx.doi.org/10.30588/jmp.v14i1.2064
BACKGROUND
The South African economy heavily depends on Small, Medium, and Micro
Enterprises (MSMEs) as a key economic driver, yet the sector faces significant challenges
(Luiz & Mariotti, 2011). Many township businesses are micro or very small, often operating
informally, defined as “business activity that is unregistered or otherwise untracked and thus
unregulated, but not otherwise illegal” (Godfrey, 2011; Hart, 2006; Porta & Shleifer, 2008;
McGahan, 2012). Unlike regions such as Asia and Latin America, South Africa’s informal
sector has not substantially impacted unemployment, partly due to limited entrepreneurial
spirit (Luiz & Mariotti, 2011).
Given their role as economic drivers, SMME policies aim to provide financial
support, expand market demand, and reduce regulatory barriers (Small Enterprise Develop-
ment Agency, 2016). Post-apartheid policies support small business startups, and about 70%
of South African entrepreneurs pursue self-employment to avoid poverty (Mahadea & Zogli,
2018). However, many “survivalist” businesses, which are often owned by Black and
Coloured South Africans, struggle to achieve significant growth (Preisendörfer, Bitz &
Bezuidenhout, 2012). With approximately 80% of South Africa’s population identifying as
Black and many residing in townships (Statistics SA, 2017), township entrepreneurship faces
unique challenges, including crime, financial management issues, limited startup capital,
regulatory burdens, xenophobia, lack of education, and other psychological and economic
barriers (Mbonyane & Ladzani, 2011). These barriers limit the potential of these businesses
to drive economic growth meaningfully.
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High failure rates in the sector are a major concern, with 70% of small businesses
closing within 3-5 years, making South Africa one of the countries with the highest SMME
failure rates globally (Wolmarans & Meintjes, 2015). Total Entrepreneurial Activity (TEA)
rates for Black South Africans remain low at 2.9%-4.3% compared to higher rates among
other racial groups (Preisendörfer et al., 2012), highlighting the need to focus on township
entrepreneurs in this study. However, the Total early-stage Entrepreneurial Activity (TEA)
rate in South Africa for 2022 was 8.5%.
The Covid-19 pandemic had a severe impact on South African MSMEs, which were
largely unprepared for such a crisis, lacking crisis management strategies and flexibility
(Engidaw, 2022). Nevertheless, MSMEs remain crucial to the economy, fostering job
creation and community development (Wild & Cant, 2021). With over 250,000 formal
MSMEs in South Africa accounting for 28% of all formal jobs, the sector represented 30%
of total turnover in 2019, valued at R10.5 trillion (Statistics South Africa, 2020). MSMEs are
particularly active in sectors such as Trade and Accommodation (39%), Community Services
(15%), Finance and Business Services (12%), and Construction (14%) (SEDA, 2022).
MSMEs employ 50-60% of South Africa’s workforce and contribute about 39% to
the GDP, underscoring the need for sustainable growth in the sector (McKinsey & Company,
2020). For MSMEs to fulfil their role as drivers of economic growth, they require a
supportive environment that encourages development. Sustainable MSMEs have the
potential to impact poverty alleviation, employment, investment, and inclusivity,
demonstrating their broad economic importance (Wild & Cant, 2021). The objective of this
study was to explore the evolution of challenges experienced by township entrepreneurs
before and after COVID-19, along with potential solutions from the perspective of these
entrepreneurs.
LITERATURE REVIEW
In studying the challenges that township entrepreneurs experience this study looked
at both exogenous and endogenous risk factors. These are challenges that emanate from
external and internal factors respectively.
Overview of challenges faced by MSMEs
There are many exogenous and endogenous factors, unique to historical and spatial
planning contexts, which adversely impact businesses established in townships. Previous
research conducted by Cichello, Almeleh, Ncube and Oosthuizen (2006) enumerated some
of these factors as crime, issues due to elevated capital financing, logistical costs, and
psychological factors which include fear of failure and jealousy. While Mbonyane and
Ladzani (2011) listed crime, poor financial acumen, overtrading, limited access to ICT, poor
management skills, inadequate infrastructure, below-standard credit records and lack of
information. Other research conducted on informal business challenges by Mahadea and
Zogli (2018) identified government regulations, financial problems, lack of skills, poor
infrastructure, and security. The common concerns faced by township businesses include a
lack of infrastructure, access to funding, regulatory obstacles, a skills gap shortage (training
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and development), access to markets, a low competitive environment and a lack of
commercial and governmental support which stifles the growth and sustainability of MSMEs
(Wild, & Cant, 2021). Additionally, MSMEs share of capital expenditure has risen year on
year from 15.8% to 18.5% in 2022, and employment costs amounted to 52% according to
SEDA, 2022. To derive the full economic benefit of MSMEs the above-listed imperatives
need to be aided to facilitate a reduction in the number of SMME failure rates which
ultimately enable economies to derive the full economic benefit from these businesses.
Challenges faced by MSMEs pre-Covid-19
Prior to the pandemic, South African MSMEs were already battling growth within a
contracting economy, according to the World Bank. The South African economy, in contrast
to the growth trends experienced by similar economies at the time, was not moving in an
upward trajectory along with the rest of the global economy (Dladla, 2021). The additional
headwinds because of the Covid-19 pandemic and looting further exacerbated pressures
already straining the growth and sustainability of the SMEs (Rajagopaul, 2020).
Challenges faced by MSMEs during Covid-19
In a study done by the National Youth Development Agency (NYDA) in September
(2020) on the impact of Covid-19 on business activities, the result overwhelmingly showed
that SMEs are particularly vulnerable to economic shocks and crises as they have fewer
resources to help them navigate and adapt to changing economic contexts (National Youth
Development Agency, 2020). The NYDA study (2020) results illustrated key challenges
faced by MSMEs because of Covid-19, these included: revenue generation, cash-flow
challenges, and an inability to generate sales. 61 per cent of the MSMEs surveyed were
established in township and rural areas across South Africa.
The effects of the pandemic had immediate impacts on the South African economic
environment and the need for sustainable MSMEs has become a crucial focus for driving
economic growth. Around the world governments have implemented relief funds and
strategies to support struggling businesses. As a measure to curtail the devastating impacts
of Covid-19 and losses because of the looting on MSMEs, and township-based businesses,
the South African government implemented various relief measures. These included: tax
deferral incentives, wage subsidies, direct-to-SME lending initiatives and policies aimed at
enabling new market access (McLellan, 2021). The acknowledgement that sustainable
MSMEs have the potential to deliver a multiplier effect, impacting poverty, employment,
investment, growth, and inclusion illustrates its broad economic importance (Wild & Cant,
2021).
Inclusive entrepreneurship as a solution to the challenges faced by Township MSMEs
The key drivers of entrepreneurship ought to be understood from all levels which
would include macro and micro levels (Luiz & Mariotti, 2011). Research indicates that, in
South Africa, fewer Black people are involved in entrepreneurial activities (Preisendörfer,
2012). There are numerous debates about the factors impacting the success rates and factors
that discourage success, especially in townships. The recently adopted Gauteng Township
Economic Development Act (2022) aims to champion the inclusivity of township enterprises
into the broader provincial economy. It seeks to facilitate and promote economic inclusivity
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and growth while building towards a more equal society (Gauteng Department of Economic
Development, 2022). Leading the way, the act makes provision for the provincial government
to spend up to 40% of its procurement budget with township-based enterprises with the view
of transforming townships into thriving commercially active zones (Business Day, 2022).
What is important to note is how success is defined from a business context. Through the
usage of the Five Stages of Small Business Growth, the first stage is existence, and the second
stage is survival (Churchill & Lewis, 1983; Herrington et al., 2009) and only a few MSMEs
in South Africa manage to get through the first and second stages. Therefore, studies like this
are important in ensuring that such initiatives focus on what is key for township entre-
preneurs.
RESEARCH METHODS
This was an interpretivism qualitative study that took an inductive approach to
exploring the challenges and solutions of township MSMEs. The aim was to gain deep
insights into the challenges experienced by the participants before, during and after Covid-
19. This research aimed at attaining a greater level of understanding about the challenges
impacting township small businesses. Semi-structured interviews were used to collect
primary data from township MSMEs.
The target population for this study consisted of MSMEs located in townships around
Johannesburg including the East, West, North, and South regions. Purposive sampling was
employed to sample this population. The businesses involved in the study varied in size,
ranging from survivalist and micro enterprises to very small and small businesses, with a
total sample size of 18 businesses. The business life cycle of these enterprises spanned from
start-up to mature stages.
Interviews were conducted at each business's location or at the business owner's
home, and they were recorded by the researcher. The duration of the interviews ranged from
a minimum of 45 minutes to a maximum of 120 minutes and included 20 questions,
combining both open-ended and closed questions. Data was collected using an interview
guide to capture the experiences and perceptions of township entrepreneurs and thematic
analysis was utilised to analyse the data
RESULTS AND DISCUSSION
Business Profiles
For confidentiality purposes, pseudonyms were used for the participants and their
respective entities. Table 1 shows the profile of the participants by depicting their sector, type
of business and years in operations. A total of 18 participants were interviewed with 9 from
retail and 9 from the services sector. The age of the businesses was vast from as little as 2
years to as high as 41 years.
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Overview of findings
Figure 1 below highlights the challenges faced by township MSMEs pre- and post-
Covid-19 and possible solutions to addressing them as perceived by the township SMME
owners. It is evident that the challenges have changed though some remained the same. The
pre-Covid challenges were primarily internal as they were about managing their businesses
which included financial, business and human resource management and use of technology.
Additionally, three external ones which were access to funding, and government regulations.
Corruption and crime.
Table 1. Business Profiles
Business Type of business Number of Years in
sector participants (18) operation
Grocery Store 2 41
Hawker 1 10
Liquor Store 1 8
Retail Spaza Shop 1 7
Hair extension business 1 6
Atchaar Business 1 3
Food Takeaway Business 2 2
Medical Practice 2 40
Entertainment Business with car wash 2 23
and shisanyama
Hair Salon 1 10
Services Vehicle Mechanic Repairing 1 9
Taxi Business 1 7
Driving school Business 1 5
Photography Business 1 3
Source: Primary Data
The post- Covid-19 challenges primarily were external factors, or their root causes
were external which included business survival, the marketplace, business growth,
unemployment and consumer buying power. The interesting takeaway here is that after
Covid-19 all the businesses were fighting for survival and some of the things that threatened
their survival were the fact that unemployment went up and potential customers did not have
the money to buy goods and services from these township MSMEs. As a result, the proposed
solutions to address this included job creation to enable buying power and small business
skills development to capacitate the SMME owners to handle the challenges that arose. It
was also evident that the challenges were so severe and that brought forward the issue of
mental health which required psychological support which was not a major issue before
Covid-19. Moreover, have the government bring forth accessible support to help mitigate all
these issues.
Emerging Themes: Challenges pre-Covid-19
The themes that emerged from the findings before Covid-19 were derived from the
participants’ narratives. The researcher utilised the narratives to obtain codes, which were
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then translated into themes. As a result, numerous themes emerged from the interviews, and
these have been identified and presented in Table 2.
In South Africa before Covid-19, the economic environment was characterised by
high interest rates, low growth rates (low consumption), high inflation rates, and declining
exchange rates. In addition, the country was in economic recession for the first time in
seventeen years due mainly to the global economic meltdown. The themes that have emerged
are discussed below.
Crime & Corruption
Government Regulations Post COVID-19
Access to Funding Government
Financial Management
Business Management
Business Survival support
The marketplace Small business skill
Human Resource Business Growth
Management
Unemployment
development
Use of Technology Job creation
Consumer Buying Power
Psychological - Mental Health (Buying power)
Proposed
Prior COVID-19
Solutions
Source: Primary Data
Figure 1. Overview of Findings
Crime and Corruption
Crime and corruption have adverse repercussions on a broader scale for all
businesses, for MSMEs the effects are detrimental. Crime increases the expenses for South
African MSMEs, which are known to already have a high failure rate globally (Wolmarans
& Meintjes, 2015). Security measures, as a crime preventative method, based on this research
appear to be a reactive mechanism as opposed to a proactive mechanism. The businesses
which have experienced a history of crime were the ones which have taken recourse to
minimize it in future. On the contrary, the ones which lacked any crime experience in their
history of business had no preventative measures in place.
The perceptions on crime varied among the participants, as some highlighted methods
that they utilised to mitigate crime, and others had no methods and strongly believed that
they did not require any mitigation methods. Participant 13, an entrepreneur who sells fruits
and vegetables (a hawker) stated the following:
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“I do not need any security because I am a man of prayer. At our church, we put
God first, he protects us, and we rely on him. I have 2 businesses one a salon
and the other is fruits and vegetables business. I have never encountered any
problems in terms of crime or been put in a position where my business has felt
threatened.” – Participant 13
Table 2. Study Themes Challenges Before Covid-19
Theme Category Codes
Crime and corruption Security Theft, Gun, Business insurance, Connections, Camera,
Nepotism DVR, Volt, Armed response, Pick pocketers, Alarm
system, Defraud.
Financial Management Day-to-day funds Business Account, Savings, Invest, Day to day living,
Capital Structure Pricing issues, Break-in business, Under charge, No
profit, Collect deposit
Economy Exchange rate Petrol fluctuations, Duty tax, Inflation, Fluctuating
Interest rate prices from suppliers, and Currency fluctuations.
Inflation
Logistics Transport Public transport, Taxis, Own car, Delivery trucks
Supply Chain
Business Management Marketing Advertise, Specials, No marketing, Supply problems,
Operations Parking Space, Bulk buy, Operational problems, Credit
Strategy customers, Customer service
HRM
Business Environment N/A Location, Relocation, Complaints from neighbours, Main
street
Access to Funds Banks No funding, Bad Credit, No bank account, Business
Government account, Personal accounts
Funding
Psychological/Social N/A Donations, CSI program, Charities, Jealousy
Government laws, N/A SARS, Labour Department, Department of Health,
Policies and Regulation Liquor Licensing, Compliance, Government Checks,
Salaries
Education Level N/A Matric, Business Certificate, Bachelors, Grade 11,
Tertiary, Grade 8, N5, College, Diploma, Doctor, Nurse
Technology N/A Hard drive, POS system, ATMS, Software, Cloud
Storage, Data
Source: Primary Data
Participant 15, an entrepreneur of a liquor store stated the following:
“We have security for our business which was not originally there when we
started the business. We have cameras, DVR recordings, a volt, an alarm system
and insurance. These are all requirements for insurance now, especially a
camera and a volt. We have it to prevent crime, because of the history of crimes,
and robberies that have occurred. The past December we got security guards
because robberies are high during that period, but that was seasonal.” –
Participant 15
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Throughout the interviews, Participant 15 placed heavy emphasis on how security for his
business, a costly expense is incurred monthly.
Government Law, Regulations, and Policies
Some participants noted that government policies and regulations hinder their
businesses' growth. One participant mentioned that red tape from SARS, the labour
department, and the health department has worsened his business's sustainability challenges.
He highlighted a 100% increase in liquor license fees, which has reduced profits. To comply
with various taxes, minimum wage laws, and hygiene standards, he has had to lay off
employees and maintain a minimal workforce. During busy periods, he hires temporary staff.
Another participant, who owns a fast-food takeaway restaurant, explained that
government regulations hinder compliance. Non-compliance prevents them from accessing
crucial government funds for expansion. They argued that the government prioritizes
compliance over the needs of small, medium, and micro enterprises (MSMEs), placing them
at a disadvantage. The participants believe that MSMEs create community opportunities and
should be exempt from certain compliance requirements. They must find a proper location
for their business, as operating from home does not meet health department standards.
Participant 17, an importer of hair extensions and wigs from China, stated that import duties
and taxes significantly impact her profits. At times, she has no choice but to temporarily close
her business while seeking solutions.
Access to Funding
The perception of corruption discourages many entrepreneurs from pursuing
government funding. There is a strong belief that access to government funds relies on
nepotism and connections. Additionally, government employees often lack a clear
understanding of their roles in funding institutions, making it difficult for MSMEs to secure
financial support. Corruption stifles the growth potential of these businesses. Most
participants reported that their ventures were self-funded, with no alternative financial aid
available. One entrepreneur selling Atchaar products in her neighbourhood revealed she
relied on a family friend for funding. However, her investor's limited resources hindered her
business expansion. She also expressed concern that the investor frequently demanded a
share of profits, complicating her growth efforts. Despite the challenges, she acknowledged
the legitimacy of these requests. Access to funding for start-ups, particularly MSMEs in
townships, is severely limited in South Africa. Often, these businesses require additional
funding shortly after starting, as expansion is essential for survival. Poor or non-existent
credit records further restrict access to financing. Many business owners have been
retrenched or lack formal employment history, and some MSMEs cannot produce financial
management records.
Business Management
Comprehensive strategic business planning is often lacking in many businesses,
particularly those run as sole proprietorships, where the owner serves as both operator and
workforce. This setup raises concerns about business continuity and sustainability; if the
owner's health falters, the entire operation becomes vulnerable to closure, making continuity
highly dependent on the owner's well-being. Despite aspirations for expansion, many
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businesses struggle with planning and executing these objectives. A limited understanding
of the market highlights risks that lead to inadequate business strategies. Most strategic plans
focus on large-scale growth, which typically requires significant funding. However,
opportunities for growth, such as diversification and partnerships, may not demand
substantial investment. For instance, a successful grocery store could expand by
collaborating with other grocery owners to create a collective franchise rather than relying
solely on its brand. Furthermore, evidence suggests a lack of marketing skills among some
businesses, stemming from inadequate awareness of their market position, competition, and
customer needs. Many businesses underutilize their negotiation power and neglect to foster
sustainable relationships, crucial for success. As a result, overall business management may
be poorly understood and inefficiently executed.
Human Resource Management
Township entrepreneurs often overlook human resource management and strategy. In
South Africa, labour laws are stringent, with no exceptions for small, medium, and micro
enterprises (MSMEs). Due to the size and nature of these businesses, many township MSMEs
have very few, if any, employees beyond the owner. A key concern is the business culture
and low employee engagement, which are evident in high staff turnover, negative attitudes
towards the business, and instances of theft, particularly in businesses that keep stock or
inventory. Additionally, the recruitment process poses challenges for these owners, as they
often lack clearly defined key performance indicators (KPIs) to outline job responsibilities.
Use of Technology
The use of technology among township MSMEs (Small, Medium, and Micro
Enterprises) is minimal for everyday business operations; however, it is more commonly
utilized for security purposes. Some businesses have plans to incorporate technology to
enhance their operational efficiency. The primary concern regarding technology is that its
costs may not always provide a return on investment, particularly for certain business models.
For instance, technology may not necessarily add value to a hawker selling fruits and
vegetables. Therefore, the adoption of technology is often closely linked to the type of
business and the target customers.
Table 3: Study Themes during and Covid-19
Theme Category Codes
Cash Flow Profit margins Cost of growing the business, paying rent, paying
employees, buying, and selling stock on credit
Business Survival The marketplace Closed business, selling various products outside the
Business growth core business, using various marketing strategies,
Business competitors
Unemployment Consumer buying power Retrenched people, cutting off working hours, people
Disposable income stop buying, no customers
Psychological Mental Health The well-being of the family, losing jobs
Business volatility Poor economy Fluctuating prices from the supplier due to poor
economy, Currency fluctuations, and slow business.
Source: Primary Data
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Emerging Themes: Challenges during and post Covid-19
The themes that emerged from the findings during and after Covid-19 were also
derived from the participants’ narratives. Numerous themes emerged from the interviews,
and these have been identified and presented in Table 3.
Business Survival
1. The Marketplace
The competition level significantly influences market potential and development
opportu-nities for MSMEs. High competition, market conditions, and technological changes
were challenges highlighted by Participant 9 during Covid-19.
“The competition was the first. The market was the second. The third one was
the cost and technological changes. The fourth one then focused on the com-
pany’s efforts to expand.” - Participant 9
For MSMEs to thrive, understanding the dynamics of competition in the industry is crucial.
Managers must monitor environmental changes, especially the intensity of current or
potential competitors. Participant 8 shared a challenge faced by larger corporations with
greater financial power, impacting their market.
“… we were a business that was running material supply, and we had Cashbuild
and Builders Warehouse next to us. So, they became our competitors. Why am I
saying that? Because we are selling the same materials, so they are our
competitors. And they have a buying power than us, do you understand, so that
was our challenge. Okay, even if you were to stock and get a good price. You
will have to stock huge materials, and we do not have the financial muscle.
Cashbuild and Builders Warehouse, they have huge financial muscles. So that
was our huge challenge.” - Participant 8
2. Business Growth
Economic factors unevenly impact businesses across various industries and regions,
influencing the attractiveness of different strategies and consumption patterns. Participant 7
noted a significant challenge: the dynamic price volatility affecting profitability as the econo-
my changes.
“The challenge is that prices fluctuate all the time. Yes, you purchase something
with the intention of making a profit. You do not make money off it. Because, as
you may know, the economy has changed again.” - Participant 7
This interview revealed a sense of helplessness, as many factors lie beyond a business
owner's control. Businesses thrive in tandem with their communities. During Covid-19, many
shifted productions to create medical masks and clothing, while some MSMEs struggled to
adapt and shut down due to a lack of resources. Even prior to the pandemic, South Africa
faced high unemployment rates and weak job creation, well below the norms for upper-
middle-income countries. Despite a strong government response, the job market was severely
impacted, and recovery has been slow (World Bank, 2021).
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3. Unemployment
Low-income workers were disproportionately affected by job losses during COVID-
19, increasing already severe inequalities. Participant 5 emphasises how job losses have
affected the entrepreneurial sector.
“For now, people are being retrenched, and many businesses are closing
because they can’t afford to pay rent, their staff and everything else.” -
Participant 5
While many sources indicate that self-employment and entrepreneurship present South
Africa with the greatest opportunity to generate new jobs, particularly given the rising
number of start-ups, these expectations were seriously compromised by Covid-19 as many
start-ups shut down and could not pivot quickly enough.
4. Consumer Buying Power
Consumers in South Africa continued to experience declines in income, consumption,
and savings during Covid-19. Spending on discretionary items remained low as South
Africans aggressively developed money-saving practices (McKensey, 2020). Participants 7,
4, and 9 bring this to light:
“Obviously we did not come to work, people stopped working. Yes, people
stopped having money. Then people stopped buying. We used to sell very, very
little, especially during the lockdown, which was hard.” - Participant 7
“During COVID-19, people were still not allowed to go out and buy things. We
were reducing working and operating hours even though we were in operation.
These are the issues that are causing us difficulties.” - Participant 4
“Everyone shut down since there were no customers. Therefore, you are without
a marketing strategy. There was no one to which you could talk. Many people
had lost their employment. It is quite challenging for people to make it through.”
- Participant 9
Despite lower household incomes, the participants were willing to open their doors to
customers with the hope that the situation would improve as this pandemic affected everyone.
5. Psychological - Mental Health
The Covid-19 crisis has been emotionally challenging for many people, changing
day-to-day life in unprecedented ways. Moreover, mental health challenges during the
pandemic occurred against high rates of mental illness before the crisis (Panchal et al., 2021).
Many people nationwide have lost their jobs or sources of income, which has generally
impacted their mental health. During the interview, there was a noticeable level of anxiety as
Participant 2 expressed her concerns about Covid-19.
“…to us, it was about life, we did not want to die. So those are the things about
which I was worried. My work or if I lose my job, I would not be able to take
care of my kids. I was worried about my kids, my parents.” - Participant 2
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One explanation for the increase in the unprecedented stress caused by the social isolation
resulting from the pandemic is linked to people’s inability to work, seek support from loved
ones and engage in their communities (World Health Organization, 2022).
Evolution of SMME Challenges
There is empirical evidence to show that the challenges MSMEs faced in the township
have changed since Covid-19 and the evolution has been summarised and depicted below.
Table 4. Evolution of Township MSMEs
Themes challenges before Covid -19 Themes During and After Covid -19
Theme Category Theme Category
Crime and corruption Security Cash Flow Profit margins
Nepotism
Financial Management Day-to-day funds Business Survival The marketplace
Capital Structure Business growth
Business competitors
Economy Exchange rate Unemployment Consumer buying power
Interest rate Disposable income
Inflation
Logistics Transport Psychological Mental Health
Supply Chain
Business Management Marketing
Operations
Strategy
HRM
Business Environment N/A
Access to Funds Banks
Government
Funding
Psychological/Social N/A
Government laws, N/A
Policies and Regulation
Technology N/A
Source: Primary Data SMME Owners’ Proposed Solutions
These are the proposed solutions that emerged from entrepreneurs that can lessen the
challenges identified. During the interviews with SMME owners, we have encountered a
variety of responses for overcoming these challenges and growing beyond Covid-19. Broadly
speaking MSMEs are emphasising government support, small business skill development,
and job creation.
“The government should subsidise the businesses with something to help recover
from the Covid-10 period. A lot of damage occurred. And even now, we have not
recovered fully from that. So, I mean, this thing is as close to two years now.” -
Participant 11.
“…solutions, they are supposed to come from the government. The government
need to ensure that the economy is better for the people to get jobs. When people
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have good jobs, then they have money to spend… what we call disposable
income. So, when people have jobs, they can be able to buy the things that we
sell. But people cannot buy them now because they do not have jobs. Therefore,
finding jobs for individuals is the answer.” - Participant 7
“Hey, you see a lot of people are not working, people are tired. People are tired
of the poverty, and hence we see all these things happening. If government can
make sure that there is employment and our children can find jobs, I think that
will be a solution. And skills, our children do not have skills. Because when you
go outside, you can see people who comes outside of our country, they have
skills. You understand, and for us South Africans we do not have anything, no
skills. It is also important that our kids get these skills while they are still young.
So, every cent that the government has should be invested in the skills for our
children.” - Participant 12
This study shows that the financial impact on township MSMEs during and after the
Covid-19 pandemic is the main challenge. As a result, a lot of other issues emerged as
depicted above. Government and other external support were limited among the participants
and awareness on support that is already there is very minimal. The consensus was that
government assistance is the key to resolving most of the Gauteng township MSMEs’
challenges according to the entrepreneurs who were interviewed in this study.
CONCLUSION AND RECOMMENDATION
MSMEs in most developing countries are a catalyst for a growing economy. In South
Africa, they account for almost 91% of businesses operated (Abor & Quartey, 2010) and the
government must focus on policies that support these MSMEs, especially in townships.
Given the population of townships, it is alarming to comprehend that MSMEs that operate
there do not thrive the way they should, based on their potential. The research included a
business which had been in operation for 41 years in the exact location and had not
experienced any growth based on business goals. On the contrary, the business was
experiencing a decline in clientele and profits which illustrates the issue of no growth within
township MSMEs.
This study aimed to explore current challenges hindering the growth of township
businesses in Gauteng, specifically those surrounding the Johannesburg region. Apart from
exogenous challenges that had adverse effects on the business because of the complexities of
prediction and mitigation methods, there were many endogenous challenges that business
owners themselves could attempt to mitigate. For example, one of the issues highlighted in
the research was that there was evidence of financial management, as most profits went to
personal use and were lost due to poor business management. The poor business management
encompassed marketing, human resource management, and strategic planning, impacting
daily operations.
The research also highlighted that unemployment and poverty could motivate
entrepreneurship. However, even when alleviated from these conditions through employ-
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93
ment, many business owners preferred entrepreneurship over traditional employment. In
addition, the research emphasised the limited, if not wholly absent, engagement between the
government and township businesses. Despite all the policies and ministries developed for
the assistance of MSMEs, it was clear that there was poor communication between both
parties and misalignment.
The government is certainly a significant player in the ecosystem of MSMEs, and
after Covid-19, there are additional challenges that will require the government to be even
more vigilant in ensuring that limited resources are used properly, and that employment is
created. Since most business owners would benefit from additional training, the government
should continue to make sure that SMME owners are given the skills and resources they need
to recover and expand their businesses after Covid-19.
The government should establish engagement mechanisms for better communication
with township entrepreneurs, such as incubation centres focused on mentoring and
consultation. These centres must prioritize long-term sustainability amid political changes.
Their main objective should be to equip township MSMEs with the necessary knowledge and
skills for efficient business management. As support providers enhance their efforts, they
should adapt to the evolving needs of township entrepreneurs. MSMEs in townships should
maintain financial records and allocate a specific amount for salaries to instil basic
accounting practices for improved financial management. Business owners can leverage the
entrepreneurial ecosystem to build sustainable relationships, paving the way for partnerships,
especially for franchising with limited funds. For example, if multiple stores collaborated to
create a new grocery brand, they could form a franchise chain.
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