Which SA sectors are ripe with opportunity for local SMEs?

Siphethe Dumeko

Following two consecutive declines in GDP, sending the South African economy into a technical recession in early June 2017, current sentiment about economic growth prospects remains strained. Despite this negative sentiment, there are sectors within the economy that present a number of opportunities for small and medium enterprises – and could contribute to the economic growth that the country is desperately seeking.

This is according to Siphethe Dumeko, Chief Financial Officer at Business Partners Limited (BUSINESS/PARTNERS), who says that the past few months have proven difficult for many small and medium enterprise (SME) owners. “We have seen evidence of this reflecting in the increase in net credit losses in our financial results for the year ended 31 March 2017.”

SMEs play a crucial role, not only in job creation, but also in enabling diversification through the creation of new sectors and markets that play a key role in driving growth. Dumeko says that, irrespective of the prolonged period of subdued economic growth, it is imperative that South African entrepreneurs remain optimistic about and take advantage of opportunities that exist to bolster entrepreneurship and growth.

Dumeko highlights that for its financial year ended March 2017, Business Partners Limited approved R1 146 million worth of investments for SMEs across a variety of sectors. He adds that not all sectors are affected in the same way within a distressed economy, and it is here that zealous entrepreneurs should pay the most attention – to make sure they take advantage of the sectors proposing the best future success rates.

Some of the sectors currently providing the most opportunities for local SMEs include:

Information, Communication and Technology (ICT)
The ICT sector, and in particular the expansion of national fibre and bandwidth intensive applications, continues to perform well, despite the sluggish growth of the economy it serves. This is one sector providing a myriad opportunities for SMEs – including the implementation of data fibre cables, Wi-Fi masts as well as products and services providing related technical support services.

Agriculture
The agricultural sector has been one of few sectors to show positive GDP growth in 2017 despite South Africa’s ailing growth statistics and tough environmental conditions that have wreaked havoc on local agriculture. SME owners would do well to consider opportunities in, for example, agro-processing and supply for the local and export market.

Commercial and industrial property
As tough economic times drive more and more people to migrate to larger cities and business nodes within the country, there is growing opportunity for SMEs to be creative and meet the emerging needs that booming urban populations require. Statistics South Africa recently released the Mid-Year Population Estimates for 2017 which show that the Gauteng and Western Cape provinces are estimated to experience large inflows of migrants of approximately, 1.5 million and 485 560 respectively for the 2016–2021 period. This will mean that there will be some long-term investment opportunity in both commercial and industrial property going forward.

Education
With the country’s challenges in the education system remaining high on the news, the provision of affordable private education remains a heightened necessity. Entrepreneurs looking for sectors with potential should consider the opportunities herein, and look for gaps within this market that require a fresh approach to meet the identified challenges that exist within the public schooling system.

Green energy
As the global economy continues to highlight the importance of incorporating environmental, social and governance (ESG) principles into business practices, energy saving programmes are becoming increasingly crucial. Green economy industries such as renewable energy and energy-efficiency solutions present entrepreneurs with opportunities to find creative ways of addressing critical energy- and environment-related challenges.

Dumeko concludes that despite the evidence of certain sectors showing growth opportunities for entrepreneurs, well-researched business concepts with solid fundamentals and good management are becoming more and more important for any risk financier across any sector and business offering in view of the low growth economic environment. The reduction in the repo rate by 25 basis points in July 2017 by the South African Reserve Bank, should be viewed as a positive signal to stimulate the much needed growth for SME’s to thrive.