Small and medium-sized enterprises (SMEs) are adopting digital platforms with WhatsApp being the go-to platform for attracting new clients, according to a Standard Bank inaugural study on the informal economy, released this week.
Based on interviews conducted between March and May this year, the study surveyed small and medium-sized businesses accounting for 7,500 jobs — with annual turnovers of between R100,000 and R50m — across Gauteng, the Western Cape, KwaZulu-Natal, Limpopo and North West.
WhatsApp was found to be the most popular marketing and communication tool among informal businesses — 74% of respondents said they used the app — followed by Instagram (47%). The use of websites and business apps was 30% and 36% respectively.
Nokhanyo Ntshingila, senior manager of enterprise and supplier development at Standard Bank, said township-based SMEs mainly based their choice of marketing tools on cost.
“WhatsApp is the go-to tool for its ease and low cost, though having a website, business app, or using tools such as MS Office signals professionalism and legitimacy. These are seen as markers of a serious, established business,” she said.
The percentage of small businesses that use WhatsApp as their
preferred mode of communication, according to a recent study.
— IN NUMBERS: 74%
The report found cash remains the primary method of trade for township businesses — influenced by customer preference — though some businesses use mobile money services and mobile digital platforms.
More than half of businesses preferred EFT/bank transfers for safety and record-keeping, especially for bigger transactions.
“Transactions via EFT/bank transfers are seen as a safer alternative. Interestingly, cash and point-of-sale transactions are perceived to carry similar risks of robberies,” the report noted.
Muzzafar Nagvadari, head of merchant solutions sales and services at Standard Bank, said there were plenty of opportunities to grow digital financial tools for SMEs operating in the informal economy.
“The appetite is there; it’s just about finding ways in which we can create simple and easily accessible channels to leverage the solutions we have right now.”
"Cash and point-of-sale transactions are perceived to carry similar risks of robberies" Standard Bank study on SA’s informal economy.
— Standard Bank study on SA’s informal economy
The report values the township economy at R900bn, but said more work was needed to help grow the informal sector, as there were no formalised rules or guidelines.
Eight out of 10 businesses in the sector were unregistered, the study found, which made it impossible for them to access to finance.
Moreover, informal businesses often targeted the same customers and operated in saturated markets. This led to intense price competition, resulting in thin profit margins. On average, there are 20 businesses in a community chasing similar customers. Sectors such as information and communication technology, as well as logistics and retail are the most crowded.
Most of the businesses are self-funded — either using personal savings or with financial help from family members.
Supporting township businesses
Wandile Zondo, co-founder of Thesis Lifestyle, a Soweto-based clothing line, said that to help township businesses thrive, the government should arrange access to warehouses at subsidised prices, and help enterprises establish online stores.
“The cost of running an online store in Soweto is expensive; every courier company or logistics car that comes into the township is followed by a security vehicle. So, who is forking out that cost? The consumers.”
Zondo said township-based businesses were often on the back foot compared to their peers in the suburbs because of their location. The report found males aged 35 to 54 dominated informal sector businesses, and mainly operated from homes or on pavements to cut costs.
Kani Rajuili, research director at Foshizi — which conducted the research on behalf of Standard Bank — said many business owners operating in the informal sector were unaware that unless they were generating income above a certain level, they did not have to pay tax.
“The anxiety is that once I have a business bank account, I am now formally registered, I am barely making ends meet, and now the taxman is going to take it. That is not so, that is why access to information needs to be localised,” she said.
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