The opportunities for SMEs in a recession

While South Africa has entered a technical recession, we believe that already established small and medium enterprises (SMEs) in the country will have more to gain from continuing to conduct business introducing initiatives for improving business efficiency, instead of trying to recession-proof their operations with drastic measures such as downsizing staff and the like.

However, there is no denying that entrepreneurs who want to start up new businesses during this period of poor economic growth and low business confidence, will face an uphill battle. Procuring capital to start a new venture is predicted to become increasingly difficult, as the majority of funding institutions are expected to adopt an increasingly risk-averse stance. Finding those crucial first customers who will help to bring the business on its feet, could also prove more challenging as consumers tighten their belts.

With that said, there are still some opportunities for SMEs during a recession, and certain business sectors have been known to weather periods of low economic growth well. Below are some of the industries that have shown to offer the best opportunities in a recession.

SECURITY
Whether it is real-world or cyber security, both commercial and private asset owners become significantly more risk averse during times of economic recession and uncertainty. While spending in most other sectors of business tend to decrease during a recession, security is one industry that tends to see increased interest.

The evolution of the private security industry in South Africa also proves this point. In spite of the continued underperformance of the country’s economy in recent years, private security has become a R45 billion industry with a growth rate of 15 percent per annum, making it among the largest in the world.

South Africa has already seen a substantial increase in the number of start-ups in this market, and providing new tech-savvy solutions and more efficient support services in this sector may prove lucrative.

Similarly, the realm of cyber security in South Africa is seeing increasing threats and heightened demand. However, the required skills remain scarce in the country, businesses that offer solutions that can bridge this skills gap could see an increasing number of opportunities in the coming years.

DEATH CARE SERVICES
The estimated value of the funeral industry in South Africa is between R7.5 billion and R10 billion. Morbid as it may sound, businesses that offer services related to death, including funerals, cremation, burial, and memorials, are usually some of the most recession-proof operations. Death care services usually have a steady stream of business, regardless of the economic climate.

With that said, this is still a market that can become price sensitive during tough economic times, and service providers like funeral homes often report that the demand for lower cost arrangements such as cremations usually increase.

Financial services related to the funeral industry also see increased interest as belts get tightened. It is estimated that the funeral insurance market in SA is reportedly worth more than R7 billion in annual premiums.

EDUCATION
Private education is a growing market in South Africa, and even in the tough economic conditions experienced in recent years, the demand for more and better alternatives to the underperforming public education sector, has increased significantly.

It is also reported that South Africa is experiencing skills shortages in almost all of its sectors, emphasising the need service providers that offer more effective, affordable and accessible adult education. Businesses that offer accredited online training platforms have especially seen increasing interest in South Africa, as well as on the rest of the African continent.

The inherent advantage for SMEs is the fact that they have a lot of flexibility, and are often in the best position to find new and innovative solutions to existing demand challenges. In a recession, this usually means finding ways of stripping down vital services and making them quicker and more affordable for clients.