[UPDATE – 10 July 2020]
By: Siphethe Dumeko, Chief Financial Officer at Business Partners Limited
South Africa has entered a technical recession and entrepreneurs who want to start up new businesses during this period of poor economic growth and low business confidence, will face an uphill battle and will have to look at workable business ideas.
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.
1. Food Trucks
Food trucks form a part of the fast food sector. The fast food sector is a major contributor to the growth of the food and beverage industry.
A study by Lightstone Explore found that consumers are increasingly attracted to fast foods because of convenience, which suggests that consumers are moving away from the costly, both in time and money, implications of eating out in a restaurant.
For entrepreneurs the benefits of having a food truck include: saving on overhead costs such as rent and utilities and the ability to go where your market is.
2. Online Digital Services
There is money to be made online. Digital is one of the fastest growing sectors and presents multiple opportunities.
Possible online digital ventures include:
– Digital media services – website building and maintenance and setting up of e-commerce functionalities on existing websites.
– Digital marketing services: The list of digital marketing services you can offer includes social media marketing, content marketing, SEO, email marketing, native advertising and retargeting ads, according to the Hubspot
– Blogger and influencer: Influencer marketing is defined as the use of an ambassador to help champion or endorse a brand or campaign to a targeted audience. The most profitable and popular platforms for influencer marketing are Youtube and Instagram.
– Virtual assistance: Provide admin support to small and large businesses virtually.
3. Bulk Sales
People tend to buy in bulk during recession, according to a The Balance Small Business article.
There are opportunities to sell items in bulk, including necessities and staple products, particularly during difficult economic times.
There are massive advantages to bulk buying. Buying in bulk reduces the cost per unit and can reduce how much a consumer pays in the long run on supplies and product. The Vuleka app (link from our story) is an example of how entrepreneurs can take advantage of the power of bulk buying. They are changing how spaza shops in townships buy stock from the suppliers through the power of bulk purchase.
Bulk product packages examples:
- Food: all necessities that can be used for long term use. Flour, maize meal, sugar, rice, tinned foods, spices etc.
- Cleaning products: laundry powder, all-purpose cleaner, dish washing liquid, toilet paper, bleach etc.
- Fruits and vegetables: fresh, organically grown vegetables that can be preserved in the refrigerator. Examples: carrots, broccoli, tomatoes, apples, garlic etc.
- Meat: butcheries tend to sell certain meat in bulk. The package can include boerewors, mince meat, red meat and lamb for example.
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.
5. 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.
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