South African business owners are bracing for the potentially devastating impact of the coronavirus outbreak.
Carel Hauptfleisch, who runs a successful online retail store out of Cape Town, imports goods from China. He’s been unable to get new products from his usual suppliers since the coronavirus hit.
“Stock has been paid for, but it’s not coming in,” said Hauptfleisch.
A similar story is unfolding across South Africa.
Cash flow is under pressure
Trade links with China run deep: the viral disease is hurting the South African economy, from large firms to SMEs. Since the onset of the coronavirus in December, most Chinese factories have slowed production, or shut down completely.
Prolonged factory closures are a serious concern for SMEs who import goods from China, said Kayla Field, of the Lulalend credit team.
Field has been speaking with South African business owners over the past few weeks.
Local SMEs are struggling, said Field.
“Businesses have placed bulk orders six months in advance. They’ve already paid for these orders. But because of the virus, they can’t access that stock.”
Declining stock means declining sales, said Field.
“Cash flow becomes an issue. Businesses don’t always have capital to purchase new stock from alternative suppliers.”
Most SMEs are on edge.
“All businesses are left with is the stock they have. They’re quickly running out of the materials they need to do business.”
Hauptfleisch tells us he’s tapped into other networks.
“We are sourcing from alternative suppliers. They have limited supply.”
He remains in regular contact with his manufacturers in China.
“Some of my suppliers are getting back to work, but their suppliers are still shut down.”
Even when operations finally return to normal levels, the effects of the outbreak will stay with many businesses for a few months, adds Hauptfleisch.
Epidemic threatens jobs, growth
Many factories did not resume production after the Lunar New Year holiday, reports the Financial Times.
In South Africa, almost no sector remains untouched, explained Field:
- Mobile sales: cellphones and cellphone accessories.
- Automotive industry: China is the world’s largest car market, according to Statistia. Wuhan, where the first case of the virus was detected, is known as a “motor city”, because it’s home to several large car manufacturing plants.
- Retail: like companies across the globe, many SA retailers are reliant on China for stock.
- Hospitality: around 100 000 Chinese tourists visit South Africa each year. A PwC report estimates the coronavirus will cause losses of R200 million in the tourism industry.
- Construction: businesses import steel and concrete from China. Construction projects are stalling because of shipment delays, reports IOL.
SMEs in these sectors have been hit hard.
“Many businesses owners I speak to are worried,” said Field.
“There’s no timeline around this. Businesses are taking a knock.”
The impact of coronavirus on business finance
In some cases, business owners have been struggling to repay their business loans.
“Here’s where lenders need to be sensitive to what people are going through,” said Field.
Though, SMEs should take a proactive approach when it comes to managing their business finance obligations.
“Once you realise you will struggle to make your repayments, contact your lender immediately to make an arrangement,”, said Field.
By taking this route, business owners can avoid defaults or judgements against their name, added Field.