Risk management is vital to the success of SMEs in South Africa which has one of the highest failure rates of SME’s globally, with 75% of SMEs failing within their first two years. Therefore, adopting a robust risk management approach can improve operational resilience, mitigate potential threats, and enhance business growth. For businesses in South Africa, understanding and managing risks effectively is a key determinant of survival and long-term success.
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Managing risk in SME’s enables them to improve performance, accelerate growth and create sustainable long-term value. In addition, SME’s can also minimise losses and avoid catastrophic disruptions if they manage risk effectively and efficiently.
All businesses and organisations implement strategies to achieve its goals and objectives. The achievement of such goals and objectives produces many benefits such as inter alia:
Team working at a office brainstorming and sketching a business plan on the wall
Small- and medium-sized enterprises (SME’s) are seen as a panacea to South Africa’s growing unemployment. The National Development Plan forecasts that 90% of the 11m new jobs will come from the SME sector by 2030. However, research data shows that this may not be the case. According to a World Bank study on employment growth in SA during the period of 2010 – 2019, the average job growth from the private sector during this period was only 2.3%. However, the SME sector’s share of this new jobs growth in the private sector was disappointingly low. Therefore, it appears that SME’s may not be able to create the required new jobs by 2030.
SME’s are also expected to contribute significantly to the country’s GDP as approximately 95% of businesses consist of SME’s, like in other countries. The National Development Plan forecast that by 2030, SMEs will contribute 60% to 80% of the GDP. In contrast, SME’s actual contribution to GDP in SA is disproportionately low, according to research data. This situation is as a result of the exceptionally high failure rate of SME’s. Between 70% – 80% of SME’s do not survive passed the first 5 years. Amongst the key reasons cited for this high failure rate is the lack of appropriate business skills and knowledge, according to a survey report of The SA Institute of Chartered Accountants.
