ADAPT OR DIE: The choice for the country – and its small businesses – in the era of climate change

Adapting to the changed realities of climate change – rather than seeking to mitigate its effects – is one of the new realities of the 4th industrial revolution. This is particularly so for small business, says a new study.

South African’s fledgling Small, Medium and Micro-Sized Enterprises (SMMEs) are vital to help kickstart the economy and boost employment numbers.

But many SMMEs do not make it off the starting blocks for various reasons, including a lack of access to financing, bureaucracy, regulation and poor market access.

All stakeholders, including the state and business, agree that SMMEs are in dire need of support. A report from SME South Africa released last year, found that the longer an entrepreneur remains in business, the more people are employed.

“SME owners who have been in business for three to five years, 52% of them have two to five employees, 11% have six to 10 employees, 6% have 11-20 employees and 30% of them are the only employees,” says the report Assessment of South Africa’s SME Landscape: Challenges, Opportunities, Risks & Next Steps 2018/2019.

Research organisation Trade & Industrial Policies (Tips) believes that one way to increase the numbers of active SMMEs, is how the country decides to adapt to climate change.

It focuses on water and sanitation, agriculture and agro-processing, and energy as the most effective way to stimulate small business development connected to climate change. 

The Fourth Industrial Revolution (4IR) has been identified as key to mitigating climate change. And Tips, which focuses on policy development on trade and industry, inequality and economic inclusion, and sustainable growth, believes that the way South Africa chooses to deal with climate change, can have a positive knock-on effect on small business development.

It cautions that if the country stalls on policy development around climate change, there will be multiple negative effects on economic development, social progress and environmental sustainability over the coming years. Its Small Business Development in the Climate Change Adaptation Space in South Africa report says the country is especially vulnerable compared to many peers.   

The report, which is accompanied by case studies, warns that South Africa is expected to face serious water insecurity as one of the driest countries on earth. It has 2798 km of coastline, which also makes it vulnerable to rising sea levels. Because the economy is heavily carbon- and energy-intensive, the country is at further risk from poor climate change response measures both domestic and global. 

“The degree of societies’ resilience depends on the risks (their amplitude, timeframe and the probability that they occur) as well as the degree of vulnerability, such as the exposure and susceptibility to the risks, and the ability to withstand and recover from impacts,” reads the document, released by Tips in March 2019.

Therefore, South Africa’s response to expected and unexpected impacts is urgent. But so is how the country harnesses the opportunity to improve the resilience of the economy, society and the environment. By moving beyond mitigating climate change – which researchers say has been the country’s practice up until now – and choosing to start adapting, the vulnerability of natural and human systems against climate change is reduced. 

The report advocates for more adaptation, arguing that it opens opportunities for innovation, both at the policy and business levels.

“Despite the challenges… SMMEs, and particularly small businesses (i.e. micro, very small and small enterprises), are particularly well-suited to seize such opportunities,” it reads.

“However, the potential for adaptation-driven needs, investments and mechanisms to generate socioeconomic opportunities for small businesses remains largely unexplored and misunderstood. The focus has been on mitigation-driven prospects, on the premise that mitigation-related interventions and investments are more financially viable and provide more imminent benefits.”

The researchers believe including small businesses must be an integral part of the adaptation process, as it assures holistic approaches to development.

“Small businesses are well-suited to seize such opportunities, however, the potential for adaptation-driven needs and investments to generate socioeconomic opportunities for small businesses remains largely unexplored and misunderstood.

“While small businesses are known to have particular characteristics that enable them to use such opportunities, they face challenges relating to their size, limited resources, and unfavourable policy, and industry and market conditions. 

“Small businesses in the adaptation space also face additional constraints that are specific to the novel and unchartered territory they operate in,” they say.

But despite these constraints, the research aims to contribute to closing the gap that impedes SMMEs. But, for them to operate fully and effectively, they will require intensive support and a conducive policy and regulatory framework. 

“This requires both a stimulation of demand for adaptation-related solutions as well as adequate support to entrepreneurs active in this space. On the supply side, access to finance and markets should be supported by dedicated programmes focused on entrepreneurs active in greening the economy,” the document reads.

“This is critical to bridge the information asymmetry between entrepreneurs and financiers (who often do not consider the need for a just transition to a low-carbon, climate-resilient and environmentally sustainable economy). It is also essential to support entrepreneurs to better understand the market in which they operate.”

It says market segments within the climate change adaptation space are distinct and driven by different factors. Support to access infrastructure should be provided to enable growth. Significant action is needed to stimulate demand for adaptation-related products and services. 

“Raising awareness in all spheres of government, the private sector and society at large will be instrumental in stimulating climate action. The state, through public procurement, could assist in driving demand. In addition, regulations, enabling policies and, in some cases, tax incentives can be used to drive demand.”

But the need goes beyond small businesses. Adequate support is essential to ensure that vulnerable households and businesses that cannot afford to adapt to climate change are assisted. The private sector should come on board and fast-track adaptation in vulnerable ecosystems and communities, it says.

“In the end, adapting to climate change is an urgent necessity. Whether or not it comes with domestic co-benefits for small business development, however, relies on adequate action,” the document concludes.