South African small and medium-sized enterprise (SME) owners have confidence that the local economy will be conducive to business growth in the next 12 months according to this year’s first quarter(Q1 2022) SME Index.
This as SMEs’ confidence was at its highest level in a decade.
The index conducted by Business Partners, a specialist SME financier, measures business confidence as it relates to labour laws, access to finance, state-level interventions and broader socio-economic realities.
The latest index was indicative of an overwhelmingly positive sentiment in the first quarter of this year, it said. The only factor to dampen this optimism was the challenge that SME owners were facing around finding staff with the right skillset – a reality that could be attributed to affordability and the global skills shortage. It remained to be seen how the recent energy crisis would impact this SME confidence in the second quarter of 2022.
Overall, the results of the SME Index suggested that SMEs had weathered the worst of the pandemic. Small businesses had confidence levels of 77 percent that the current economic conditions were conducive to business growth, which was a 24 percentage point increase from last quarter of last year. It was also a significant year-on-year (y/y) increase of 34 percentage points.
However, the confidence levels that business owners would find staff with the right skills and experience to facilitate the growth of their business had decreased by 5 percentage points y/y. Business confidence levels within this context showed a steady decline, having fallen by 14 percentage points in quarter last quarter of last year.
Rayna Dolphin, Business Partners’s financial director, said all results of the index pointed to the fact that South African SMEs were working hard to recover their pandemic losses.
“This is an encouraging finding that correlates strongly with the further lifting of lockdown restrictions during the first few months of the year. Now, as the SME Index highlights, a renewed focus needs to be placed on skills development and creating an enabling environment in which SMEs can thrive in a highly competitive global arena,” Dolphin said.
Business Partners Limited said there were a number of indicators that the SME ecosystem was showing visible signs of progress.
This was clearly illustrated by the sharp increase in the level of confidence that the government was doing enough to create an enabling environment for business, which was up by 34 percentage points y/y. At 51 percent, confidence levels in this regard weas at its highest since the launch of the SME Index nearly ten years ago.
SMEs’ confidence levels that the ease of access to business funding would improve in the next 12 months was up by 14 percentage points y/y. Likewise, confidence levels that the private sector was providing enough support to SMEs was up by 13 percentage points from the previous quarter, albeit this increase came off a relatively low base.
Somewhat unsurprisingly, the top three challenges facing South African SMEs had remained the same for over a decade. They included cashflow, economic conditions and funding.
In addition, 79 percent of SMEs were affected by the two interest rate hikes which took place in the first quarter of this year which led to consumers spending less and cutting back on non-essentials.
Loadshedding, which has persisted into 2022 (stage 4 in quarter one), impacted 75 percent of the SMEs surveyed. Some 46 percent of this constituency experienced a loss in productivity and 29 percent suffered business interruptions that resulted in insurance claims.
Another key insight was that SMEs had confidence levels that only 51 percent of their clients would pay within the stipulated times – a decrease of 9 percentage points from the previous quarter and 5 percentage points y/y.
For Dolphin, this insight pointed to the urgency that existed for the government to ratify and implement the National Small Business Amendment Act, which she said would afford SMEs with the right to reasonable payment dates and to charge interest on late payments.
For small businesses for whom efficient cashflow was crucial, the amendment would be a “giant leap in the right direction.”
Dolphin said the first quarter SME Index had demonstrated that South African SMEs were slowly renewing their belief that their businesses could grow and thrive.
“Their resilience during the pandemic and their efforts to recover revenue and build their businesses within the post-pandemic context is something to be admired. However, small businesses face several headwinds in the form of global challenges and unique hurdles such as load shedding that face South Africa on a macroeconomic level,” she said.
BUSINESS REPORT