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After a ray of hope last quarter, confidence has once again nose-dived as SMEs enter survival mode

While confidence levels of small-and-medium sized enterprises (SMEs) seemed to rebound during the second half of 2020 as some semblance of normality returned after lockdown restrictions were eased, the economic aftershocks of COVID-19 were felt across the board. With increases job losses and restrictions on international travel, local consumer spending and foreign visitor numbers declined during the fourth quarter of 2020, resulting in dwindling SME business confidence.

This is according to the 2020 quarter four results of the Business Partners Limited (BUSINESS/PARTNERS) SME Index, which revealed that 75 percent of respondents found the festive season significantly quieter than usual. The survey results also bring into focus the crippling effects of COVID-19, with 71 percent of respondents indicating that the pandemic has negatively impacted their level of business confidence for 2021.

Recently released tourism data supports this sentiment, as a meagre 52,711 international visitors passed through Cape Town International Airport in December 2020, compared to 281,382 in December 2019. To add insult to injury, the year ended on a low note as Government reinstated level 3 lockdown restrictions in response to the growing threat of a second wave of COVID-19.

Commenting on the fourth quarter results, Mark Paper, Chief Operating Officer at Business Partners International, points to how concerns over survival are growing in urgency. “35 percent of SMEs surveyed noted that their business is struggling and may not survive due to COVID-19 disruption – a 10 percentage increase from the third quarter of 2020. While a third and even fourth wave are anticipated, we trust the vaccine roll-out will not only protect South African citizens from the COVID-19 health risks, but that it will protect businesses against its devastating economic effects.”

The 2020 SME Index results reveal an overall downward trend in business confidence. Most concerning is the 9 percentage point decrease (from 54 percent in Q3 to 45 percent in Q4) in confidence that the South African economy will be conducive to business growth in the next 12 months, comments Paper. “This is followed by an 8 percentage point drop in confidence levels from the previous quarter that their business will grow in the next 12 months (from 72 percent in Q3 to 64 percent in Q4), and a 7 percentage point drop in confidence that the private sector is doing enough to support South African SMEs (from 46 percent in Q3 to 39 percent in Q4).”

Quarter-on-quarter, cash flow remains the top challenge that SMEs face, outranking other prominent challenges such as the economic conditions, skills and regulatory environment.

Also of concern to Paper is the decrease in confidence that access to business finance will improve over the next 12 months (down 7 percentage points from 47 percent in Q3 to 40 percent in Q4). This underscores the crucial role of financiers in supporting SMEs to weather the biggest economic storm of our times. Paper explains that before the pandemic hit, financing was geared towards providing growth capital for expansion, however, the industry had to shift focus and reinvent its approach to find new ways to provide relief finance.

While there are still funds available to businesses, such as the Government’s loan guarantee scheme, the country’s financiers need to show more ingenuity in providing SMEs better access to these funds. “The approach to relief capital is very different to that of growth capital,” Paper adds. “Relief capital requires smaller ticket sizes; quicker turnaround; elements of patient capital; and the due diligence to focus on whether the underlying business will remain solvent and liquid.”

While more SMEs seem to be applying for COVID-19 relief funds and initiatives, the SME Index reveals that 28 percent of those surveyed were unsuccessful in securing this aid.

Paper says that South Africa’s economy is largely reliant on a thriving SME sector. “Not only do SMEs create a high volume of employment opportunities in a country crippled by high rates of unemployment; due to their size, they have the ability to be agile, innovative and are better positioned for growth. Support from both the private and public sector is vital for these businesses to survive and hopefully thrive,” he concludes.

About the Author: Mark Paper

Mark Paper is the Chief Operating Officer for Business Partners International. He has been with our company for 29 years and has during this time supported many SMEs, both in South Africa and selected other African countries. Mark oversees the effective growth of the successful Business Partners Limited Group model in Kenya, Malawi, Namibia, Rwanda, Uganda, and Zambia. Mark likes the outdoors and on most weekends, he can be found enjoying an early morning mountain biking session, hiking, paddling, or a bit of surfing. He is our go-to-spokesperson for our SME Confidence Index, SME sector policy issues, international business trend matters, and business leadership articles.

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