It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.
– Harry S Truman, (33rd president of US (1884 – 1972))
The third quarter Business Partners Limited SME Index (BPLSI), which aims to measure attitudes and confidence levels amongst the Small and Medium Enterprises (SME) industry in South Africa, has revealed that while business owners are less positive in their outlook for the South African economy in comparison to last quarter, their confidence levels in the growth prospects for their own businesses remain high.
The 2012 Quarter 3 BPLSI revealed that the SME owners surveyed displayed average confidence levels of 49% that the SA economy will be conducive for business growth in the next 12 months. This is a decrease of 4% since last quarter. In contrast, business owners displayed 73% average confidence levels that their own businesses will grow during this period, up 1% from the previous quarter.
According to Nazeem Martin, MD of Business Partners Limited, the fact that business owners are confident about the growth prospects for their own businesses is extremely positive, and may indicate that the reports and forecasts for 2013 may be unduly negative.
The lower confidence levels in the economy are being fuelled by lower economic growth expectations amongst economists, economic policy uncertainty associated with the leadership debate within the ruling political party as well as the recent violent labour unrest in the mining and agricultural sectors. “All of these factors have negatively impacted on business confidence levels and have resulted in lower levels of investment, especially by private sector firms.”
However, the high confidence levels displayed by SME owners in the growth prospects for their own businesses is probably a more accurate reflection of the situation on the ground and may suggest that these issues may not necessarily have as much impact on businesses as what some predict.
“Of course, entrepreneurs are by nature eternally optimistic, especially when it comes to their ability to positively shape and influence their own business, despite adverse factors over which they have no control.”
When it comes to the ease of access to business finance improving in the next 12 months, businesses owners’ confidence levels are significantly less at 43%. This is a decrease of 4% since last quarter.
Martin says that this drop in confidence is most likely due to the fact that even though interest rates are currently at their lowest levels in over 40 years, very few SMEs are able to obtain finance at prime interest rates. “Financiers’ lending practices and risk appetite have been impacted by them having to adhere to Basel requirements, effectively pushing up the cost of finance to perceived risky clients like SMEs. The increased cost of finance therefore dampens SME’s appetite for finance.”
The BPLSI also revealed decreased confidence levels of 5% to 26% amongst business owners when asked whether government is doing enough to foster SME development. Martin says that although over the years the South African government has done much to try and create a more business friendly environment, as recently evidenced by the slight improvement in the country’s overall rating in the World Bank’s 2012 Ease of Doing Business Survey, SMEs feel that additional assistance can be offered.
“SMEs indicated that government can and should do much more to foster entrepreneurship and aid them in growing their businesses, especially with regards to access to finance, streamlining business establishment and regulatory approval processes and better tax breaks for SMEs.”
SMEs had confidence levels of 55% when questioned on how confident they were of finding staff with the right skill sets and experience to facilitate growth of their businesses.
Martin says that although these levels have improved by 2% since last quarter, these confidence levels remain relatively low. He says that the muted confidence levels may be related to the education system in South Africa, at both secondary and tertiary levels. “Business owners may not be confident that students are equipped with the necessary skills for the world of work, especially in a modern, technology driven work environment. Mathematical and literacy skills, as well as general business acumen, are the areas in which secondary and tertiary institutions will have to do much work to prepare people for gainful employment in the modern day work environment.”
The index revealed that the main challenges that SME owners expect to influence their businesses over the next 12 months are economic conditions (33%), cash flow (25.8%) and funding (17.1%).