This is according to Ben Bierman, MD of Business Partners Limited
(BUSINESS/PARTNERS), who was commenting on the company’s latest SME
Index results, which reveal that business owners’ confidence levels are
nearing their lowest point in the last two years.
The third quarter 2016 Business Partners Limited SME Index – which
measures the attitudes and confidence levels of South African SME
owners – revealed confidence levels at 56% that the South African
economy will be conducive for business growth in the next 12 months.
This is 2 percentage points lower than the previous quarter and a
decrease of 1 percentage point when compared to the third quarter of
Furthermore, 75% of respondents indicate that the current economic landscape is affecting their business’ profit margins.
“Entrepreneurs remain committed to this country, however,
circumstances are particularly challenging for SME owners at the
moment, causing them to be less bullish and optimistic about their own
growth and the economic growth that they anticipate in the future. This
negative sentiment will only be exacerbated by the economic volatility
caused by recent political uncertainty that would not have been
incorporated into this quarter’s index results.”
Despite these challenging conditions, Bierman says that the SME
sector remains committed and is still proving to be effective in job
creation, with 49% of respondents having employed new staff in the last
year and 27% having employed new staff over the past quarter. “From
those creating employment, it averages out to be four or five jobs that
are being created per business, which supports the view that SMEs are
instrumental to addressing the unemployment crisis in South Africa. It
also demonstrates that in a more conducive economic environment SMEs
can contribute to meeting job creation targets set in the National
Development Plan (NDP).
“Sustainable growth in employment requires that there be businesses
growth and business growth requires commitment to invest in the
capacity required for growth – as such, higher investment occurs if we
have some confidence in the future. The SME sector needs the broader
economy to grow for it to experience proportionate growth. Based on the
contracting confidence levels across all sectors, this seems unlikely
without further support or intervention,” adds Bierman.
He points out that 74% of respondents are confident that their
businesses will grow in the next 12 months, which is down a
considerable 5 percentage points from the previous quarter; and 3
percentage points down from the third quarter of 2015.
According to Bierman, this relatively pessimistic outlook on future
growth is linked to the fact that SME owners’ confidence that their
clients will pay them within the stipulated time is down 6 percentage
points. “Uncertainty around timely payments affects cash flow which is
the lifeblood of any business. It causes uncertainty such as whether
employees can be paid for example. Any uncertainty about the owners’
ability to pay increases the difficulty of SMEs to implement any plans
that they have for their businesses.
“This increased concern from business owners around whether they are
going to receive timely payments is, to a large degree, a reflection
on the fact that all the major stakeholders in the SME ecosystem are
effectively struggling to grow and generate additional turnover, which
can be linked to the broader negative macroeconomic conditions.
“The broader economic recovery of the country, however, is becoming
increasingly dependent on the existence of a sound and stable political
framework,” adds Bierman.
He points out that there is still only a very small percentage of
respondents (39%) who reported feeling confident that Government is
doing enough to foster SME development in the country. “It is therefore
imperative that South Africa aligns behind the implementation of the
NDP which addresses business formation and the desired economic
framework to ensure SME growth. The NDP provides objectives for growth
and employment creation and proposes various initiatives to mitigate
some of the challenges facing SMEs in the short to medium term.”
Bierman concludes: “As a county, we owe it to our entrepreneurs to
make sure that the environment in which they operate is more certain,
less volatile, more conducive to economic growth in order for them to
continue creating employment. The key to stimulating the SME sector
over the short term is to create a strong, unified alignment behind the
NDP by Government, the private sector, organised labour and civil
society. This can be a positive catalyst for a virtuous cycle of
increased growth and improved confidence which will by itself create
more positive economic conditions. In turn, SMEs will continue to
remain best positioned to create more jobs.”