Despite the economic landscape – which still poses significant challenges for small and medium enterprises (SMEs) as a result of the COVID-19 pandemic – business confidence levels are higher among SME owners during the second quarter of 2021 compared to the same period last year. As the latest survey by Business Partners Limited indicates, SMEs’ have confidence levels of 61 percent that their business will grow in the next 12 months – this is up by 5 percentage points year-on-year but down 4 percentage points quarter-on-quarter.
Commenting on the results of the Q2 2021 Business Partners Limited SME Index, Rayna Dolphin, Executive Director at Business Partners Limited, points out that businesses seemed to have a better grasp of how to deal with the challenges presented by the current economic climate, and optimism levels among SMEs were higher. However, she expects that the effects of the recent riots will likely impact confidence levels in the third quarter.
“Confidence levels that the economy will be conducive for business growth in the next 12 months increased quarter-on-quarter by 5 percentage points to 48 percent, which is a 9 percentage point increase compared to Q2 2020. Confidence levels that ease of access to business finance will improve grew by 6 percentage points (now at 44 percent), and SMEs’ confidence levels that the necessary skills are available in the market is up 8 percentage points to 62 percent. Most notably, SMEs’ confidence that the current labour laws are conducive to the growth of SA businesses increased by 13 percentage points, albeit to a low 41 percent.”
With that said, Dolphin notes that certain ongoing challenges facing the sector seem to be highlighted in the survey results. “Although SMEs are more hopeful about their prospects to receive business finance in the near future, only 20 percent of those surveyed have benefitted from COVID-19 relief funding, which is too low a number considering the financing requirements of the SME sector, particularly with the impact of COVID-19. Added to this, 27 percent of those who applied were declined financial relief. We also noted that around 40 percent of businesses are still struggling due to COVID-19 and are doubtful of their long-term survival. The harsh economic climate was identified as the biggest challenge for businesses over the coming year, followed closely by cash flow and regulatory barriers.”
Interestingly, one year on from the start of South Africa’s first lockdown, work-from-home (WFH) schemes appear to be losing some momentum. According to the Index, the number of businesses reporting success with a WFH model has decreased 3 percentage points since the last quarter, and 6 percentage points since the second quarter of 2020. “This could be attributed to decreasing productivity levels of employees or mental exhaustion due to the pandemic.”
Dolphin says that the ripple effect of failing businesses now seems to be impacting the sector. ”Approximately 61 percent of those surveyed have faced major business continuity issues in the last year due to suppliers or clients going out of business – which correlates with research released by Finfind, which estimated that 42.7 percent of SMEs closed their doors last year.”
On the upside, there are indications that business owners are in fact discovering new opportunities during these difficult times. “Around 28 percent of SMEs have appointed new employees in the last quarter and 44 percent haven’t lost any employees since the start of lockdown. However, we anticipate that the recent riots will impact this number in Gauteng and KwaZulu-Natal in Q3 and Q4. Fortunately, almost a third of businesses (30 percent) saw an improvement in their profit margins in Q2, and 15 percent have managed to return to pre-pandemic profit levels.
“In addition, more than half of the respondents noted some success with new business models and practices that they have adopted, while another 14 percent reported great success with the new solutions that they adopted in response to the pandemic. These are all signs of recovery and show promise for the recovery of the SME sector.”
Lastly, a combined 75 percent of businesses felt that they were digitally ready to adapt to a post-COVID world, and the perceived importance of social media marketing has increased to 82 percent – highlighting that the digital transition is well and truly here.
Dolphin says that these results show a trend of growing optimism and ingenuity among SMEs in response to the challenges of the past year, which is slowly starting to pay off. “The sector still requires support to make their journey easier, as they still face many challenges. Practical barriers such as red tape and access to finance have to be removed, but it is good to see this sector making the most of the hand it is dealt,” she concludes.