2023 was a year of ambivalence for small businesses across South Africa. The most recent Business Partners Ltd SME Confidence Index (SME Index) saw both increases as well as decreases in business confidence on several fronts. With 2024 now beginning to gain momentum, expectations remain high that this will be a year of progress for local SMEs.
This is according to Jeremy Lang, Chief Investment Officer at Business Partners Limited, who says that although the outlook for 2024 is positive, SMEs will be keeping their eyes on the following key developments and will hope to see their 2024 wishlist come to fruition. These include:
- More government support and a conducive operating environment
According to the most recent Q2 2023 SME Index, the biggest increase in small business confidence was seen in the realm of government support. At 59%, SMEs’ confidence levels that the public sector is doing its part in fostering small business development increased by 12 percentage points when compared to the previous quarter. In Lang’s opinion, much of this confidence could be attributed to movements on the legislative front.
“The National Small Enterprise Amendment Bill has put forward a few instrumental changes that bode well for small businesses in South Africa. Among these is the proposed establishment of the Office of the Small Enterprise Ombud Service, which will be mandated to adjudicate and mediate disputes and matters between small enterprises, their customers and South African consumers”.
“This could go a long way in preventing unnecessarily long and cost-intensive legal proceedings,” he says.
In line with these changes, top on the SME wishlist would be similar developments and changes that can result in the creation of a conducive environment in which they can operate.
Furthermore, SMEs need market access and an improvement in the country’s infrastructure. “SMEs depend on infrastructure such as bridges, rail and roads, both as downstream service providers who compete for the tenders to improve these elements and as beneficiaries of better service provision. As such, SMEs would want to see the government roll out the National Infrastructure Plan to improve the country’s struggling infrastructure while also boosting SMEs through the procurement of services from their businesses,” Lang adds.
- SMEs call for safety and stability
The greatest decrease in confidence, as reported by respondents to the SME Index related to the small business community’s confidence levels that their business will grow in the next 12 months. Confidence levels saw a decrease of 5 percentage points, with SMEs expressing confidence levels of 66% in this regard. Given the ongoing and worsening energy crisis, which hit record highs in 2023, this finding was to be expected.
He says that over the course of the year ahead, an air of optimism could be restored if small businesses see free and fair elections and decisive and tangible movements economically and infrastructurally. Primarily, as Lang predicts, all eyes will be on the outcome and political climate around the upcoming national elections. New research by Xero found that the main concern of SMEs around the country is political and economic instability.
The spate of looting that broke out throughout parts of the country in 2021 was a prime example of the real cost of civil unrest, especially for the SME sector. In Durban alone, estimates put the total loss in stolen stock and damage to property and equipment at R16 billion, with 45 000 businesses negatively impacted as a result.
Considering this; and having interfaced with many different types of small businesses across a broad spectrum of industries, Lang asserts that SMEs want – and need, the election process to run safely and smoothly. “We know that many small business owners experienced concern around growing levels of crime last year. In 2024, given the highly charged political environment, the state needs to prioritise safety measures to guard against this risk,” he says.
- Hopes for an energy breakthrough
Next on the wishlist for SMEs this year, are viable and sustainable solutions to the energy crisis. Of great encouragement is the significant strides that have been made towards getting the National Transmission Company of South Africa (NTCSA) up and running. According to the most recent report on Operation Vulindlela, the NTCSA is expected to be fully operational by April 2024.
What this means for SMEs is that alternative power supplies and backup generators will likely not become a thing of the past over the course of this year,” says Lang. “However, with the plans in place to roll out operations by the NTCSA, hope is on the horizon that ‘business as usual’ can resume.
“Furthermore, SMEs who have invested in solar power will have a sustainable supply of energy going forward. Not only is this an effective risk mitigation strategy, but it also means that SMEs could become solar energy hubs that could sell power back to the grid in the near future.”
- An industry mainstay: improved access to working capital
In addition to these items on this year’s SME wishlist, Lang says that ease of access to finance needs to improve significantly in order to fund the ambitions of the country’s thriving community of innovators and problem-solvers.
Traditional and non-bank financiers have their work cut out for them in this regard. Removing barriers to access will rely heavily on the implementation of more flexible lending criteria, the offering of risk-tailored products, streamlined funding application processes and ongoing educational and training initiatives.
“We’ve seen year-on-year, that cashflow problems continue to stand in the way of existing small businesses in search of growth capital as well as businesses making it through their first few years of operation. We’ve also found, through the SME Index, that access to funding in the form of loans and other credit solutions remains a priority for the SME ecosystem.
As key industry stakeholders, we are fully aligned with the private sector’s objective to drive financial inclusion in the country and provide business owners access to the market through funding,” Lang concludes.
About the Author: Jeremy Lang
