South African SME confidence in economic growth plummets

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South African SME confidence levels in economic and business growth declined significantly in the last quarter, due to a constantly changing environment that is negatively impacting growth projections for 2016.

This is according to the latest Business Partners Limited SME Index (BPLSI), which measures the attitudes and confidence levels of South African SME owners.

The Q4 2015 BPLSI revealed a significant decline in confidence levels that the South African economy will be conducive for business growth in the next 12 months, a decrease of six percentage points from the third quarter to a recorded confidence level of 51 per cent.

“In 2015 SME owners faced challenges such as load shedding and the implications it brought about,” said Ben Bierman, chief financial officer of Business Partners.

“As if the drought and water-shedding was not challenging enough, the broader economic events such as the firing and re-hiring of the finance minister, and a number of international developments – such as sluggish growth in global markets, adverse exchange rates and the lack of exports – all had a notable impact on SME owners’ confidence levels as they started preparing for 2016.”

The BPLSI also revealed a sharp decrease in business owners’ confidence levels relating to the ease of access to business finance in the next 12 months – a decline from 51 per cent in the third quarter to 44 per cent this quarter. Confidence levels are also down nine percentage points year-on-year, in spite of the fact research by Disrupt Africa found South Africa was the most popular destination for tech startup investments in 2015.

Bierman said this drop in confidence is a real concern, as it appears as if credit extension from financial institutions will be under pressure as a result of increased interest rates as well as the high levels of uncertainty in the economy.

“A vital part for any SME’s growth and sustainability is access to funding, and these confidence levels reveal that the average SME owner is concerned about being able to access bridging capital or financing to ensure that their business can ride out this economic storm in the next six to nine months,” he said.

Another concern is SME owner’s ability to find staff with the right skills-set and experience to facilitate the growth of their business, with the average confidence level decreasing significantly by eight percentage points from the third quarter to 55 per cent.

“This could be attributed to the debates which were taking place in December 2015 regarding the Annual National Assessments (ANAs) and the anticipated Matric results, combined with a general uncertainty in the ability of the country’s universities to adequately prepare and equip students for the jobs available in the market,” said Bierman.

Business owners have average confidence levels of 38 per cent that South Africa’s current labour laws are conducive to the growth of South Africa businesses, a decline of eight percentage points from the previous quarter.

“While there hasn’t been any amendments to labour laws to suggest this decrease in confidence, the broader economic uncertainty and the government’s perceived ability to facilitate growth in the SME industry is weighing on SME’s minds,” Bierman said.

He suggested that SMEs concentrate on strategically riding out this proverbial storm.

“When you find yourself in extremely stormy waters, the natural instinct is to drop sails and wait for the storm to pass. By doing this, you lose control especially the ability to navigate out of the storm or situation. SMEs should therefore continue to manage their businesses pro-actively, plan for the adverse headwinds that they might face and choose a direction to steer their businesses toward,” he said.

“It is especially important to carefully estimate their cash flow to ensure they know in advance whether they need additional capital to face the challenges successfully.”

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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