Energy crisis a ‘thorn in the side’ of small business

Small business displayed surging levels of year-on-year business confidence in the third quarter of 2022 despite the rising interest rates and inflation-driven price increases that hit the pockets of everyone.

However, the intensified load shedding during the fourth quarter is expected to put a damper on this optimistic outlook, which would probably get even worse when the results of the first quarter of 2023 are announced later this year.

This key finding emerged from the Q3 2022 SME Confidence Index, a research study conducted quarterly by specialist SME financier, Business Partners Limited. The SME Confidence Index collates the opinions of hundreds of SME owners across the country, providing on-the-ground insights into the greatest challenges and opportunities facing the sector.

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Drastic improvement despite energy crisis

According to the index, SME confidence that their businesses will grow in the next 12 months increased drastically from just 33% in the third quarter of 2021 to 77% in the third quarter of 2022, a staggering increase of 44 percentage points.

SME confidence that ease of access to finance will improve also rose to 62% from just 21% in the third quarter of 2021. There was also a 45% increase in SME confidence that the economy will be conducive to business growth in the next 12 months, with this level of confidence reaching 65% compared to a mere 20% during the same period in 2021.

Rayna Dolphin, financial director at Business Partners Limited, finds the strong upsurge in SME business confidence encouraging and says the rise can be attributed in part to the growth of gross domestic product (GDP), with the economic output exceeding pre-pandemic levels according to Stats SA.

She commends the thousands of SMEs who “survived one of the most turbulent times in global history” while recent economic indicators are more negative than in the third quarter of 2022 but cautions business owners to prepare to navigate more challenges ahead as the country is expected to continue to experience load shedding during the current energy crisis.

ALSO READ: 10 tips to help your small business survive rising electricity costs

Slow but steady progress

The index also showed a marginal quarter-on-quarter change in business confidence, which showed an increase on a number of fronts, with the biggest quarterly increases observed in the confidence that SME owners have that their business will grow in the next 12 months at a level now 7 percentage points higher than the previous quarter.

SME confidence also increased by 4 percentage points that businesses will find staff with the right skillset and experience to facilitate business growth, reaching 70% in Q3 2022. Dolphin welcomes the steady rise in optimism and says these findings show the resilience of SMEs in the face of several market factors that eroded the sector’s progress.

Leading challenges for SMEs

“We need to see the rise in SME confidence compared to the second quarter of 2022, in the context of factors such as the high price of petrol. Just over 50% of SMEs claimed that the July petrol price hikes had a direct impact on their businesses. A further 54% were affected by the interest rate hikes in the third quarter that led to consumers cutting expenditure on non-essential items.”

She says this correlates with the finding that the top two challenges faced by South African SMEs are cashflow and economic conditions, a status quo that remained unchanged for a number of years, as the index illustrates.

ALSO READ: Business confidence dips while load shedding looms

Impact of crime

The third most pressing challenge for SMEs was crime, a factor that became more prominent in 2022, taking the place of ‘access to funding’. Dolphin says the increase in crime is a consequence of the link to ongoing and worsening load shedding, given that many businesses’ security features, such as alarms, are rendered inoperable or damaged by power cuts.

She points out that the November 2022 crime statistics released by the ministry of police showed an increase of 19.9 % in commercial crimes.

“Over and above these prominent challenges, was the finding that 51% of SMEs claim to have been negatively affected by the deterioration of municipal services, an indicator of the urgent need for the public sector to renew its focus on improving aspects such as the supply of water, refuse removal and road maintenance.”

SMEs are resilient, but for how long?

Dolphin urges government and the private sector to prioritise the energy crisis. “Any real post-pandemic recovery is curtailed by ongoing power outages. The department of small business development’s relief package which is underway is a promising start, but results will depend on the efficient implementation of the package.”

She says although South African small business owners are described as resilient and many of them continue to prove this observation to be true, the success of the local SME sector hangs in the balance amid the higher levels of inflation and the devastating impact of load shedding.

“We need a real improvement in economic conditions for SMEs. Government and the private sector must work together to find solutions to South Africa’s electricity supply problem.”