New survey results: load shedding kills SME business confidence

Load shedding is killing SME business confidence, making alternative power supply solutions even more critical as the impact of South Africa’s sluggish economic growth echoes across numerous sectors, with business owners struggling to meet the worsening demands of the ongoing energy crisis.

Currently 37% of SMEs cannot afford the financing programmes available to invest in alternative energy solutions. Despite these challenges, business owners continue to show signs of their well-documented resilience as their businesses gear up for the busy season, according to the Business Partners Limited SME Confidence Index for the first quarter.

The energy crisis has put a damper on South Africa’s post-pandemic road to recovery and by extension, the growth horizons of many small businesses, says David Morobe, executive general manager for Impact Investing at Business Partners Limited.

However, he encourages small business owners to recognise and take advantage of the strides being made on various fronts to provide entrepreneurs with the support they need to succeed. Among these developments is the fact that business owners are 66% more confident that their clients will pay within the stipulated time, when compared to the first quarter of 2022.

This progress is particularly positive, given the implementation of initiatives like ‘Pay in 30’. Spearheaded by Business for South Africa (B4SA) in collaboration with several industry bodies in 2020, ‘Pay In 30’ saw over 50 of the country’s largest corporates making a formal commitment to pay their small business suppliers within 30 days.

With confidence in this regard showing signs of a steady increase, Morobe urges small business owners to renew their resolve to employ strategies that will boost the efficiency of their invoicing systems and promote a culture of prompt payment.

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SMEs must improve cash flow management

“This is one of the central principles of effective cashflow management, which, according to the findings of the most recent Index, remains the biggest challenge for local SMEs.”

The remaining two challenges in the first quarter’s top three were economic conditions and access to funding, with ‘crime’ falling out of the top three when compared to the previous quarter. With the renewed unrest related to illegal gold mining that affects certain areas around Gauteng and the most recent taxi strike and the related unrest which had broken out in pockets throughout the Cape Town area, this finding may change heading into the rest of the year.

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Morobe says that compared to the fourth quarter of last year, business owners have shown a more optimistic outlook heading into 2023’s end-of-year rush. “However, when compared to the same quarter in 2022, business confidence dropped by only 3 percentage points, with confidence that their business will grow in the next 12 months at 71%.”

In general, the SME Index showed an even split of confidence levels in terms of quarter-on-quarter as well as year-on-year comparisons. Confidence that SMEs will succeed in finding staff members with the right skillsets and experience to facilitate the growth of their ventures was up by 16 percentage points compared to last year.

In addition, SME confidence that ease of access to business finance will improve in the next 12 months also saw an increase of 3 percentage points compared to the previous quarter, which is a favourable outcome for established and aspiring entrepreneurs.

The greatest dip was recorded in SMEs’ confidence that the South African economy will be conducive for business growth over the next 12 months. The SMEs surveyed were only 56% confident in the country’s economic progress, compared to 77% a year ago.

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Why SME confidence decreased

Morobe explains that the main reason for this drop in confidence can be attributed to the intensified energy crisis, with many small businesses constantly battling with the effects of an unreliable power supply. For 45% of the SMEs surveyed, grid collapse is a big concern, with many believing it to be an inevitable possibility.

While some SMEs made the necessary arrangements to install back-up power supplies and alternative energy sources, many simply cannot afford the costs involved. Only 18% of survey respondents claimed to have solar energy solutions, 26% reported having a generator, 17% rely on an inverter and only 6% have access to another energy source (geothermal, wind or biomass).

Morobe says these figures paint a telling picture of a sector under pressure, which has also stymied the industry’s progress towards greener, more renewable energy. “Currently, 45% of SMEs reported that investing in green energy is important to them, but that their focus remains on keeping the lights on and they would use diesel-powered solutions to do so.”

The latest SME Index results illustrate the desperate need for alternative energy solutions, as the ongoing energy crisis shows no signs of letting up any time soon. “At Business Partners Limited, we continue to make our Energy Fund more readily available with the aim of helping small businesses to not only keep their ventures afloat under increasingly trying and volatile conditions but to further bolster their immense power of resilience.”