SA small business confidence plummets – again

Small business’ confidence has plummeted again in South Africa due to the escalation of the energy crisis with it the onset of indefinite stage 6 load shedding. The confidence of small- to medium-sized enterprises (SMEs) decreased once more following an upward trajectory in the lead-up to the end of 2022.

Hopes of making a comeback will rely on the ability of small businesses to divert to alternative sources of energy according to the Business Partners Limited Q4 2022 SME Confidence Index, says David Morobe, executive general manager for impact investing at Business Partners Limited.

Load shedding woes

The independent small business financier predicted that the rising confidence levels seen last year would be hit hard when load shedding intensified.

“We know that the impact of the energy crisis caused a ripple effect across the SME sector, with many businesses facing severe financial losses related to a loss of revenue, supply chain disruptions and a drop in productivity.”

Therefore, small businesses now face the option of investing in alternatives to limit their reliance on the national grid. With rolling blackouts expected to persist indefinitely, accessing a predictable source of power is imperative for business continuity and should be treated as a top priority, which might remain a challenge for 27% of SMEs surveyed who indicated that their businesses could not afford to invest in alternative energy solutions.”

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Confidence in local economy

According to the index, SME confidence that the local economy will be conducive for business growth within the next 12 months is at 64%, 13 percentage points lower than the previous quarter. Business owners’ confidence that their ventures will grow in the next 12 months, which currently sits at 56%, indicated a similar pattern of decline, falling by 9 percentage points compared to the previous quarter.

The most notable decrease in confidence levels was seen in the confidence SMEs have in the private sector and whether it is doing enough to support South African small businesses. This indicator saw a decrease of 14 percentage points compared to the third quarter of 2022.

“This is a red flag given the critical role of the private sector in supporting the growth of small businesses. Many SMEs rely on supplier agreements with the private sector and structure their business models around this demand,” Morobe says.

Private sector players also provide small businesses with much-needed access to funding for kickstarting their ventures, purchasing assets and hiring talent. “As such, the return of SME confidence in this area is a vital factor in creating an enabling environment for entrepreneurs, who are essential contributors to job creation, social empowerment and economic growth.”

However, despite the overall negative trajectory, remarkable increases in confidence levels were noted on two fronts in the fourth quarter compared to the same quarter in 2021. There was an increase in the belief that government is doing enough to foster SME development (a level that is currently at 51%, a 17 percentage point increase compared to 2021).

There was also a 11 percentage point increase in SME confidence that local labour laws are conducive to growth, which currently sits at 56%. Morobe says this can relate to the perception of progress being made to reduce red tape and promote better ease of business including the establishment of the Red Tape team in the Presidency.

Provinces such as the Western Cape have made strides in this regard, particularly in the area of procurement and extending the opportunity for small businesses to win government tenders.

ALSO READ: State of small businesses in South Africa shows how important they are to the country

Less administrative burdens

“Other key developments include the exemption of SMEs that employ less than 50 employees from the annual reporting requirements in terms of the New Employment Equity Act that was tabled late last year and became policy only in 2023.”

Morobe says generally any reduction in red tape goes a long way to ease the administrative burden involved with conducting business and give small businesses some breathing room to focus on other needs and objectives.

Cashflow retained its position as the most long-standing challenge identified by local small businesses in the SME Index, while crime was the second most pressing concern, followed by funding, which replaced ‘economic conditions’ as the third biggest roadblock to success.

Morobe says cashflow challenges have been exacerbated by the increase in rolling blackouts, with the national grid buckling under existing pressures as 41% of SMEs surveyed reported business interruption and 39% claimed a loss in productivity as a direct result of rolling blackouts.

This was compounded by rate hikes which escalated significantly towards the end of 2022 and for 60% of local small businesses, this market factor contributed to increased financial distress.

ALSO READ: How South Africa can boost the development of small businesses

Not surprising small business confidence took a knock

“The SME sector is buffeted by headwinds on a national and global front. It is therefore not surprising that their confidence has taken a knock. Hopes of recovering this confidence lie in the collaborative efforts of all sectors and stakeholders to provide the support SMEs need to switch to power alternatives and sustain their operations in the long-term.”

He says as a company Business Partners aim to address this need with initiatives such as its Energy Fund for SMEs, which offers loans for small businesses seeking to invest in their own alternative energy systems.

“We hope that initiatives like these will make the difference that the industry needs to find its feet and work towards the level of success we know it can achieve.”