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Absa’s Small Business Growth Index is designed to assist small and medium enterprises (SMEs) by identifying factors that hinder business growth and offering solutions to these issues.
The Index is compiled by Absa, the South African Chamber of Commerce and Industry (SACCI) and the Bureau of Market Research (BMR).
Professor Paul Kibuuka, director of economic and business research, said studies have shown that South Africa has a higher failure rate of SMEs than elsewhere in the world, with 70%- 80% of SMEs failing within the first five years.
During his presentation at the Small Business Growth Index launch on Friday in Sandton, he listed the factors they found to limit SMEs’ growth.
He said this is due to external factors such as economic stability, regulatory environment, access to finance, infrastructure deficiencies, and market access.
Fluctuations in the economy, such as inflation and currency volatility, can create an
uncertain business environment, making it difficult for SMEs to plan and invest.
While complex and burdensome regulations, including tax laws and labour laws, can be
challenging for SMEs to navigate.
One of the biggest external factors hindering growth is limited access to affordable financing options, which restricts SMEs’ ability to expand and innovate.
During their research, they found that there are some internal factors that limit SMEs’ growth.
One of these factors is a lack of managerial expertise and business acumen that hinders strategic planning and operational efficiency.
Another factor they have found is poor financial management practices, including inadequate bookkeeping and cash flow management, which can result in financial instability.
One factor that most people overlook is weak business networks and limited access to mentorship and support.
This can isolate SMEs and reduce opportunities for collaboration and growth.
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The index will list SMEs’ challenges and the role players responsible for implementing solutions.
For example, in their pilot project, they found several challenges to which the government must implement solutions.
These include challenges such as crime and corruption.
The government would need to strengthen law enforcement, offer financial support for business security measures, and improve anti-corruption enforcement.
He said a challenge such as access to finance would require collaboration between the government, banks, and private investors.
Expanding SME funding programs, reducing collateral requirements, and promoting alternative financing options (e.g., venture capital and crowdfunding) would be solutions that would need to be implemented.
He said that the Index will help SMEs identify profitable opportunities, optimise costs, and predict financial risks that will support their growth and sustainability.
The Index will also identify profitable opportunities, optimise costs, and predict financial risks in support of economic growth and job creation.
“With reference to Government Policy & SME Support, the Index intends to enable targeted funding, incentives, and regulatory reforms to reduce red tape.”
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His presentation also outlined the fastest-growing SME sectors in the country.
Technology and Software Development being number one. “This sector is booming, with a strong demand for innovative software applications, cybersecurity services, and IT consulting
Another sector is renewable energy. With the country’s ongoing energy challenges, there’s a significant push towards sustainable energy solutions like solar and wind power
E-commerce and online retail are also on the list.
“The rise of e-commerce is reshaping the retail landscape, providing ample opportunities for SMEs to establish online stores and leverage digital marketing.”
SME sectors facing challenges in the country include manufacturing, construction and retail.
He said manufacturing faces high operational costs, outdated infrastructure, and competition from cheaper imports.
While construction has regulatory hurdles, fluctuating material costs and economic instability make it difficult for SMEs in this sector to thrive.
As for the retail sector (Brick-and-Mortar), traditional retail businesses are struggling due to the shift towards online shopping and the high costs of maintaining physical stores.
He said the Small Business Growth Index is important because it will monitor SME performance over time, including business financial conditions, profitability, liquidity, and investment.
The Index will also monitor sales growth trends, identify emerging business opportunities and employment trends, and measure SME job creation contributions.
“Of critical importance is that the Index will provide SMEs with a voice, empowering better SME representation in policy discussions; data-backed lobbying for SME incentives & tax relief and; networking and collaboration opportunities based on sector insights.
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