South African SMEs resurface upbeat for business growth in 2017

February 5, 2017

77% of South African small and medium enterprise (SME) owners surveyed in the fourth quarter 2016 Business Partners Limited SME Index believe that 2017 will yield greater growth for their businesses than 2016. The survey measured the attitude and confidence levels of South African SME owners across various sectors of the economy.

In addition, for the first time in about two years (quarter 2 of 2014), all seven of the survey’s broader confidence indicators – that measure areas relating to the economy, government, employees and clients – reported improvements compared to both the previous quarter and the same period in 2015.

Commenting on the latest survey findings, Ben Bierman, MD of Business Partners Limited, says: “In 2016, the private sector, and particularly the SME sector, experienced how political uncertainty and noise can negatively impact an already struggling economy.

“Political uncertainty however stabilised somewhat towards the end of 2016 and the country narrowly escaped a ratings downgrade. This, coupled with various positive economic prospects in the current environment – such as good rainfall and improved commodity prices – has improved SMEs’ confidence for business growth in the year ahead.”

The survey revealed an average confidence level of 59% that the South African economy will be conducive for business growth in the next 12 months. This is an increase of 3 percentage points when compared to the fourth quarter of 2015 (y/y) when former minister of finance Nhlanhla Nene was fired, resulting in South Africa’s investment markets plummeting and reportedly losing R500 billion in a couple of days. It is also; and an increase of 4 percentage points when compared to the third quarter of 2016 (q/q) – a period during which the South African municipal elections took place, resulting in rising political uncertainty.

While local politics will always be a challenge given its inherent risk to the broader economy, especially with the ratings downgrade risk hanging over the country and the murmurings of a Cabinet reshuffle potentially threatening the Rand, Bierman says that the working relationship between the public and private sector has gained traction over the past year and is evidently inspiring confidence amongst SMEs.

In the fourth quarter of 2016, SMEs expressed a confidence level of 40% that Government is doing enough to foster SME development in South Africa – an increase of 1 percentage point q/q and 6 percentage points y/y. Similarly, SMEs reported a confidence level of 47% that the ease of access to business finance will improve in the next 12 months – up a significant 9 percentage points when compared to the same period the previous year (y/y).

“While these confidence levels remain below 50%, the perception is that government has over the last 12 – 18 months taken necessary measures to address the classic barriers for business formation and growth – namely access to funding, restrictive labour laws and red tape – and that SMEs are starting to see the impact of these changes, and in turn, feel more confident.”

Bierman however stresses that now, more than ever, an environment where SMEs can thrive needs to be created, as this is the most effective vehicle to stimulate economic growth and job creation.

Currently, job statistics show that 27.1% of South Africans are unemployed, the highest in 13 years, and more discouragingly 38.2% of South Africans between the ages of 15 and 24 are unemployed (Stats SA’s Quarterly Labour Force Survey – Q3 2016).

Meanwhile, Business Partners Limited SME Index revealed that 47% of SMEs in the 2016 fourth quarter reported that they hired new employees in the last year. “If we can continually improve the entrepreneurial eco-system to be more conductive for business growth, supported by an improving economic environment, this percentage can only improve.”

Looking to the year ahead, Bierman says that SME funding needs to be a priority and encourages SME financiers to adopt a more positive outlook towards South Africa’s future and consider taking more, albeit calculated risks. “Viable and sustainable SMEs that survived a very difficult period last year are potentially still feeling the aftermath and may be struggling, as many don’t tend to have a financial safety net to sustain them through tough periods. As confidence levels improve for the economy and businesses, we hope to see an increased ease of access to finance for SMEs.

“SMEs largely reflect what is happening in a broader economy. When confidence levels improve, this will positively impact on economic growth, leading to increased economic traction and business’ ability to create employment. This upward growth trend then further allows SMEs to do better. As long as we have this multiplier effect in action, SMEs should have a better 2017,” concludes Bierman.

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