Load-shedding hits small business confidence
The confidence of SA’s small and medium-sized enterprises (SMEs) plummeted in the final three months of 2022 as entrepreneurs grappled with the effects of unprecedented power cuts on their businesses.
The Business Partners SME confidence index, which measures SME confidence in terms of how conducive the local economy will be for business growth in the next 12 months, fell to 64% in the final quarter of 2022. That is a 13-percentagepoint decrease from the previous quarter.
“The impact of the energy crisis has catalysed 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,” said David Morobe, executive general manager for impact investing at Business Partners, a specialist SME financier.
With load-shedding expected to persist indefinitely, many small businesses are now faced with the potentially crippling cost of having to invest in alternative energy sources.
It was found in the index that 27% of the SMEs surveyed indicated that their businesses could not afford to invest in alternative energy solutions.
The fourth-quarter drop in the index mirrors a similar pattern of decline in business owners’ confidence that their ventures will grow in the next 12 months, which now is at 56%, having diminished nine percentage points compared with the previous quarter.
The most notable decrease in confidence levels was seen in the confidence that SMEs have in the private sector and whether it is doing enough to support small businesses. This indicator fell 14 percentage points from levels seen in the third quarter of 2022.
“It’s a red flag given the critical role of the private sector in supporting the growth of small businesses,” Morobe said.
“Many SMEs rely on supplier agreements with the private sector and structure their business models around this demand,” he said.
Interestingly, the index revealed at least two notable increases in confidence levels when measured year on year.
The first of these was a rise in the belief that the government is doing enough to foster SME development, with this sentiment gauge measuring 51% in the final quarter of 2022, a 17percentage-point increase compared with the fourth quarter of 2021.
SMEs surveyed also exhibited improved sentiment towards SA labour laws as being conducive to growth. This measure rose to 56% in the fourth quarter of 2022, an 11-percentage-point increase over the corresponding period the previous year.
Business Partners said these surprise improvements may be due to the perception of progress being made to reduce red tape and promote ease of business including the establishment of the Red Tape Reduction team in the presidency.
“Other key developments include the exemption of SMEs who employ fewer 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 said.
“Generally, any reduction in red tape goes a long way in easing the administrative burden involved in conducting business and give small businesses some breathing room to focus on other needs and objectives.”
Cash flow constraints continued to be the most long-standing challenge identified by the SMEs surveyed, with crime the second-most pressing concern. Funding supplanted economic conditions as the third-biggest roadblock to success in the final quarter of 2022.
“The SME sector is being buffeted by headwinds on a national and global front,” Morobe said.
“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 said.