Elections, electricity key to confidence

LOCAL BUSINESSES: TWO-THIRDS THINK SA IS LOOKING UP

ollowing the growth of South Africa’s Gross Domestic Product (GDP) by 2.2% in the third quarter of 2018, 61% of South African SMEs believe their business confidence will increase next year. This was revealed in the fourth quarter 2018 Business Partners Limited SME Index – a survey measuring the attitudes and confidence levels of local small and medium enterprise (SME) business owners.

Siphethe Dumeko, chief financial officer at Business Partners, says although this indication is positive, SMEs confidence levels that their business will grow in the next 12 months decreased to 71%, down by 6 percentage points compared to the previous quarter and down by 7 percentage points compared to the same time in 2017.

“SME owners are divided over whether the upcoming elections will result in market stability this year, with 40% expecting a positive impact, 35% uncertain and 25% believing the market will be impacted negatively.”

Although there is typically a slowdown in business activity that prevails prior to an election, the Index results reflect this in the sense that local SME business owners are cautiously adopting a “wait and see” stance.

“While we agree that economic conditions are currently tough, SME business owners should take note that in recent times great strides have been made through the Presidency in mobilising foreign investment, which will hopefully start to bear fruit after the elections. This will be important to stimulating SME activity and business confidence. It remains important for SMEs to weather the storm by remaining positive that conditions will improve.” “One of the biggest issues currently affecting SMEs is their access to reliable electricity and the impact of load shedding, as 68% of SMEs say their businesses might not reach growth targets as a result of power cuts,” says Dumeko.

Subsequently 36% of SMEs say they will need to spend money on generators and/or change aspects of their operation this year, in order to reduce electricity associated risks. “However, 31% do not have the capital and/or capacity available to invest in managing these load shedding risks,” Dumeko says.

This has now been compounded following Eskom’s power tariff increase of 9.4% in 2019, which was granted last week by the National Energy Regulator (Nersa), he says.

“To bolster the growth of local SME business owners, energy security – and the consistent supply of energy – requires the continued attention and effective implementation by government, of its plans to turnaround Eskom through the communicated changes to the operational model." “The government has initiated a number of commissions and inquiries to ascertain the state of corruption in the country, and 44% of SME business owners believe these initiatives will lead to a decrease in acts of corruption,” says Dumeko.

“Corruption impacts SME business owners on many levels, as they often don’t have adequate sophisticated controls and systems to prevent and mitigate fraud, as well as amongst other reasons, the potential exclusion from supply chains. As government continues to crack down on corruption, it willpromote a culture of fairness and transparency when doing business with SMEs and, as a result, reduce the instances of late payments that impact their cash flow.” Ultimately, the overall wish of local SME business owners is for a more stable environment with economic conditions that will improve their access to business finance, says Dumeko.

“SME business owners cited that the greatest challenge that they expect to face in the next six months is cash flow, which is negatively impacted by a volatile environment with fluctuating operating costs.

“To rectify this, both the public and private sector partners should work together to improve conditions for SMEs and to provide support to them where possible.

'This would entail, for example, them working together to bolster institutional capacity and expertise where required, as well as through procurement and supplier development programmes,” Dumeko says.

Despite these challenges, the latest SME Index results remain positive overall, he says.

“We need to now take advantage of this positivity through increased private-public participation.

"It is now more important than ever in driving entrepreneurship in South Africa,” he says.