South Africans are an optimistic bunch, and if you need proof, just look at the second-quarter SME Confidence Index. Despite the challenges and uncertainty that continue to weigh on the economy, SMEs are brimming with confidence, with 81% expecting their businesses to grow in the next 12 months.
Confidence in the economy being conducive to business growth stood at 68%: an increase of six percentage points year-on-year.
The study, conducted by Business Partners Limited, covers the period from April to June this year, with the general election on 29 May falling right in the middle. This timeframe also saw the subsequent formation of South Africa’s second Government of National Unity (GNU). Although the political rhetoric might emphasise the GNU’s focus on priorities such as economic growth, job creation, and poverty reduction, the true measure of its success will be its ability to rise above party politics and deliver tangible results.
David Morobe, the executive general manager for Impact Investing at Business Partners, says, considering that political change and government formation often result in destabilised business confidence, the cautious optimism shown by SMEs is encouraging.
“The formation of the GNU seems to have boosted SME confidence here, with 60.96% of SMEs surveyed expressing the belief that the inclusion of more political parties in government will make South Africa a more attractive place for investors, potentially stimulating business growth.”
When asked about the current business landscape, most SMEs described it as stable, with 51.78% noting it offers an opportunity for improvement. A smaller portion, 15.84%, viewed the landscape positively, while only 5.87% perceived it as unstable.
Fluctuations in critical areas
One area where confidence has notably decreased is access to finance, with SMEs displaying confidence levels of only 62% that it will improve over the next year. This represents a five-percentage point decline from the previous quarter, although it remains one percentage point higher compared to the second quarter of last year.
The decline in confidence is also evident in areas such as labour laws, where SMEs have confidence levels of 57% that labour regulations are conducive to business growth. This is a five-percentage point drop from the first quarter of this year and a four-percentage point decrease year-on-year.
Of great concern is the perception by SMEs of the support they receive from the public and private sectors. SMEs have confidence levels of only 46% that the government is doing enough to support SME development, a significant decrease of 13-percentage points year-on-year, and a four-percentage point decrease from the previous quarter.
Confidence in the private sector’s support for SMEs also fell to 54%, a decrease of six percentage points from the previous quarter, and eight percentage points year-on-year.
Top-of-mind concerns
Finding skilled staff remains top of mind for SMEs. Although confidence in this area decreased by four percentage points from the previous quarter to 72%, it remains high and is eight percentage points higher compared to the second quarter of 2023.
The impact of loadshedding, although currently suspended, continues to affect SMEs. More than 45% of respondents reported that the suspension has led to decreased operational expenses and improvements to their bottom line. However, 33.63% indicated that although expenses have fallen, their businesses’ financial performance has not significantly improved. A further 20.75% of SMEs reported that their businesses remain financially constrained because of investments in alternative energy solutions during periods of severe loadshedding.
The index also identified cash flow, economic conditions, and funding as the top three challenges facing SMEs in the next six months. This marks a shift from previous concerns, with crime – once a top concern – no longer featuring among the primary challenges.
Business Partners states this shift suggests that SMEs are prioritising financial stability and adapting to the evolving business environment. It may also indicate that SMEs are seeing promising results from crime-fighting efforts.
Access to finance and resources
In addition to these findings, the survey highlighted the importance of access to finance, information, and mentorship for business growth.
Despite a slight decrease in the perceived importance level of access to finance from the previous quarter, it remains a critical factor, with SMEs expressing importance levels of 84%, a significant 15-percentage-point increase year-on-year.
Access to SME-specific resources and support is also highly valued, with SMEs citing importance levels of 84%, reflecting a 16-percentage point increase year-on-year.
The role of mentorship in business development also received an importance level of 84% from respondents, a 17-percentage point increase year-on-year, despite a small quarterly decrease.
Social media continues to be viewed as an important tool for marketing, with SMEs acknowledging an importance level of 87%, up 19 percentage points from last year.
Impact of climate change
For the first time, the index explored the impact of recent catastrophic weather events on SMEs. Nearly 20% of respondents reported business loss or disruption due to severe weather, while an additional 14.97% indicated their business partners or suppliers were affected.
However, a significant portion of SMEs either reported that their operations were not impacted by these events (32.98%) or that although they experienced severe weather conditions, their businesses have not been impacted (32.62%), highlighting the varied effects of climate-related disruptions on businesses.
Morobe says the latest index reflects a business community that remains cautiously optimistic about the future.
“It is essential that all players in the SME eco-system continue to support and invest in these businesses as they navigate both challenges and opportunities in the months ahead.”
