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DOING BUSINESS
Big drop in business confidence among South African SMEs, study finds
By our News Team | 2022
Business confidence amongst South African small business owners was decidedly low towards the end of 2021, after a notable increase in the second quarter of last year.
This drop in confidence is according to the recently released Q3 2021 SME Index conducted by Business Partners Limited, a business loan provider that operates in seven countries in sub-Saharan Africa.
The index shows that the confidence which small-to-medium sized enterprise (SME) owners have that their businesses will grow in the next 12 months plummeted from 61 percent in Q2 2021 to only 33 percent in Q3 2021 – a stark contrast with where confidence was during the same period in 2020 (72 percent). The sharp decline can be attributed to multiple market disturbances.
Unfavourable economic conditions, exacerbated by power shortages, a record petrol price hike, the lingering effects of Covid and subdued profits are some of the main driving forces behind this reported pessimism. As expected, the unrest that broke out in two provinces in July 2021 also made its mark on business confidence.
Photo by Thirdman from Pexels
The results of the SME Index align with the November 2021 SACCI Business Confidence Index and the Q3 Quarterly Labour Force Survey conducted by Statistics SA, which reports record-high unemployment.
Cash flow challenges are expected
Commenting on the results of the SME Index, Rayna Dolphin, Executive Director at Business Partners Limited explains: “After taking some significant strides towards economic recovery, we saw a slump in GDP in Q3 2021 – the ripple effect of which we saw in the results of the SME Index. Poor economic conditions and cash flow were the main challenges that SMEs predicted for the next six months. The two of course, are inextricably linked.”
In Q2 2021, the company reported that confidence levels had steadily increased quarter-on-quarter from Q2 2020 – a pivotal period for small businesses who were hard hit by the outbreak of the pandemic and the subsequent imposition of a national lockdown.
For many SMEs, better prospects seemed within reach with the onset of the festive season, but hopes were clouded with the arrival of the new Covid variant, Omicron.
In a media statement, the company says the clear drop in business confidence should be seen within the context of a number of external factors that were the direct cause of disturbances in the market and ultimately, instability for SMEs.
As the SME Index demonstrated, only 44 percent of SMEs report that they are on track to recover some of the profit margins lost in 2020.
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