The inaugural quarterly Business Partners Limited SME Index (BPLSI), which aims to measure attitudes and confidence levels amongst small and medium enterprises (SME) in South Africa on various issues, revealed that business owners are surprisingly bullish around the growth prospects for their businesses over the next 12 months.
The 2012 Quarter 2 BPLSI revealed that the more than 350 business owners surveyed displayed a 72% average confidence level that their business will grow over the next year.
Confidence “comes as a surprise”
According to Nazeem Martin, Managing Director of Business Partners Limited, although this significant level of confidence may come as a bit of a surprise, given the current state of the world economy, it gives us an indication of the resilience of SMEs that have survived the past four years. “SMEs which have survived thus far, through arguably the longest period of economic turmoil, have proven their resilience. It would appear that those that have survived have positioned their businesses to negotiate, and even thrive, amidst tough trading conditions.”
Martin’s view is illustrated by the fact that the BPLSI recorded only a 53% average confidence level that the current state of the economy will be conducive to business growth in the next 12 months. “SME’s modest outlook for the economy and its ability to stimulate business growth in the next year may be attributed to the series of economic data reported over the last few months, suggesting that the economy is taking longer to recover than previously expected.”
Funding an issue as always
He says that when it comes to the ease of access to finance improving in the next 12 months, SMEs have a disappointing 47% average confidence level. “Since the onset of the global financial crisis in 2008, financiers have tightened their lending criteria considerably and as the recession started to take its toll in 2009, entrepreneurs became reluctant to take on board debt to finance growth or business acquisitions. The tighter lending criteria and reluctance on the part of SMEs to take on debt has resulted in a considerable slowdown in credit extension to private sector firms, including SMEs.
“Although prime interest rates are at their lowest levels in over 30 years, SMEs are not able to obtain finance at prime rates as financiers have tightened lending criteria, which effectively means that the cost of finance remains high. So, whilst funding may be more readily available, it comes at a price, which seems to be driving SME’s uncertain view as to whether the ease of access to finance will improve in the next 12 months.”
An average confidence level of 31% was recorded amongst SMEs surveyed with regards to whether the South African Government is doing enough to foster SME development. Martin says that whilst, over the years, Government has done much to try and create a more business friendly environment, much more can and should be done, especially in cutting red tape, streamlining business establishment and in the regulatory approval processes.
SMEs also displayed a low average confidence level of 33% with regards to labour laws contributing towards the growth of business in South Africa. Martin says that South Africa has a plethora of some of the most advanced and developed labour laws, which bodes well for individuals in employment. He says that it, however, does very little for the unemployed in the country, which at more than 25%, is unacceptably high.
“Statistical surveys indicate that more than 50% of people in formal jobs are employed by SMEs, and more than 60% of new jobs created every year are created by SMEs. The effort and cost to comply with our very modern labour legislation is often out of reach for most SMEs, and often inhibits SMEs from employing more people. Hence the view of SMEs surveyed that labour laws may not be conducive to the growth of business.”
Also concerning was the 53% confidence levels amongst SMEs around finding staff with the right skills set and experience to facilitate the growth of their businesses. Martin says that this indicator highlights the challenges that the South African education system faces at the moment. “At both secondary and tertiary levels the system does not equip individuals with the necessary skills for the world of work, especially a modern, technology driven work environment. Institutions will have to do much work on mathematical and literacy skills in order to prepare people for employment in the modern day work environment.”
As part of the research conducted by Business Partners Limited, SMEs were also asked their views on various issues affecting their businesses.
When it comes to the form of assistance from government that would most benefit the growth of their business, 31.2% of SMEs surveyed cited government funding, while 26.2% stated less red tape. 20.6% believed that tax breaks would be of the most assistance.
According to those surveyed, the main challenges facing SMEs in the next six months are economic conditions (33.4%), cash flow (29.6%) and funding (13.8%).