Elections and electricity stability key to confidence of local business owners

Following the growth of South Africa's Gross Domestic Product (GDP) by 2,2 percent in the third quarter of 2018, 61 percent of South African SMEs believe that their business confidence will increase in 2019. This was revealed in the fourth quarter 2018 Business Partners LimitedSME Index – a survey measuring the attitudes and confidence levels of local small and medium enterprise (SME) business owners.

Commenting on these results, Siphethe Dumeko, Chief Financial Officer at Business Partners Limited (BUSINESS/PARTNERS), says that although this indication is positive, SMEs confidence levels that their business will grow in the next 12 months decreased to 71 percent, down by 6 percentage points compared to the previous quarter and down by 7 percentage points compared to the same time in 2017.

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

Dumeko points out that, 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. “Whilst 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 post 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.”

Dumeko unpacks the significant areas from the SME Index that are also impacting confidence levels, as well as what can be done to improve this:

Reliable electricity supply

“One of the biggest issues currently affecting SMEs is their access to reliable electricity and the impact of load shedding, as 68 percent of SMEs say that their businesses might not reach growth targets, as a result of power cuts,” says Dumeko.

He adds that subsequently 36 percent of SMEs say that 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 percent 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 percent 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’’.

Eliminating corruption

“The South African government has initiated a number of commissions and inquiries to ascertain the state of corruption in the country, and 44 percent of SME business owners believe that 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 will, in turn, promote a culture of fairness and transparency when doing business with SMEs and, as a result, reduce the instances of late payments that severely impact their cash flow.”

Improved operating environment and ease of doing business

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, explains 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 adds.

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, which is now more important than ever in driving entrepreneurship in South Africa,” concludes Dumeko.