3 big challenges businesses face in South Africa

 ·7 Oct 2022

South African small and medium-sized enterprises (SMEs) confidence levels took a dip in the second quarter of 2022, new data from specialist SME financier, Business Partners shows.

The group’s Q2 2022 SME Confidence Index found that confidence levels that the SA economy will be conducive for growth in the next 12 months decreased to 63%, a 14-percentage point decline from Q1 2022.

SME confidence levels in their own business growth over the next 12 months also dropped to 70%, down 4 percentage points from the previous quarter.

The confidence index measures business confidence levels relative to labour laws, access to finance, state-level interventions and broader socioeconomic realities.

The continued threats of load shedding and crime, coupled with the effects of the rising petrol price and interest rate hikes, have had knock-on effects on small businesses, said Business Partners financial director, Rayna Dolphin.

“Despite the noticeably lower confidence levels relating to the next 12 months, the South African SME sector remains resilient, and this set of data is evidence of the sector not letting the socio-economic challenges break their spirit,” said Dolphin.

In fact, the Q2 SME Index recorded a rise in confidence levels in certain areas. SMEs have confidence levels of 55% that the government is doing enough to foster SME development in South Africa – a year-on-year (YOY) increase of 26 percentage points.

Three quarters (66%) of SMEs surveyed are also feeling more positive about finding staff with the right skill set, a 17-percentage point increase from Q1 2022 and a 4 percentage point increase YOY.

“Aligning with a decline in confidence of growth over the next 12 months, when compared to Q1, the general outlook is generally negative but does have some areas of positivity, despite the many challenges that the sector faces,” said Dolphin.

Employment growth

Another indicator worth mentioning is the fact that 58% of SMEs surveyed have employed people in the last 12 months, with 45% saying that they have employed staff in the last quarter.

“These paint a much brighter picture when compared with the last quarter, when confidence levels in finding the right skills to employ was at an all-time low,” said the financial director.

For the first time in several years, the top three challenges that SMEs face have shifted. This quarter, funding has dropped out of the top three listed challenges, now overtaken by crime. As it stands, the biggest challenges facing SMEs for Q2 2022 are:

  • Cash flow;
  • Economic conditions; and
  • Crime.

88% of SMEs surveyed said they were affected by the interest rate hikes during the first half of the year, with 59% noting that their businesses were negatively impacted by consumers spending less as they cut back on non-essentials.

Record high petrol prices saw 89% of SMEs surveyed feeling the crunch, confirming that the hikes directly affected their businesses.

Load shedding, which has persisted and intensified during 2022, impacted 81% of respondents, with 45% of this constituency experiencing a loss in productivity and 36% suffering business interruptions that resulted in insurance claims.

It is worth pointing out that petrol prices have declined in recent months, however, diesel remains stubbornly high.

“The local SME sector has had to weather a number of storms over the past two years. Despite having survived the worst of the pandemic, they continue to face global and local challenges,” said Dolphin.

Read: Double-blow for South Africa’s middle-class 

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