Public-private partnerships essential to combat economic woes

Business Partners Limited SME Index first quarter 2017 results

While South Africa prepares for what will likely be a rollercoaster period, it is once again evident how big a role economic and political uncertainty can play in the minds of local business owners, and the extent to which this impacts small and medium enterprises’ (SMEs’) confidence levels and their ability to do business.

The first quarter 2017 Business Partners Limited SME Index showed that for the first time since the fourth quarter of 2015, all business confidence indicators reported a sharp decline. When surveyed on whether government is doing enough to foster SME development in South Africa, business owners reported an average confidence level of 37% (down by three percentage points from the previous quarter).

Ben Bierman, managing director at Business Partners Limited (BUSINESS/PARTNERS), says that the country’s recent downgrade announcements by ratings agencies, Fitch and Standard & Poor’s, and reports of a third downgrade by Moody’s – following a rally of political instability and a Cabinet reshuffle – have impacted SMEs quite severely, and that the survey results show a definite loss of confidence and positivity among entrepreneurs, who are usually characterised by their ‘eternal optimism’.

The survey revealed an average confidence level of 54% that the South African economy will be conducive for business growth in the next 12 months, and an average confidence level of 46% that the ease of access to finance will improve. Both of these indicators reported a decline of five percentage points when compared to the previous quarter.

Bierman says that this is a significant deterioration if one considers that over the last year, all confidence levels had started to show slight improvements since dropping to their lowest levels in the fourth quarter of 2015 – a period characterised by Nenegate.

“We had noticed an uptick in confidence over the last three quarters, showing that business owners remained upbeat about the commitments made by both the public and private sector to drive economic growth in the country.” He adds that the latest results however demonstrate a desperate need for focussed support to drive growth and opportunity amongst SMEs.

When surveyed on what business owners consider the biggest challenges for SMEs in 2017, respondents reported that the three financial aspects, namely cash-flow, economic conditions and funding, remained their greatest challenges. “This is again indicative of the current uncertain economic situation facing South Africa,” he says.

A noticeable shift this quarter is the recognition by SMEs of the importance of business mentors to further develop and grow their business, which recorded an average importance level of 82%. This is a three percentage point increase from the fourth quarter of 2016 and the highest response ever recorded since the Business Partners Limited SME Index inception in 2012.

Bierman explains that this quarter, respondents were also asked if they utilise the services of a mentor in their business, with 53% indicating that they do not currently use a mentor; 25% making use of one regularly and 22% having made use of a mentor’s services in the past. More interestingly, 86% of respondents indicated that they would consider making use of a business mentor going forward, given the challenging economic landscape.

“The feedback received from entrepreneurs is an affirmation of the support required by local SMEs and the need to create an enabling environment for small businesses,” says Bierman, who calls on both the public and private sectors to regain focus on a concerted, collaborative effort to support the work of SMEs. Bierman also adds that during tough economic times as the country is currently experiencing, big corporations and government departments should make every effort to adhere to payment deadlines when working with SMEs as late payments continue to be a challenge for small businesses, with 41% of the survey’s respondents having reported continually struggling with late payments in their business.

“Now more than ever, the South African economy has its work cut out for it, and as much as economic growth has, anecdotally, been laid upon the shoulders of SMEs and entrepreneurs, their efforts can only succeed if big businesses, the public and private sectors work together to bring about change and foster opportunities for growth,” concludes Bierman.