SME confidence in South Africa bolstered by political changes

Source: Unsplash

Considering that political change and government formation often result in destabilised business confidence, David Morobe, executive general manager for Impact Investing at Business Partners Limited, says that the cautious optimism shown by SMEs is very encouraging.

“The formation of the government of national unity (GNU) seems to have boosted SME confidence here, with 60.96% of SMEs surveyed expressing the belief that the inclusion of more political parties in government will make South Africa a more attractive place for investors, potentially stimulating business growth.”

When asked about the current business landscape post-elections, most SMEs described it as stable, with 51.78% noting that it offers an opportunity for improvement. A smaller portion, 15.84%, viewed the landscape positively, while only 5.87% perceived it as unstable.

However, the index also reflects fluctuations in confidence levels across several critical areas. The confidence that businesses will grow in the next 12 months remains high at 81%, although this represents a slight decrease of two percentage points from the previous quarter.

Despite this, the year-on-year (YoY) comparison shows a significant 15-percentage point increase, indicating that SMEs are more hopeful about their growth prospects over the coming year than they were during the same period last year. Similarly, confidence in the South African economy being conducive to business growth stood at 68%, a small decrease of one percentage point from Q1 2024, but an increase of six percentage points YoY.

One area where confidence has notably decreased is access to finance, with SMEs displaying confidence levels of only 62% that will improve over the next year.

This represents a five-percentage-point decline from the previous quarter, although it remains one-percentage point higher compared to Q2 2023.

The decline in confidence is also evident in areas such as labour laws, where SMEs had confidence levels of 57% that the current labour regulations are conducive to business growth. This is a five-percentage-point drop from Q1 2024 and a four-percentage-point decrease YoY.

Of great concern is the perception by SMEs of the support they receive from both the public and private sectors. SMEs have confidence levels of only 46% that the government is doing enough to support SME development, a significant decrease of 13-percentage points YoY and a four-percentage point decrease from the previous quarter.

Confidence in the private sector’s support for SMEs also fell to 54%, a decrease of six-percentage points from the previous quarter and eight-percentage points YoY.

Finding skilled staff remains at the top of SMEs' minds. Although confidence in this area decreased by four-percentage points from the previous quarter to 72%, it remains high and is eight percentage points higher compared to Q2 2023.

The impact of load shedding, though currently suspended, continues to affect SMEs. Over 45% of respondents reported that the suspension has led to decreased operational expenses and improvements to their bottom line.

However, 33.63% indicated that while expenses have dropped, their businesses’ financial performance has not significantly improved.

A further 20.75% of SMEs reported that their businesses remain financially constrained due to previous investments in alternative energy solutions during severe load shedding periods

The index also identified cash flow, economic conditions, and funding as the top three challenges facing SMEs in the next six months. This marks a shift from previous concerns, with crime - once a top concern - no longer featuring among the primary challenges.

This shift suggests that SMEs are prioritising financial stability and adapting to the evolving business environment. It may also indicate that SMEs are seeing promising results from crime-fighting efforts.

In addition to these findings, the survey highlighted the importance of access to finance, information, and mentorship for business growth.

Despite a slight decrease in the perceived importance level of access to finance from the previous quarter, it remains a critical factor with SMEs expressing importance levels of 84%, a significant 15-percentage-point increase YoY.

Access to SME-specific resources and support is also highly valued, with SMEs citing importance levels of 84%, reflecting a 16-percentage-point increase YoY.

The role of mentorship in business development also received an importance level of 84% from respondents, a 17-percentage-point increase YoY, despite a small quarterly decrease. Social media continues to be viewed as an important tool for marketing, with SMEs acknowledging an importance level of 87%, up 19-percentage points from last year.

For the first time, the index explored the impact of recent catastrophic weather events on SMEs. Nearly 20% of respondents reported business loss or disruption due to severe weather, while an additional 14.97% indicated that their business partners or suppliers were affected.

However, a significant portion of SMEs either reported that their operations were not impacted by these events (32.98%) or that although they experienced severe weather conditions, their businesses have not been impacted (32,62%), highlighting the varied effects of climate-related disruptions on businesses.

The latest SME Confidence Index reflects a business community that remains cautiously optimistic about the future. As Morobe concludes: “The resilience of South African SMEs is not just a testament to their adaptability, but also a reminder of the critical role they play in our economy.

“It is essential that all players in the SME eco-system continue to support and invest in these businesses as they navigate both challenges and opportunities in the months ahead.”