Business confidence among SMEs declines as economy slows

The small-business sector has not been immune to South Africa’s current challenging economy with business confidence in the sector declining in the first quarter of 2014. This is according to the first-quarter results of the Nedbank Small Business Index.

Areas of concern

South Africa’s challenging economy is revealed as one of the main areas of concern for small businesses with the current climate being cited as not conducive to generating new business.

The results reflect the country’s gloomy economic outlook and its negative impact on business activity.

South Africa grew at its slowest pace since 2009 in the first quarter. Statistics SA reported in May this year that SA’s economy shrunk by 0.6% in the first 3 months of this year. Last week, the World Bank also cut its growth forecast for South Africa to 2% this year.

According to Busi Radebe, Economist at Nedbank, expectations among small businesses regarding their financial situation have deteriorated in 2014, with respondents saying that both their current and future financial situations have worsened.

Other issues highlighted in the index include high prices and costs, particularly with regard to the increase in taxes, petrol prices and electricity, all of which are impacting on input costs and cash-flow.

The mining sector is said to be to blame for poor economic outlook, however the manufacturing and service industries, are also coming under pressure according to the index. This should be of concern to small businesses, including those servicing these industries.

Need for government intervention

According to the index, small-business owners have grown increasingly pessimistic with regards to government-support.

Where they would like to see more government was with the improvement of the economy together with the reduction of red tape and tax rebates for small businesses.

Credit issues

Economic concerns are translating to more conservative decisions regarding credit. The majority of businesses that are considering capital expenditure plans over the next year expect to fund this activity largely through business revenues (53%), rather than credit (38%).

However the index reveals that the number of companies considering credit has increased in recent months.

One positive trend is that a significant number of businesses surveyed are still considering expansion, both through their own revenues, as well as through funding by commercial banks.

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