The second quarter Business Partners Limited SME Index (BPLSI), has revealed that SME business owners remain upbeat about various economic and business related indicators going forward.
According to Nazeem Martin, MD of Business Partners Limited, business owners remain confident that their businesses will grow in the next year, displaying average confidence levels of 73%, an increase of 2% when compared to the previous quarter. He says that confidence levels with regards to growth have remained steadily high over the past 15 months.
“SME business owners have an intimate knowledge of their own businesses – suppliers, customers, markets and staff – and are therefore confident in their ability to shape, control and grow their businesses. Although rising fuel and electricity costs and above-inflation wage demands and settlements are adversely impacting SMEs, it is encouraging to see business owners rising above the gloomy atmosphere. Despite dim economic conditions over which they have no control, these business owners believe that they have the ability to shape and positively influence their own businesses," he says.
Business owners also remained moderately confident that the South African economy will be conducive to business growth in the next 12 months (53%, compared to the 51% of the previous quarter) and that they will find employees with the right skill sets and experience to grow their businesses (53%, compared to the 49% of the previous quarter).
Business owners surveyed indicated higher confidence levels (48%) that the ease of access to finance will improve in the next 12 months than in the previous quarter (44%). This improvement in confidence levels may be indicative of the perceived increase in competition amongst traditional lenders (banks) and among non-traditional financiers (angel investors, development finance institutions, private equity and venture capital investors) for SME business.
Other areas where SME business owners were not confident (where confidence levels were below 50%) are as follows: labour laws being conducive to business growth (36%), and whether government is doing enough to foster SME development (32%).
Martin says average confidence levels, with regards to current labour laws being conducive to the growth of SME's, remain low, despite a 5% increase since last quarter. “The average confidence level of 36% displayed by SME's may be related to the difficulties business owners face with respect to the effort and cost to comply with South Africa’s modern and sophisticated, but often complex labour laws.”
At the 26th annual Labour Law Conference held in August 2013, Reserve Bank governor, Gill Marcus, highlighted the fact that South Africa has not seen the growth among SME's as one would expect from a developing country, largely due to its inflexible labour regime not living up to expectations.
According to the index, respondents have very low confidence levels of 32% that government is doing enough to foster SME development. “This may be due to the perceived disjointed nature in which government, via a plethora of departments and agencies, deal with SME's.
“It may also be related to labour and related issues. We believe that government should loosen the grip of bargaining councils on small and medium businesses, exempting businesses below a certain size from all labour laws apart from health and safety, strengthening the exemption of a probationary period from dismissal rules, ending closed-shop agreements and creating special economic zones where labour laws are less onerous. Such a display of political will to address the challenges which our sophisticated labour regime places on business would go a long way towards raising SME business owners’ confidence levels in these two areas,” says Martin.
When asked what form of assistance from government would benefit them most, 30% of respondents indicated that direct funding would be most useful, while 25% opted for government cutting red tape, and 20% indicated that tax breaks would help. Martin says that a step in the right direction might be the recently established guidelines by the Department of Trade and Industry (dti) to reduce municipal red tape for small businesses.
When asked about the biggest challenges that SME's will face going forward, economic conditions were on top of business owners’ lists with 34%, followed by cash flow (26%) and funding (16%).
Martin says these results prove that SME's face increased challenges related to labour law and red tape. “These responses also highlight the fact that businesses need additional assistance from government in the form of funding or reduced bureaucracy, which will essentially assist in stimulating SME growth and development, and ultimately result in job creation.”