A total of 71% of owners of Small and Medium Enterprises (SMEs) in South Africa have slightly more confidence in the economy – in comparison to the last quarter – and remain positive that their own business will experience growth in the next 12 months, the fourth quarter report of Business Partners Limited SME Index (BPLSI) published yesterday said.
This is a slight decrease of 2% when compared to the previous quarter.
Business Partners Limited managing-director Nazeem Martin said the relatively high confidence levels among SMEs regarding the growth prospects of their own businesses may be attributed to the generally optimistic nature of entrepreneurs.
“This is especially true when it comes to their ability to positively shape and influence their own businesses, despite gloomy extraneous economic conditions over which they have no control,” Martin said.
“In addition, factors such as the recent violent labour unrest in the mining and agricultural industries, which resulted in significantly above-inflation wage settlements, have adversely impacted on business confidence levels, leading to lower levels of investment in production capacity, especially by private sector firms.”
Reports suggest that South Africa has joined the list one of the difficult countries to invest in due to stringent labour policies, and trade unions’ ‘exaggerated demands’,and unending strikes resulting from those inconsistent demands. This can be demonstrated by the low levels of confidence in labour laws (only 33%) recorded in the fourth quarter of 2012.
Martin said this low confidence level is worrying for the South African economy, as SMEs are widely regarded as the engines which power most economies in the world, as well as the biggest contributors to job creation.
“The effort and cost to comply with our very modern labour legislation is often out of reach for most SMEs and inhibits them from employing more people and, wherever possible, mechanise instead.
“It is precisely due to the employment creation potential of the SME sector, which, if fully exploited, could help solve the country’s unemployment challenge.
Furthermore, Martin said although financers, including banks, may seem keener to lend now than in the recent past, finance often comes at a price which appears high relative to inflation and SME’s own growth prospects. “This may dampen SMEs’ appetite for finance, hence the moderately low confidence levels amongst SMEs on whether the ease of access to finance will improve,” he said.
Various studies around the world found that SMEs drive economic growth, but the only major obstacle hampering their growth is lack of funding.
To get funding in places such as South Africa seems as if one is climbing the Himalaya mountain as terms and conditions attached to this process appear sophisticated, and discourage many from even trying.
Some SMEs owners shifts the blame to government, which is not doing enough to help SMEs.
According to the index, respondents have confidence levels of 31% that government is doing enough to foster SME development.
Martin said that although this slight increase (in comparison to the 26% recorded in the third quarter) is positive, levels remain extremely low.
Asked about the form of government assistance that would benefit them most, 34% of respondents indicated that direct funding would be most useful, while 22% opted for government cutting red tape and 20% indicated that government providing better tax breaks would assist most.”
Regarding the biggest challenges SMEs are likely to face going forward, economic conditions came first with 36%, followed by cash flow (28%) and funding (9%).
“This is an opportunity for government to make the necessary changes to stimulate SME formation and growth, as well as employment creation,” Martin said.
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*Photo by Led.co.za