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South African SMEs hesitant to hire more staff due to growth uncertainty

South African small and medium enterprise (SME) owners have not employed new staff in the last 12 months, pointing to possible muted growth expectations for the country’s SME sector, a Business Partners Limited SME Index (BPLSI) report released this week said.

The 2015 second quarter index, compiled by Business Partners Limited (BPL), reports a slight decline in confidence levels for the second quarter of 2015.

The index shows that the majority of respondents in the survey (80%) currently employ between one and 10 employees, and that 51% of respondents have employed new employees in the last year, but 32% have hired new employees in the second quarter of 2015.

However, despite this single cloud in what looks like a bright sky, owners remain optimistic about business growth in the next 12 months, as 78% saying that their business will grow in the next 12 months.

This nevertheless represents a decrease of 3 percentage points quarter-on-quarter (q/q), but an increase of 3 percentage points year-on-year (y/y).

Ben Bierman, BPL chief financial officer says confidence around business growth expectations took a slight knock this quarter, but overall the confidence remains upbeat compared to the first quarter of 2013 when the lowest BPLSI growth confidence level was reported at 71%.

“While the SME sector is very susceptible to the state of local economic environment, entrepreneurs, by their very nature, are resourceful and find ways to adapt to conditions.

“However, the fact that half of the respondents haven’t hired new staff suggests that while businesses may not be feeling deflated with lower economic growth forecasts, businesses aren’t necessarily expanding their workforce.”

Business owners’ average confidence level that the South African economy will be conducive for business growth in the next 12 months also reported a decline from 60% in the first quarter to 58% this quarter.

Bierman said business confidence is also impacted by issues specific to the industry a business operates in.

“Those operating in manufacturing may be harder hit by market woes, such as load shedding or industrial action, while those operating in renewable or alternative energy supplies may find they are capitalising on issues such as load shedding.”

Asked what their main challenges are for the upcoming six months, cash flow ranked as the greatest issue.

The BPLSI also revealed a sharp drop in SME’s average confidence level that their clients will pay them within the stipulated time (7 percentage point q/q and 2 percentage point y/y decrease).

“Cash flow is a constant challenge for SMEs and late payments or non payment is one of the largest risk factors impacting a small business’ sustainability,” he explained.

“Late payment can be disastrous for an SME’s cash flow as they are unable to absorb these payment delays as effectively as larger companies do, and can potentially lead to the failure of an otherwise sound company.

“Linked to the fear of not being paid on time, another challenge affecting business confidence is economic conditions, particularly cost of living increases affecting consumer spending and the current weakened Rand Dollar exchange rate.”

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