Business confidence in the small-business sector declined in the first quarter of 2014 to 45,3 index points from 48,1 at the end of last year, according to the first-quarter results of the Nedbank Small Business Index (NSBI).
The results reflect increased concerns about the South African economy, which grew at its slowest pace since 2009 in the first three months of this year, and the consequent negative impact on business activity.
The findings of the NSBI survey are based on business owners’ views of their current financial situation, operational costs and support from the private sector and government.
According to Busi Radebe, economist at Nedbank, expectations among small businesses regarding their financial situation have deteriorated in 2014, with respondents noting that both their current and future financial situations have worsened to 5,1 and 5,9 respectively, compared to 5,5 and 6,3 in the previous quarter.
“At the end of 2013, the prediction was that 2014 would be a more difficult year economically. This prediction appears to be coming true as companies’ current financial situations have worsened, and their expectations of their future financial situation for the coming 12 months have also worsened,” says Radebe.
Among the main areas of concern being cited by small businesses regarding the challenging environment are the slow economy and the fact that the current climate is not conducive to generating new business. “Issues such as high prices and costs were among their fears, particularly with regard to the increase in taxes, petrol prices and electricity, all of which are impacting on input costs and cash flow.
“Concern among small-business owners regarding the impact that the economy is having on their businesses is consistent with recent economic growth figures, which have shown a dip from the end of last year, marking the first decline in almost five years.”
Statistics SA announced that South Africa’s gross domestic product (GDP) shrank by 0,6% in the first quarter of the year, marking the first decline since 2009, largely as a result of a decline in productivity in the mining sector as on-going strike action weighed heavily. Last week, the World Bank also cut its growth forecast for South Africa to 2% this year.
South Africa could be in a technical recession currently and while the main contributor to this decline in economic growth is the mining sector, this demonstrates the fragility of the economy. Other sectors, including manufacturing and service industries, are also coming under pressure, raising concern for small businesses, particularly those that service these industries.
“On the issue of government support, small-business owners have grown increasingly pessimistic with a reading of 2,1, down by 0,1 from the previous quarter, and from 3,0 in the same period measured a year earlier,” says Radebe.
“However, they have listed improvement of the economy as one of the main areas in which they would like more government support, alongside factors such as a reduction of red tape and tax rebates for small businesses.
“As a continued supporter of small business, Nedbank welcomes the establishment of the Ministry for Small Business Development as a valuable means to address this concern and we look forward to collaborating with government to help create an environment where small businesses can thrive,” she says.
“Small businesses also noted that the health of their cash flow fell from 5,3 in the last quarter to 4,9 in the first quarter of 2014 – the lowest level since the inception of this survey. This is impacting on expectations among small businesses regarding their capital expenditure over the next year.”
The index showed that the number of small businesses that have made capital expenditure over the past 12 months fell to 50%, the lowest reading to date, while the number of companies expecting to make capital expenditure in the next 12 months also fell to below 50% for the first time.
‘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%), indicating that economic concerns are translating to more conservative decisions regarding credit.
That said, the number of companies considering credit has picked up in recent months while ease of access to finance remained constant from the previous quarter at 4,0, with the affordability of finance increasing slightly to 5,8 from 5,6.
“Overall, while concerns remain about the economy and business owners’ own financial situation, it is positive to note that a significant number of businesses surveyed are still considering expansion, both through their own revenues, as well as through funding by commercial banks.
“We believe for this optimism to bear fruit it is critical that all role-players, including government, work symbiotically to address the issues in the NSBI as well as enable sustainable growth of the sector. This will stabilise and grow the economy while creating much-needed jobs in our country,” Radebe says.