Business confidence in the small-business sector declined to 45.3 index points in the first quarter of this year from 48.1 at the end of last year, reflecting increased concerns about the South African economy, the first-quarter results of the Nedbank Small Business Index (NSBI) revealed on Thursday.
The findings of the NSBI survey were based on business owners’ views of their current financial situation, operational costs and the level of support from the private sector and government.
According to Nedbank economist Busi Radebe, expectations among small businesses regarding their financial situation had thus far deteriorated in 2014, with respondents noting that both their current and future financial situations had worsened to 5.1 and 5.9 points respectively, compared with 5.5 and 6.3 points in the prior 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 and their expectations of their financial situation for the coming 12 months have worsened,” she noted.
The chief area of concern cited by small businesses was the current economic climate, which was not considered conducive to generating new business.
Moreover, higher taxes, petrol prices and electricity costs were 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,” Radebe said.
Her comments followed an announcement by Statistics South Africa earlier this year that South Africa’s gross domestic product 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 ongoing strike action weighed heavily.
Soon thereafter, the World Bank also cut its growth forecast for South Africa to 2% for this year.
“South Africa could currently be in a technical recession 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,” she noted.
On the issue of government support, the economist added that small business owners had grown increasingly pessimistic, with a reading of 2.1 points, down by 0.1 from the previous quarter, and from 3 points in the same period measured a year earlier.
Business owners had listed an improvement in 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.
Small businesses also noted that the health of their cash flow fell from 5.3 points in the last quarter to 4.9 points in the first quarter of 2014 – the lowest level since the inception of the survey.
This had impacted on expectations among such businesses regarding their capital expenditure (capex) over the next year.
In addition, the index showed that the proportion of small businesses that had invested capex over the past 12 months fell to 50% – the lowest reading to date – while the proportion of companies expecting to make capex investments in the next 12 months also fell below the 50% level for the first time.
The majority of businesses that were considering capex plans over the next year expected to fund this activity largely through business revenues (53%), rather than credit (38%), indicating that economic concerns were translating to more conservative decisions regarding credit.
However, the number of companies considering credit had grown in recent months, while the ease of access to finance remained constant from the previous quarter, at 4 points, with the affordability of finance increasing slightly to 5.8 points from 5.6 points in the prior quarter.
“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 concluded.
Edited by: Chanel de Bruyn