Small and medium-sized enterprises (SMEs) have maintained their confidence in the future, despite persistent challenges and uncertainty, the SME Confidence Index for the second quarter shows.

SMEs are more hopeful about their growth prospects over the coming year than they were during the same period last year, showing a 15 percentage point year-on-year increase, specialist SME financier Business Partners, which publishes the index, reports.

Similarly, confidence in the South African economy being conducive to business growth stood at 68%, which is a small decrease of one percentage point from the first quarter of the year, but an increase of six percentage points year-on-year.

The cautious optimism shown by SMEs is very encouraging, says Business Partners impact investing executive GM David Morobe.

Further, when asked about the current business landscape post-elections, most SMEs describe it as stable, with 51.78% noting that it offers an opportunity for improvement. A smaller portion, at 15.84%, view the landscape positively, while only 5.87% perceive it as unstable.

“The formation of the government of national unity (GNU) seems to have boosted SME confidence, with 60.96% of SMEs surveyed expressing the belief that the inclusion of more political parties in government will make South Africa a more attractive place for investors, potentially stimulating business growth,” he highlights.

However, the index also reflects fluctuations in confidence levels across several critical areas. The confidence that businesses will grow in the next 12 months remains high at 81%, although this represents a decrease of 2 percentage points from the preceding quarter, says Morobe.

SME PERCEPTIONS
Meanwhile, one area where confidence has notably decreased is access to finance, with SMEs displaying confidence levels of only 62% that it will improve over the next year.

This represents a five-percentage-point decline from the previous quarter, although it remains one percentage point higher compared with the second quarter of 2023.

“The decline in confidence is also evident in areas such as labour laws, where 57% of SMEs expressed confidence that the current labour regulations are conducive to business growth. This is a 5-percentage-point drop from the first quarter and a 4-percentage-point decrease year-on-year,” he says.

Additionally, the perception by SMEs of the support they receive from both the public and private sectors is of great concern, with only 46% of responding companies confident that the government is doing enough to support SME development. This is a significant year-on-year decrease of 13 percentage points and a four-percentage-point decrease from the preceding quarter.

Further, confidence in the private sector’s support for SMEs also fell to 54%, which is a decrease of six percentage points from the previous quarter and an eight-percentage-point year-on-year decrease.

Additionally, although 45% of SME respondents report that the suspension of loadshedding has led to decreased operational expenses and improvements to their bottom line, 33.63% indicated that while expenses have decreased, their businesses’ financial performance has not significantly improved.

A further 20.75% of SMEs reported that their businesses remain financially constrained owing to previous investments in alternative energy solutions during severe loadshedding periods, Morobe notes.

Meanwhile, for the first time, the index explored the impact of recent catastrophic weather events on SMEs, he adds.

“Nearly 20% of respondents reported business loss or disruption owing to severe weather, while an additional 14.97% indicated that their business partners or suppliers were affected,” he highlights.

However, a significant portion of SMEs, at 32.98%, reported that their operations were not impacted by severe weather events, while 32.62% reported that their businesses were not impacted after they experienced severe weather conditions. This highlights the varied effects of climate-related disruptions on businesses, Morobe adds.

“The latest SME Confidence Index reflects a business community that remains cautiously optimistic about the future. The resilience of South African SMEs is not just a testament to their adaptability, but also a reminder of the critical role they play in our economy.

“It is essential that all players in the SME ecosystem continue to support and invest in these businesses as they navigate both challenges and opportunities in the months ahead,” he advises.