SME’s look for growth outside South Africa

South African small businesses are looking more towards the rest of the African continent for growth partly pushed by lackluster local economic conditions, suggest preliminary findings from the new Nedbank Small Business Index.

Releasing its first finding yesterday Nedbank said the index aims to measure the sector’s confidence, behaviours, business outlook as well as financial and business challenges. It is based on a survey of over 1 300 business owners with a turnover of up to R20m quarterly and combines the findings with other economic data. It will be translated into an actual index from February 2014. However, said Nedbank, the first two rounds of fieldwork are already providing new insights into top-of-mind issues for small business.

While the country is setting its hope for job creation on the small-business sector, the index revealed that fewer business owners plan to hire more people and 15% intend shedding staff. Most business owners cited the affordability of salaries and wages (16%), followed by changes in the economy (11%), as reasons for anticipated layoffs.

As the economy tightens, fewer business owners are taking out finance and only about half (48%) surveyed had applied for finance in the last year. Of those, about two-thirds (64%) reported that they were successful in obtaining finance.

In line with this, significantly more business owners said they planned to use their own business revenue to fund expansion plans rather than outside finance – up from 46% to 61%. Just 34% planned to use bank or government finance, with 10% looking to outside investors. Approximately 48% business owners said that it was harder to obtain finance, with 14% reporting that obtaining finance had proved more expensive than expected.

Business owners singled out cashflow and budget constraints, changes in the economy and rising costs as their main hurdles to expanding their business. As the South African economy contracts, business owners are looking at expanding into other markets, mostly Africa, while 29% said they did business internationally, with a further 32% saying they planned to do business across our borders. Of these, two thirds (67%) said they were looking at entering the rest of the African continent, while just 12% plan to do business in Europe.

Meanwhile, the index found that faith in government support has declined significantly over the first quarter of 2013, with 73% of business owners reporting that the support they received from the state was worse than expected. Business owners cited concern over amendments to the Black Economic Empowerment (BEE) codes, which are currently before Parliament, red tape in getting state finance and government’s failure to improve the economy.

“Small businesses play a crucial role in the economy, mainly in terms of employment. Hence the development of the small-business sector is at the core of government’s economic programmes. The current economic environment is largely unfavourable, particularly for small businesses, but we expect a cyclical upturn in the economy to start taking hold from 2014 and this should improve prospects for the business sector. We are confident that the implementation of the National Development Plan (NDP) and South Africa’s increasing regional and international role will yield a positive return in sustainably growing the economy and the sector,” says Dennis Dykes, Group Chief Economist at Nedbank.

In contrast, business owners reported that the quality of support from the private sector had improved – with only 28% reporting that the support was worse than expected. Among business sectors the agriculture sector showed the lowest score on support from government, but was rated the highest on support from the private sector.

“We are delighted to bring a robust and scientifically sound small-business index in our continued focus to partner with small business for growth for a greater South Africa and as part of our Vote Small Business initiative. We hope that this index will become the main reference point for leaders in the private and public sector to engage on issues pertaining to small business. Notably, this can serve as an enabling tool for small businesses to guide their business decisions,’ says Ingrid Johnson, Nedbank Group Managing Executive of Retail and Business Banking.

According to Prof Adré Schreuder of Consulta Research and extraordinary professor in Marketing Research at the University of Pretoria, the Nedbank Small Business Index adheres to world class standards of scientific rigor and model development. “The Nedbank Small Business Index is truly unique in that it combines a survey-based confidence index with key economic indicators”, said Schreuder.

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