Business Partners Limited MD Nazeem Martin. Picture: FINANCIAL MAIL
Business Partners Limited MD Nazeem Martin. Picture: FINANCIAL MAIL

CONFIDENCE among the owners of local small and medium-sized enterprises (SMEs) is at a critical low, which will restrain their ability to grow and create more jobs, an index shows.

Business owners are concerned about the effect that rising interest rates will have on their ability to borrow and thus the potential to grow their businesses. They are also not convinced the economy will grow much.

Rising interest rates and higher input costs such as those for electricity and labour, will squeeze the margins of many small businesses, forcing those unable to cope to shut down.

The Business Partners Limited SME Index released last week showed that confidence levels about economic and business growth declined significantly in the final quarter of last year. It was compiled following a survey of more than 300 small businesses on the economy and growth of their businesses.

The government has identified small businesses as the main job creators, although many of them are struggling under the current tough operating conditions.

"Low confidence levels breed uncertainty, and if SMEs are uncertain, they tend to hold back on investing or taking on additional staff and that also has a consequence on economic growth," Business Partners chief financial officer Ben Bierman said.

This year could be as tough for business owners as 2009, when SA was in recession, Business Partners MD Nazeem Martin said recently. Modest global economic growth, low commodity prices, local drought, rising food inflation and pressure from staff for increased wages were among some of the factors he highlighted.

The government needed to eliminate red tape and speed up delivery, South African Chamber of Commerce and Industry CEO Alan Mukoki said on Friday. The body’s own business confidence index was also showing strained confidence levels.

Low economic growth and a slowdown in spending by households, the government and companies such as those in mining were weighing on small businesses, as they supplied their products to these sectors.

However, a weak rand should benefit those SMEs that export or supply products to industries that export, such as vehicle manufacturers, Mr Bierman said. A weak rand makes locally manufactured goods cheaper and therefore more attractive.

Businesses are not convinced that the economy will be conducive to business growth in the next 12 months — a six percentage points decline from the third quarter to a confidence level of only 51%.

Business owners also believe it will become more difficult for them to access finance in the next 12 months, something Mr Bierman said was concerning.

Rising interest rates could lead to financial institutions becoming more hesitant to extend credit to small businesses and this will have a big effect on them, Mr Bierman said. Many small businesses that are under pressure from high input costs and lower revenues need access to credit to bridge the gap.

SA began an interest-rate hiking cycle in January 2014. Rates have gone up a cumulative 175 basis points since then.

Surveyed businesses were concerned about labour laws and finding staff with the right skills sets and experience to facilitate the growth of their business — again highlighting SA’s long-standing skills deficit challenge.

The upcoming national budget on February 24 should provide clarity on the role that the government will play in uniting business and labour behind "an economic plan that will prevent a ratings downgrade and maximise our economic potential", Mr Bierman said.

Empowering small, medium and micro enterprises would help accelerate their growth, President Jacob Zuma said in his state of the nation address last week. Access to high-quality, innovative business support could dramatically improve the success rate of new ventures, Mr Zuma said.

The government established the Department of Small Business Development in 2014 to help identify and support small businesses with growth potential.

One of the government’s programmes in its nine-point plan adopted to respond to sluggish growth was to unlock the potential of small, medium and micro-sized enterprises, co-operatives, and township and rural enterprises.