Executive Director at Business Partners Limited, Rayna Dolphin reports on the results of the Q4 2021 SME Index

There has been a significant uplift in business confidence amongst South African small business owners, returning levels to those pre-COVID, despite a number of ongoing market challenges. According to the Q4 2021 SME Index conducted by specialist business financier, Business Partners Limited, the confidence that small-and-medium-sized enterprise (SME) owners have that their businesses will grow in the next 12 months has increased to 71% – up almost 40 percent from the previous quarter. A holistic view of the index points to an overarching outlook that is positive, although several socioeconomic, political and infrastructural challenges continue to necessitate prudence and a degree of caution.

Commenting on the results of the SME Index, Rayna Dolphin, Executive Director at Business Partners Limited explains: “When we compare the results of the Q4 2021 SME Index with the results of the previous quarter, we see an undeniable shift towards a more positive sentiment, a shift that we hope will continue into the first quarter of 2022.”

The third quarter of 2021 proved decidedly difficult for South African SMEs. The increase in frequency of loadshedding and a record petrol price hike were among the market factors impacting business confidence. 

The results of the Q4 2021 SME Index paint a different picture, despite many of the same market challenges continuing to impact businesses. Relaxed COVID-19 restrictions seem to have made a marked impact on business confidence, with just under 80% of small businesses claiming that they felt optimistic about the ‘return to normal,’ and were ready to kickstart the country’s economy. 

Dolphin expands: “A number of other findings support the positive upturn in business confidence amongst South African SMEs, suggesting that business owners have transcended ‘survival mode’ and the struggle to stay afloat and are beginning to consider other important market indicators that are imperative for their future sustainability and growth. 71% of survey respondents demonstrated a high level of confidence that economic recovery will start to take shape in 2022.”

In general, the improved confidence and sentiment is across multiple segments of the SME Index, returning to levels last seen in the second quarter of 2019. All things being equal, the prevailing sentiment amongst small businesses indicates that the ‘worst is over.’ This is supported by the South African Chamber of Commerce and Industry’s (SACCI) January 2022 SACCI Business Confidence Index, which after an excessive drop in business confidence levels since 2020, has begun to exhibit signs of gradual recovery.

SACCI attributes the return to stability in confidence levels, to sub-indices such as increased merchandise export volumes, more new vehicle sales and higher share prices on the JSE. It cautions, however, that high inflation, lower international commodity prices and higher debt servicing costs will continue to erode confidence in 2022. 

Reflecting this same cautious outlook, the Q4 2021 SME Index showed that 46% of small businesses suffered a decline in productivity due to the reintroduction of loadshedding in the second week of October 2021. Encouragingly, 41% of respondents claim to have measures in place to mitigate the impact of loadshedding. 

Perhaps unsurprisingly, 88% of respondents were impacted by the record-high petrol price hike that occurred in December 2021 resulting in 31% of small businesses being forced to increase their prices, while 22% reduced their business travel or deliveries. On a positive note, a further 35% found ways to cut costs and adapt, demonstrating just how resilient the local SME market is.

The top three challenges that SMEs expect to face in the first six months of 2022 remain cashflow, economic conditions and funding.

Regulatory challenges also remain foremost in the minds of entrepreneurs, and they seem to be seeing some positive developments on their horizons. In the fourth quarter of 2021, general levels of confidence that the current labour laws are conducive to the growth of South African business were on the rise (45% in Q4 2021 vs 20% in Q3 2021). An increased number of SMEs were also of the opinion that the government is doing enough to foster SME development (34% Q4 2021 vs 15% in Q3 2021). This may be due to government’s communication around plans to tackle issues of bureaucracy in business. 

Dolphin concludes: “As a company, we continue to support small businesses by providing funding, mentorship and technical assistance. We understand that over the past two years SMEs have had to adapt their business models and find solutions to overcome several challenges. Overall, we are encouraged by the fact that confidence amongst small business owners is rising – we see this as a sign that they are ready to play a central role in South Africa’s journey to economic recovery.”