South Africa’s small and medium enterprise (SME) owners are increasingly less confident that the country’s stringent labour laws are conducive to business growth. This trend was revealed in the first quarter 2013 Business Partners Limited SME Index (BPLSI), which measures attitudes and confidence levels in the SME sector in South Africa.
The index, which surveys small and medium business owners from a range of industries, revealed that SMEs expressed confidence levels of 31% that the current labour laws are conducive to business growth. This is a decrease in confidence levels of 2% since the last quarter.
According to Nazeem Martin, managing director of Business Partners Limited, the drop in confidence levels is most likely related to the recent spate of strikes in South Africa’s labour market.
“According to recent reports, 7 290 552 working hours were lost to illegal or unprotected strikes during 2012. It was also reported that during 2012, a total of 99 strikes were recorded in the department strike data system. Out of 99 strikes, 45 strikes were classified as unprotected or unprocedural.”
He says that in addition to the labour unrest, the confidence levels of SMEs are influenced by the effort and cost to comply with South Africa’s very modern labour legislation, which is often out of reach for most SME owners. “This legislation often inhibits SMEs from employing more people and, wherever possible, results in their mechanising instead.
“In relation to this, SMEs also expressed low confidence levels of 30% that government is doing enough to foster SME development in South Africa,” Martin adds.
The BPLSI highlighted the fact that SMEs have declining confidence levels with regard to finding staff who possess the correct skills set to facilitate business growth. SMEs expressed confidence levels of 49% in finding staff with the right skills suited to their business. This is a decrease of 5% in comparison to the last quarter.
Martin says these low confidence levels can be attributed to the South African education system, at both secondary and tertiary levels, which business owners do not believe equips people with the necessary skills for the world of work – especially in a modern, technology-driven work environment.
“Mathematical and literacy skills, as well as general business acumen, are the areas in which secondary and tertiary institutions will have to do much work to prepare people for gainful employment in the modern-day work environment.”
When asked how confident they are that their businesses will grow in the next 12 months, SMEs expressed confidence levels of 71%, which is in line with confidence levels recorded last quarter. Martin says it is a positive indication that SMEs continue to be confident, despite the negative sentiment now widespread in many industries.
He says that according to the index, it seems business owners are slightly more confident that the economy will be conducive to business growth in the next 12 months. “Confidence levels of 51% were recorded this quarter, an increase of 1% since last quarter. These increased levels may be related to the prediction that African economic growth is expected to accelerate this year and in 2014, despite the less rosy predictions for South Africa’s economy.”
SMEs expressed confidence levels of 44% that the ease of access to business finance will improve in the next 12 months, which is a slight drop from 45% since the fourth quarter of 2012. Martin says this confidence level is inconsistent with recent announcements of increased funding allocated to SMEs, through the Small Enterprise Finance Agency and the Industrial Development Corporation by the economic development minister.
“This could, however, be attributed to red tape, which is often mentioned by entrepreneurs as a reason for not accessing available funding,” he adds.
When asked about the biggest challenges SMEs will face in the next 12 months, economic conditions placed first with 30%, followed by cash flow (25%) and funding (19%).
“The first quarter BPLSI highlights that local SMEs and entrepreneurs still have confidence in their own ventures, and are not necessarily letting external factors, which they cannot control, impact their confidence. This is positive going forward, as entrepreneurs need a positive attitude in order to succeed,” concludes Martin.