While South African small and medium-sized enterprises (SMEs) were positive about their future prospects, they were pessimistic about the local economy and concerned that unsupportive banks and unnecessary government bureaucracy were constraining their growth, the Sage 2013 Business Index has shown.

Through the business index, Sage surveyed more than 11 000 SMEs in 17 countries, with 1 239 of the businesses surveyed in South Africa. Globally business confidence reached a record high in 2013 with optimism about own prospects rising 5.5 points from 2012.

South African businesses’ optimism about their own prospects increased by 1.61 points in 2013 to 65.8; however, businesses were found to be increasingly pessimistic about the South African economy.

Confidence in the South African economy had fallen 3.11 points from 43.03 in 2012 to 39.92 in 2013. In contrast, confidence in the global economy was increasing, rising two points to 46.77.

Speaking at a presentation of the index findings, held in Sandton, on Friday, Sage CFO Rob Wilkie stated that the response by SMEs that the South African economy was declining was not a surprise.

“The widespread industrial action has come at a high cost to our economy and, in addition, the rand depreciation, sluggish eurozone recovery and the projected slowdown in China’s economy is also impacting on South Africa’s economic growth,” he said.

Wilkie further pointed out that companies surveyed stated that bureaucracy and legislation were major challenges facing SMEs.

According to 23% of South African businesses, the biggest challenge to doing business in the country is the preponderance of bureaucracy and business legislation. Further, 15% name the government’s handling of current economic challenges as an obstacle – more than any other country except Ireland.

Meanwhile, 48% of companies surveyed argue that skills development and education are the most important issues the government should address to boost confidence, followed by bringing stability to exchange rates, at 47%, and reducing bureaucracy and business legislation, at 42%.

Wilkie explained that when setting up a new business in South Africa, it was a four-step process, with a large amount of paperwork that would take at least 90 days to complete.

“In this time, business owners cannot make decisions and they lose out on opportunities, and it adds to the cost of doing business,” he said, adding that the South African government’s inefficiency had to be challenged.

“In the US, setting up a new company is a six-step procedure that takes only six days to complete,” he said.

Meanwhile, according to the business index, most South African businesses felt that banks and government were behind the curve and were failing to make the most of opportunities for businesses.

More than three-fifths, 63%, of businesses agreed that banks were not doing enough to make funding available to small businesses and nearly half, 48%, believed that government should put more pressure on banks to lend, the business index revealed.

Further, just more than half, 53%, of South African businesses agreed that they needed to look at alternative funding sources.

“South African banks are not doing enough, and entrepreneurs are mostly funding their start-up businesses from their own savings or loans from friends and family, as a business loan application without a good track record is almost certainly going to be unsuccessful,” Wilkie said.

He added that alternative sources of funding, such as those provided by the Department of Trade and Industry, was not marketed well enough and that most SMEs were not aware of these opportunities.

Wilkie concluded by stating that it was globally acknowledged that SMEs contribute a substantial percentage of any economy’s growth and the employment it generates, and therefore, South Africa’s ability to break out of its present blind alley to a large extent depended on its ability to harness the entrepreneurial potential of SMEs.