Confidence among small South African businesses fell in the third and fourth quarters of 2018 but the sector remains optimistic despite a challenging economic climate, a survey published on Friday showed.

The quarterly survey produced by Yoco showed an overall pulse score of 32 for the fourth quarter, unchanged from the third quarter. There was however a significant decline from the third quarter to the fourth quarter on the likelihood of small businesses employing more people in the next 12 months.

But 83% of small businesses surveyed expected to grow over the next year, possibly reflecting a sense of cautious optimism after South Africa exited a technical recession.

"Cash flow remains one of the greatest challenges to small businesses," the report said, citing an increase from 39% to 44% of businesses who stated this as their key challenge.

The Yoco survey showed technology was one of the key tools employed by small businesses in South Africa, and that those with the highest turnovers exhibited a higher dependence on it.

The survey, conducted by independent research agency Beyond Insights, was sent to over 35 000 small businesses, with 3 393 responding. 

"It is worth noting that more than 50% of businesses that answered the survey said their business is performing better than 12 months ago," the report said.

The state of the economy however remained a dampener, with concerns raised around political uncertainty, currency fluctuations, inflation or interest rates, government regulations and red-tape as well as tax rates.

"For its role in the South African economy overall, nurturing the small business sector and ensuring its success should be a key focus of both the public and the private sector," the report said.

President Cyril Ramaphosa's government has acknowledged that encouraging entrepreneurship is key to making inroads into unemployment, officially pegged at over 27% of the labour force.

This has however been hampered by sluggish economic growth over the past decade, with the National Treasury forecasting gross domestic product expansion of just 1.7% in 2019 from an estimated 0.7% last year.