Small and medium-sized enterprises (SMEs) expressed much higher levels of confidence in specialist SME financier Business Partners' SME Confidence Index for the third quarter of 2022.

The index increased by 44 percentage points to 77%, from 33% in the third quarter of 2021.

However, it is expected that the intensified loadshedding during the fourth quarter will put a damper on this optimistic outlook. SMEs are encouraged to buckle down as industry stakeholders work towards finding viable solutions to the country’s pressing energy issues, the company says.

Further, SME confidence that ease of access to finance will improve rose to 62% in the third quarter of 2022, from 21% in the comparable period in 2021, adds Business Partners FD Rayna Dolphin.

"During the third quarter of 2022, SMEs in South Africa displayed surging levels of year-on-year business confidence that their business ventures will bear fruit. This despite a year that called on business owners to stay the course amid challenging headwinds, as interest rates rose and inflation-driven price increases hit the pockets of everyday South Africans," she says.

An additional notable increase was a 45 percentage point increase in SME confidence that the South African economy will be conducive to business growth in the next 12 months, reaching 65% in the third quarter compared to a 20% during the same period in 2021.

The rise in SME confidence can be attributed in part to the growth of gross domestic product, with the economic output exceeding pre-pandemic levels, according to the third quarter of 2022 data from Statistics South Africa.

Dolphin commends the thousands of SMEs that “have survived one of the most turbulent times in global history and recent economic indicators are more negative than in the third quarter of 2022.”

However, she cautions business owners to prepare to navigate more challenges ahead, as the country is expected to continue to experience loadshedding.

Meanwhile, the quarter-on-quarter change in business confidence showed an increase on a number of fronts, albeit marginal.

The biggest quarterly increases were observed in the confidence that SME owners have that their business will grow in the next 12 months, which is a level now seven percentage points higher than the previous quarter, Dolphin notes.

Similarly, SME confidence that businesses will find staff with the right skillset and experience to facilitate business growth rose by four percentage points from the previous quarter, reaching 70% in third quarter of 2022.

Dolphin welcomed the steady rise in optimism, and said that these findings are indicative of the resilience of SMEs in the face of several market factors that eroded the sector’s progress.

The SME Confidence Index further found that the top two challenges faced by South African SMEs are cashflow and economic conditions, and this is a status quo that has remained unchanged for a number of years, as the Index illustrates, she says.

The third most pressing challenge for SMEs in the third quarter of 2022 was crime, and this is a factor that became more prominent in 2022, taking the place of the access to funding category.

Dolphin infers that the increase in crime is a consequence of the link to ongoing and worsening loadshedding, given that many businesses’ security features, such as alarms, are rendered inoperable or damaged by power cuts. She points to the November 2022 crime statistics released by the Ministry of Police which showed an increase of 19.9% in commercial crimes.

Significantly, the Index found that 51% of SMEs claim to have been negatively impacted by the deterioration of municipal services.

This is an indicator of the urgent need for the public sector to renew its focus on improving aspects such as the supply of water, refuse removal and road maintenance, she emphasises.

Further, Dolphin says the energy crisis should be foremost in the minds of government and the private sector

“Any real post-pandemic recovery is being curtailed by ongoing power outages. The Department of Small Business Development’s relief package, which is underway, is a promising start, but results will depend on the efficient implementation of the package.

“We have heard South African small business owners being described as resilient, and many of them continue to prove this observation to be true. However, the success of the local SME sector hangs in the balance amid the higher levels of inflation and the devastating impact of loadshedding. We need a real improvement in economic conditions for SMEs. Government and the private sector must work together to find solutions to South Africa’s electricity supply problem,” she says.