Nedbank Small Business Index™ - The story of the third quarter
The Nedbank Small Business Index aims to develop and maintain the most robust, widely referenced and insightful index for the small business sector in South Africa.
This is achieved by our ability;
To understand and track the confidence and behaviour of the South African small business sector•
To monitor small business activity (especially in respect to financial behaviour)•
To gauge the small business sector’s expectations of government and the private sector
To explore the difficulties small business owners face and how it impacts their business
In quarter 3 of 2014, the Small Business Index has shown slight upward movement, but not statistically significant. That is due to only one aspect (support received from the private sector) showing significant increases.
For some industries this may have had a positive impact on other aspects such as financial outlook, operating costs or capital expenditure (for business growth), although these links are not apparent.
Most businesses still suffer from the same issues as the past number of quarters: high input costs, labour costs and unrest, lack of confidence in the government and tough market conditions (like late payment challenges, economic cycles and tough competition in the market).
This may have also impacted on the decrease in the number of businesses looking to expand into international markets over the next 12 months.
When asked about the challenges that businesses face, most companies complain about the late payment having a severe impact on their cash flow (due to overheads, VAT payments, etc.). The impact seems to be felt more by smaller, settled companies (being in business more than 5 years).
The main contributors to the mentioning of government has to do with:
Politics (unreliable, talk but no action, labour laws)
Legislative Environment (red tape, BEE)•
Tax (increasing taxation on electricity, fuel and toll roads)
Also, when businesses mention ‘market conditions’ as a major challenge, they specifically refer to the competition in the market being high, as well as the low level within the economic cycle.Industry Views
The Small Business Index gives a detailed view of the following industries;
Wholesale & Commission Trade
Transport, Storage & Communication
Sale, Maintenance and Repair motor vehicles, etc.
ConstructionWholesale & Commission Trade
Although the impact of labour conditions (and other aspects) has seen an upswing, this industry still struggle more than most other industries with red tape and regulations, but they are also impacted mainly by the labour unrest.
A larger proportion of this industry runs at full capacity (47% versus the overall average of 41%), which may lead to a lower percentage foreseeing any capital expenditure for the next 12 months (34% versus the overall average of 47%).
Those that do invest will focus their efforts on growing their business and buying/leasing additional equipment.
They were less likely to have applied for financing than the industry average, and also were less likely to get approved for finance.
This industry, according to the BMR/RMB Business Confidence Index (BCI) has shown the most improvement over the past quarter (15 index points).Transport, Storage & Communication
There has been definite improvement on their views regarding their future financial situation as well as their operating costs. This quarter, 59% of businesses feel their future financial position is much better than expected, compared to the 48% of the previous quarter.
Those companies that still feel their financial situation is under pressure, sites high input costs, labour unrest’s impact on cash flow and late payment challenges as the main sources of concern.
This has improved though, with 33% feeling their future operating costs will be better than expected (compared to 15% of the previous quarter).
They are looking to expand through capital expenditure, view the main focus (by far) the acquiring of additional equipment.Sale, Maintenance and Repair motor vehicles, etc.
The interesting fact for this industry is that the improvement in their score did not come from businesses feeling that the support received from private companies are better than expected, but a marked decrease in the proportion of businesses that feel this is worse than expected (from 32% down to 7%). This is also much lower than the overall average – 22%.
Whether the improvement in support has led to the following is uncertain, but proportionally more of these businesses in this quarter are running at full capacity and are looking to make capital expenditure in the next 12 months than last quarter – mainly to grow their businesses.Manufacturing
The proportion of businesses feeling that their future financial situation would be better than expected has increased from 36% to 48% (with also a decrease in the proportion of businesses feeling the inverse).
This positive shift in business confidence are also cited in the BMR/RMB BCI report for the 3rd quarter of 2014 for this industry.
This positive shift, however, has not had a significant impact on these businesses’ operating costs, with labour costs and high input costs still cited as the main culprits.
In this industry, labour unrest is cited as the number one reason for the negative impact of labour conditions on their business.Construction
The positive shift in Construction’s perception regarding operating costs comes from both proportionally more businesses feeling that it is better than expected and fewer feeling that it is worse than expected.
This had a slight positive impact on their perceptions regarding their future financial situation as well.
For those businesses still experiencing pressures on their operating costs, they cite the same reasons as the whole sector: high input costs and labour costs.
Thank you for your continuous contribution and support of the Small Business Index.
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about small businesses' and their economic situation.