SA’s growth engines feeling the weight of economic strain

Ben Bierman

SME indicators of distress, in particular the number of liquidations, are increasing. “We have noticed a sharp increase in credit risk amongst our clients,” says Bierman. He points to the Business Partners Limited 2016/2017 financial results which reported that net credit losses had almost doubled during the financial year, highlighting the level of distress amongst SMEs.

Bierman stresses that SMEs are critical engines for growth and job creation, and, as conditions are expected to get worse before they get better, SMEs need to prepare for the challenges ahead. “If business owners are to steer their companies through this almost perfect economic storm, and possibly emerge stronger, they need to set a clear course and actively stick to the plan.

“Now, more than ever, business owners need to anticipate the future by forecasting and quantifying the cash flow implications for multiple scenarios. Should the country face further economic strain, business owners should attempt to secure access to funding as a ‘financial cushion’ or shock absorber before they urgently require it.”

Bierman also advises SMEs to critically evaluate the timing of possible expansion. “A bad set of economic circumstances might in some cases be the ideal time to invest so that when the economy turns, the business is ready to take advantage of opportunities ahead of its competitors.”

Business owners should also not underestimate the value of an independent opinion by seeking technical assistance or guidance from mentors to identify the best option to overcome expected difficulties. “We have been visiting business owners in our portfolio who are showing early signs of distress, to understand the key challenges that are affecting them. Often, it is a case of financial management or specific challenges around receiving payment from debtors that is causing distress, and together, we are then able to assist in mobilising or finding solutions to these issues.”

As we move into the second half of the year, Bierman says that South Africa runs the risk of a continued ‘temporary paralysis’ in policy formulation and certainty, economic initiatives and prudent decision making in the build up to the ANC elective conference at the end of the year. But Bierman stresses that there are some positives for SMEs to take note off. “The Reserve Bank decreased the repo rate recently and it is expected that economic growth will improve – provided the country’s political and social frameworks do not deteriorate further – and SMEs can play a positive role in contributing to the growth.

“While the frustration with policy uncertainty and economic volatility will likely continue to increase until the end of the year, SMEs should continue to ensure they are implementing their business strategies consistently and contributing towards generating economic growth. If we all wait for economic growth to improve before we take action, low or even no growth will become a self-fulfilling prophecy,” concludes Bierman.

Table: Second quarter 2017 Business Partners Limited SME Index: Quarter-on-quarter and year-on-year comparisons

Area of confidence	Q2 2017 Average confidence %	Difference from previous quarter (Q1 2017)	Difference between Q2/2016 and Q2/2017
SMEs' confidence that their business will grow in the next 12 months.	72%	-3	-7
SMEs' have confidence that the SA economy will be conducive for business growth in the next 12 months.	50%	-4	-8
SMEs' confidence that the ease of access to business finance will improve in the next 12 months.	42%	-4	-9
SMEs' confidence that government is doing enough to foster SME development in SA.	31%	-6	-7
SMEs' confidence that their clients will pay them within the stipulated time.	59%	-4	-8