South African SMME Business Confidence Index

1
South African SMME Business Confidence Index

• Presented by Professor Nicholas Biekpe
• Africagrowth Research
• Sponsored by IDC

2
Acknowledgements

• IDC- Partner Sponsor of Indices
• SABC- Partner
• Seda- Partner
• Khula Enterprise Finance- Partner
• Other Academic Institutions- Partners

3
Outline

• Global perspective
• South African perspective
• Why SMME Index?
• Limitations to Business Success
• Sampling Technique
• Methodology
• Sampling Distribution
• Index Results
• Conclusion

4
Global perspective

• About that 95 of companies in Australia are from
  the SME sector
• America has the largest number of SMEs in the
  world
• After the second world war the growth of both
  Japan and Germany were SME led
• More tax revenue is generated from SMEs in the
  developed countries compared to tax from big
  business
• SMEs create more employment compared to big
  business
• The above implies that SMEs are, truly, the
  engine of economic growth!!!!!

5
Background

• It is estimated that there are more than 2.5
  Million SMMEs in the country
• SMMEs have a major role to play in the South
  African economy in terms of employment creation,
  income generation and output growth
• It is estimated that 91 of the formal business
  entities are SMMEs
• They also contribute between 52 to 57 to GDP and
  provide about 61 of employment

6
Background

• Promotion of the SMMEs is a key element in the
  Government's strategy for employment creation and
  income generation
• However, SMME development is hampered by a number
  of factors including finance, lack of managerial
  skills, equipment and technology, regulatory
  issues and access to international markets
• There is need for investment in the SMME sector,
  so as to create capacity for labour absorption
  and output growth, as well as to improve income
  generation and redistribution.

7
Background

• Growth in the South African economy is
  underpinned by the growth and expansion of the
  SMME sector
• Measures that accurately capture and measure
  developments in this sector are therefore
  extremely important
• By measuring the attitudes and economic
  expectations of small business owners throughout
  South Africa, we measure their degree of
  confidence in the economy.

8
Why an Index?

• Provides a unified voice for the SMME sector
• Indices have the ability to track real economic
  growth
• There is no SMME index in the continent
• It will help government, investors and policy
  makers to better understand the SMME sector
• It will be used as a policy tool to help support
  the sector
• Will be used as a backup to investment
  decisions

9
Limitations to Business Success Survey 2
Access to bank credit 8.24
Access to markets 5.21
BEE 1.34
Competition from imports 6.22
Crime 10.76
Employee costs 9.41
Govern taxes regulations 14.45
Impact of HIV/ Aids 2.35
Operating capital costs 12.44
Other 0.34
Procurement supplier limitations 4.87
Shortage of skilled labour 9.24
Sufficient demand 8.40
The exchange rate 6.72
10
Sampling Technique

• Questionnaires were sent to senior managers and
  owners of enterprises in the SMME sector
• The senior managers or owners were asked to
  indicate the important factors or attributes
  limiting business success in their organisations
  
• They were also requested to give their views
  about the current economic situation compared to
  the previous three months as well as to give
  their expectations for the business situation in
  the next 6 months.

11
Sampling Technique

• Economic sectors were broadly divided in three
  key sectors
• Trade (wholesale Retail)
• Industry (Manufacturing electricity, gas and
  water construction mining quarry and
  Agriculture)
• Services (Financial and Business Services
  transport, storage communication community and
  social services catering and accommodation)

12
Sampling Technique

• To be included in the sample, an enterprise
  needed to have either a fax number or an email
  address. The sample was drawn from a database of
  17, 000 SMMEs in South Africa. This was a
  consolidation of databases from various sources
• Department of Trade and Industry (DTI).
• The Western Cape Chamber of Commerce and Industry
  and Nafcoc
• The Economic Development and Tourism Database for
  the Western Cape
• Invest North West and the Kimberly Business
  Service Centre databases
• Contact details were also sourced from the Telkom
  Yellow pages and the Brabys website.

13
The SMME Business Confidence Indices Methodology

• The SMME Index was constructed using the
  Diffusion Index method. The index is computed as
  a weighted average of the Fraction of (Up) and
  (Same) responses to questions in the survey.

14
Methodology

• A composite confidence indicator which measures
  the general assessment of present economic
  conditions and future expectations is also
  computed
• For each question and industry an index is
  computed for both the present and future business
  situation
• First indices were computed at the last quarter
  of 2005
• Second indices were at the first quarter of 2006.

15
Sample Distribution (Province)

• Gauteng, KwaZulu Natal (KZN) and the Western Cape
  accounted for 60 of the total responses in both
  surveys.

16
Sample Distribution 1st Survey (Size 225)
17
Sample Distribution 2nd Survey (Size141)
18
Sample Distribution (Employees)

• The employment trend has not changed much between
  the 2 surveys
• The bulk of the SMME business employs less than
  50 employees.

19
Sample Distribution 1st Survey
20
Sample Distribution 2nd Survey
21
Sample Distribution (Turnover)

• Annual turnover distribution did not vary much
  between 2 surveys
• Approximately 38 of firms had annual turnover
  more than 4m Rand.

22
Sample Distribution 1st Survey
23
Sample Distribution 2nd Survey
24
Sample Distribution (Economic Sectors)

• Both samples of the survey show that the Industry
  sector leads in the total number of respondents
  with a 47.8 and 48.20 percentage representation
  in the 1st and the 2nd survey respectively.

25
Sample Distribution 1st Survey
26
Sample Distribution 2nd Survey
27
Industrial Sector Results

• There was a general decline in SMMEs expectation
  of present outlook conditions
• Apart from selling price, the SMMEs expected a
  decline in the employment levels, their financial
  situation and new orders/contracts, compared to
  levels in the past.

28
Industrial Sector Present Outlook
29
Industry-Future Outlook

• SMME expected a bleak outlook for the future
• They expected a decline in selling price,
  decrease in employment levels, worsening of
  financial situation and decrease in new
  orders/contracts
• They expected an almost 20 decline in their
  financial situation and order/contract
  acquisition.

30
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31
Trade Sector Results

• The present outlook for the trade sector is
  mixed
• Whilst these SMMEs perceive an increase in their
  employment levels, and volume of demand, they
  also expected significant financial problems (66
  decline) and decline in selling prices.

32
Trade-Present Situation
33
Trade-Future Outlook

• Interestingly the trade sector is optimistic
  about the future situation
• There are general increases in the expectation of
  employment, selling prices and demand volumes
• The financial outlook, even though still
  negative, improves.

34
Trade-Future Outlook
35
Services Sector Results

• The 2 surveys show that the present outlook for
  SMMEs of the present business climate for the
  services sector was bleak
• Apart from stock levels which were perceived to
  increase by a little over 10, all other business
  conditions were seen to have worsened.

36
Services Sector Results
37
Services Sector Results

• The services sector does not show an improvement
  in the future over current business conditions
• Future outlook for this sector shows a
  significant decline in business conditions,
  especially in the financial situation.

38
Services-Future Outlook
39
Inter-Sectoral- Present Situation

• In all, SMMEs in all the sectors expected an
  average decline of about 6 when first survey is
  compared to second survey.

40
Inter-Sectoral- Present
41
Inter-Sectoral- Future

• SMMEs in the industrial and services sectors
  expected a decline in the future business
  outlook
• However, SMMEs in the the trade sector expected
  an almost 20 increase in future business outlook.

42
Inter-Sectoral- Future
43
Overall Present SMME BCI

• The overall SMME BCI shows that there was a
  decline in SMMEs expectation of present business
  outlook
• The index dropped from 52.14 in the First survey
  to 48.97 in the Second survey.

44
Overall Present SMME BCI
45
Overall Future SMME BCI

• The overall Future SMME BCI shows a decline in
  SMMEs expectation of present business outlook
• The index dropped from 64 in the first survey to
  59 in the second survey, a decline of 7.8.

46
Overall Future SMME BCI
47
Overall SMME BCI

• The overall SMME BCI thus recorded a decline from
  58.2 in the 1st survey to 54.1 in the 2nd
  survey a decline of about 6.

48
Overall South African SMME BCI
49
Conclusion

• The overall South African SMME BCI for the two
  quarters shows a decline in SMMEs expectation of
  business outlook
• In all, SMMEs in the various sectors expected an
  average decline of about 6 in the present
  business conditions
• The industrial and services sectors expected a
  drop in the future business outlook
• However, the trade sector shows an increase in
  future business outlook

50
Conclusion

• Thus, apart from the trade sector, (which forms a
  little less than 20 of the sampled firms in both
  surveys) the business outlook for all other
  sectors was disappointingly low.
• It also appears that one of the major sources of
  pessimism about business situations is the
  financial situation of firms.
• Hence financing seems to be a major constraint.