ISSN 1811-5187 AFRICAGROWTH INSTITUTE Tel: (021) 914 6778 Fax: (021) 914 4438 www.africagrowth.com South African SMME Business Confidence Index Report: 4th Quarter 13 Compiled by: Africagrowth Institute The Africagrowth Institute wishes to thank the Founding Sponsors of the SA SMME Business Confidence Index: Industrial Development Corporation (IDC) and WK Kellogg Foundation.
Table of contents 1. INTRODUCTION... 3 2. BACKGROUND INFORMATION ABOUT SAMPLE... 3 3. SURVEY RESULTS... 7 3.1 BUSINESS LIMITING FACTORS... 7 3.2 BUSINESS SITUATION DURING THE LAST 3 MONTHS... 7 3.3 BUSINESS OUTLOOK FOR NEXT 6 MONTHS... 4. BUSINESS CONFIDENCE INDEX RESULTS...13 4.1 SECTORIAL PRESENT OUTLOOK...13 4.1.1 Industrial Sector Present Outlook...13 4.1.2 Trade Sector Present Outlook. 12 4.1.3 Services Sector Present Outlook... 12 4.2. SECTORIAL FUTURE OUTLOOK...14 4.3 OVERALL PRESENT INDEX....15 4.4. OVERALL FUTURE INDEX....16 4.5. OVERALL INDEX MOVEMENT...16 Table of Figure Figure 1 Provincial Distribution... 4 Figure 2: Distribution by Economic Sector... 4 Figure 3: Sub-Sector Distribution... 5 Figure 4: Number of Employees... 6 Figure 5: Annual Turnover... 6 Figure 6: Business Limitations... 7 Figure 7: Industry Business Situation for last 3 months... 8 Figure 8: Trade Business Situation for last 3 months... 9 Figure 9: Services Business Situation for last 3 months... Figure : Industry Sector Business Outlook... 11 Figure 11: Trade Sector Business Outlook Services... 12 Figure 12: Services Sector Business Outlook... 13 Figure 13: Present Outlook... 14 Figure 14: Future Outlook... 15 Figure 15: Overall Present Outlook Change... 15 Figure 16: Overall Future Outlook Change... 16 Figure 17: SMME Business Confidence Index... 17 Figure 18: SMME Business Confidence Growth... 17 2
1. Introduction The SMME Business Confidence Index (BCI) report is based on a quarterly survey of the responses of SMME owners and managers regarding factors that impact on their businesses. The survey is conducted by the Africagrowth Institute. It specifically, measures the opinions of SMME managers and owners across South Africa regarding their current performances and future business prospects. The index is constructed on the basis of responses to questions on policy factors ranging from employment levels, financial situation, new orders or contracts, volume of demand and selling prices. The respondent firm (represented by the owner or a senior manager) then indicates whether these factors have gone up, down or remained the same in the last three months prior to the survey and also their perception for the next six months after the survey. The index is then calculated as a weighted average of responses based on the Diffusion Index Method with firm size (number of employees) being the weight. The responses to this questionnaire are scored on a scale of 0 to 0, where 0 represents the lowest Business confidence rating and 0, the highest business confidence rating. The indices are divided into three strata. These are: (a) Industrial sector (b) Trade sector (c) Services sector The overall BCI has, increased during the third quarter of 13. Below are the results for the fourth quarter survey of 13. 2. Background Information about sample Out of 908 randomly selected SMME managers and/or owners, 94 responded to questions posed in the survey. The provincial distribution of the SMMEs for this study is shown in Figure 1 below. 3
Provincial Distribution 1% 0% 18% 0% 0% 5% 6% 43% Gauteng KZN Western Cape Eastern Cape Northern Cape 27% Limpompo NW Province Free State Mpumalanga Figure 1 Provincial Distribution From the Figure 1, Gauteng, KZN and Western Cape provinces had the highest response rate. The three provinces combined represent 88% of the responses received. In terms of sector distribution, Figure 2 below shows that the trade and services sectors were the most represented. Main economic sector 60% 56% % % % % % 21% 23% 0% Industrial Trade Services Figure 2: Distribution by Economic Sector 4
Sub-sector analysis in the broader industrial sector indicates that the manufacturing subsector dominates with 71% followed by 24% for Construction. In the trade sector, the retail subsector dominates, representing 84% whereas the wholesale subsector follows with 16%. For the Services sector, Financial and Business Services dominate with a representation of 49%, followed by Catering and Accommodation at 27%. Figure 3 displays a summary of the sub-sector distribution. Sub-sectors 90% 80% 70% 60% % % % % % 0% 71% Manufacuring 24% Construction 6% Electricty, Gas & Water 0% Miining, Quarrying & Agriculture 16% Wholesale 84% Retail Financial & Business 49% Transport & Storage 13% 11% Community, Social & Personal 27% Catering & Accommodation Industry Trade Services Figure 3: Sub-Sector Distribution Figure 4 below shows a graphical representation of the number of people employed. It shows that majority of the firms which responded (48%) have staff strength of less than. 5
Number of employees % 45% % 35% % 25% % 15% % 5% 0% 48% 34% 11% 5% 1% less than 5 less than less than less than 0 More than 0 Figure 4: Number of Employees Figure 5, which depicts the turnover distribution, shows that most of the firms (39%) recorded an annual turnover of above four (4) million Rand during the last quarter of 13. Annual turnover (millions) % 39% 35% % 25% 25% % 15% % 13% 9% 14% 5% 0% less than 0.15 less than 0.4 less than 2 less than 4 more than 4 Figure 5: Annual Turnover 6
3. Survey Results 3.1 Business Limiting Factors Firms were asked to indicate the five most important factors they consider as having adverse effect on their businesses. Most of the SMME business managers sampled cited high employee costs, Government taxes & regulations and high operating costs respectively as major limiting factors to their operations. Figure 6 shows the response distribution. Limiting factors % 18% 16% 14% 12% % 8% 6% 4% 2% 0% 6% 19% 2% 8% 5% 8% 6% % 1% 13% 4% 4% 4% 1% Figure 6: Business Limitations 3.2 Business Situation during the Last 3 Months This section provides results of the survey questions pertaining to the BCI attributes which form components of the index: Number of people employed, financial situation, new orders or contracts and selling price. Figures 7, 8 and 9 respectively show responses on attributes with respect to business situation in the last 3 months for the Industrial, Trade and Services sectors. 7
Industrial Sector: Number of people employed: In the industrial sector, 8% of SMME owners indicated that they have been able to employ more people whilst 54% were of the view that the employment situation had remained the same with 38% indicating that it had worsened. This is an indication of a decline in the employment situation over the last quarter of 13. Financial situation: The financial situation for the industrial sector during the last quarter of 13 appears to have declined. Of the total surveyed, 8% of the SMME owners indicated that there has been an improvement in their financial situation. 42% of the SMME owners indicated that there has been no change in their financial situation for the fourth quarter of 13, and % indicated a worsening of their financial situation over the last quarter of 13. New orders or contracts: 17% of SMME owners indicated an increase in new orders whereas 33% were of the view that orders have remained the same with same percentage of % indicating a decline. Selling price: In the case of selling price, 42% of SMME owners indicated an upward trend, 46% indicated no change and 13% witnessed a downward trend Business situation in last 3 months industry 60 0 54 38 8 8 Number of people employed 42 The financial situation 17 33 New orders/contracts Up Same Down 46 42 13 Selling prices Figure 7: Industry Business Situation for last 3 months Trade Sector: Number of people employed: In the trade sector, % of SMME owners indicated that employment had increased whilst 55% were of the view that it had remained the same and an estimated 35% indicated that it had deteriorated. Financial situation: 15% of SMME owners showed that the financial situation had improved whilst 35% were of the view that it remained unchanged and an estimated % indicated a worsening of their financial situation. 8
Volume of demand: In this quarter, 15 % of SMME owners were of the opinion that the volume of demand had increased whilst 35% were of the view that it remained unchanged, whilst % indicated a decline. Stock levels: In the case of stock levels, % of SMME owners indicated an upward trend, 70% indicated no change and % witnessed a decline. Business situation on last 3 months trade 70 60 0 55 35 Number of people employed 15 15 The financial situation 35 35 Volume of Demand 70 Stock levels Up Same Down Figure 8: Trade Business Situation for last 3 months Services Sector: Number of people employed: 8% of SMME owners indicated that number of people employed had increased whilst a majority 70% were of the view that it had remained the same and 22% indicated it had deteriorated. Financial situation: 18% of SMME owners indicated that this had gone up whilst 38% were of the view that it remained unchanged and 44% indicated a deterioration. Demand for services: 32% of SMME owners were of the view that volume of demand had gone up whilst 32% were of the view that it remained the same and 36% of them indicated that it had gone down. Selling prices: In this sector, % of SMME owners indicated an upward trend, 80% showed no change in selling prices and % witnessed an upward movement. 9
Business situation in last 3 months services 80 80 70 70 60 8 22 18 38 44 32 32 36 0 Number of people employed The financial situation Demand for services Selling prices Up Same Down Figure 9: Services Business Situation for last 3 months 3.3 Business outlook for next 6 Months This section provides results of the survey questions on the future outlook of Business Confidence Index attributes - Number of people employed; Financial situation, New orders or contracts and Selling price. Responses on attributes with respect to business outlook within the next 6 months for the Industrial, Trade and Services sectors are shown as figures, 11 and 12 respectively. Industrial Sector: Number of people employed: 8% of SMME owners indicated that employment will go up whilst 58% were of the view that it will remain the same and 33% were pessimistic; Financial situation: 8% of SMME owners indicated that this will go up whilst, 63% were of the view that it will remain unchanged and 29% indicated a deterioration; New orders or contracts: 13% of SMME owners indicated that new orders will go up whilst 54% were of the view that it will remain the same and 33% of them indicated that it will go down; Selling price: 29% indicated an upward trend, 63% did not think there will be a change and 8% were of the view that the selling prices will go down.
Business outlook industry 70 60 58 63 54 63 33 8 8 29 13 33 29 8 0 Number of people employed The financial situation New orders/contracts Selling prices Up Same Down Figure : Industry Sector Business Outlook Trade Sector Number of people employed: % of SMME owners indicated that employment will increase, 60% were of the view that it will remain the same and % were pessimistic; Financial situation: 25% of SMME owners indicated that this will go up whilst % were of the view that it will remain unchanged and 25% of SMME operators indicated a deterioration; Volume of demand: % of SMME owners were of the opinion that the demand for services will increase whilst % were also of the view that it will remain the same and % of them indicated a downward trend. Stock levels: 15% of SMME owners indicated an upward trend in future, 75% indicated there will be no change and % were of the view that it will deteriorate. 11
Business outlook trade 80 75 70 60 60 25 25 15 0 Number of people employed The financial situation Volume of Demand Stock levels Up Same Down Figure 11: Trade Sector Business Outlook Services Services Sector Number of people employed: 22% of SMME owners indicated that the employment situation will improve whilst 66% were of the opinion that it will remain the same and 12% indicated there will be a deterioration; Financial situation: 28% of SMME owners indicated that this will increase whilst 56% were of the view that it will remain unchanged and 16% indicated there will be a deterioration; Demand for services: In this sector 28% of SMME owners indicated that the volume of demand will go up whilst 42% were of the view that it will remain the same and % of them predicted a possible decline. Selling price: 24% of SMME owners indicated there will be an upward trend, 74% do not think there will be a change and 2% think selling price will go down. 12
Business outlook services 80 70 60 66 56 42 74 22 12 28 28 16 24 2 0 Number of people employed The financial situation Demand for services Selling prices Up Same Down Figure 12: Services Sector Business Outlook 4. Business Confidence Index Results 4.1 Sector Present outlook 4.1.1 Industrial Sector Present Outlook The Business Confidence within the industrial sector declined from 29% during the third quarter of 13 to 28% in the fourth quarter of 13. This represents a decrease of 1.8%. 4.1.2 Trade Sector Present Outlook The trade sector also recorded a big decline in confidence level. Confidence level declined from 57% during the third quarter of 13 to 27% in the final quarter of 13. This represents a decrease of 52%. 4.1.3 Services Sector Present Outlook The service sector recorded a decline in business confidence from 43% during the third quarter of 13 to 41% in the fourth quarter of 13. This represents a decrease of 5%. 13
60 Present outlook 57 53 46 45 47 41 43 44 46 49 46 45 46 47 43 42 44 47 48 49 48 53 51 41 41 43 37 39 38 42 35 35 37 41 45 43 41 35 37 31 33 35 37 36 36 34 27 28 29 28 26 26 26 27 0 Industry Trade Services Figure 13: Present Outlook 4.2. Sector Future Outlook 4.2.1. Industrial Sector Future Outlook The business confidence level for future outlook (Figure 14) under this sector decreased from 35% in the third quarter of 13 to 31% in the fourth quarter of 13. This represents a decrease of %. 4.2.2. Trade Sector Future Outlook The business confidence index for future outlook in the trade sector also decreased exponentially from 73% in the third quarter of 13 to 38% in the fourth quarter of 13. This represents a decrease of 48%. 4.2.3. Services Sector Future Outlook The confidence index for future outlook in the services sector decreased from 62% during the third quarter of 13 to 51% in the fourth quarter of 13 (see Figure 14). This represents a decrease of 17%. 14
80 70 60 0 Future outlook 72 73 68 70 66 56 57 59 64 67 56 58 59 62 62 55 57 57 57 52 58 57 443 44 46 51 52 54 49 43 46 48 48 51 43 43 43 35 36 37 38 35 29 35 28 34 43 39 39 39 38 32 34 29 31 Industry Trade Services Figure 14: Future Outlook 4.3 Overall Present Index. The overall business confidence index, for the present outlook decreased from 43% during the third quarter of 13 to 32.3% during the fourth quarter of 13. This represents a decrease of 25%. 60.0.0.0.0.0 Overall present outlook 47.6 44.4 43.744.2 45.9 44.144.8 49.2 46.0 38.5 38.1.6 43.0 35.5 37.538.4 33.0 33.8 32.3 28.3.0 0.0 Figure 15: Overall Present Outlook Change 15
4.4. Overall Future Index. The future outlook in the fourth quarter of the 13 survey results decreased from 56.5% in the third quarter of 13 to.1% (see figure 16). This represents a decrease of 29%. 70.0 60.0.0.0.0.0.0 0.0 45.6 47.5 Overall future outlook 59.358.1 60.5 57.866.4 61.5.0 33.2 37.4 51.2.6 41.5 43.3 42.1 45.1 32.2 56.5.1 SMME Figure 16: Overall Future Outlook Change 4.5. Overall Business confidence The overall SMME Business Confidence Index (Figure 17) declined from 49.8% in the third quarter of 13 to 36.2% in the last quarter of 13. This represents a decrease of 27.3%. 16
60.0.0 55.3 52.852.4 53.7.8 48.9.2 48.3 49.8.0.6.2 36.9 38.641.1 39.8 42.0 39.8 41.8 36.2.0.2.0.0 0.0 Figure 17: SMME Business Confidence Index On both average and period-to-period quarterly basis, the overall business confidence deteriorated during the fourth quarter of 13. Figure 18 indicates that the general trend has been one of an unstable growth pattern in the business confidence level. point growth 0.80 0.60 0. 0. 0.00-0. -0. SMME Business Confidence Index Growth (I) Q1-13 Q3-12 Q1-12 Q3-11 Q1-11 Q3- Q1- Q3-09 Q1-09 Q3-08 Q1-08 Q3-07 Q1-07 Q3-06 Q1-06 Q3-13 Quartely growth (period-on-period) Average quarterly growth Figure 18: SMME Business Confidence Growth (I) Figure 19 also indicates that, on a year-to-year basis, the overall business confidence of the SMMEs declined over the same quarter for 13. 17
0. SMME Business Confidence Index Growth (II) year-on-year growth 0. 0. 0. 0.00-0. -0. -0. Q3- Q2- Q1- -0.05 Q4-09 -0.14 Q3-09 -0.14 Q2-09 -0.21 Q1-09 0.19 0.31 0.13 0.26 0.29 Q3-13 -0.24 Q2-13 -0.14 Q1-13 -0.21 Q4-12 0.02 Q3-12 0.03 Q2-12 Q1-12 -0.07 Q4-11 -0.26 Q3-11 -0.24 Q2-11 -0. Q1-11 0.02 Q4- -0.09 q4-13 -0. YOY Growth Figure 19: SMME Business Confidence Growth (II) The declining trend can be attributed to the drop in the confidence of the SMMEs in all sectors of the economy. The worst performing sector was the trade sector which declined, on average, from 65.13% in the third quarter of 13 to 32.64% in the fourth quarter of 13. This represents a decrease of 49.88%. The business confidence in the services sector decreased from 52.42% in the third quarter of 13 to 46.09% during the last quarter of 13, representing a decrease of 12.09%. The industrial sector also witnessed a decline in confidence from 31.72% in the third quarter of 13 to 29.81% in the fourth quarter of 13 representing a decrease of 6.03%. 5. Conclusion Findings from the survey indicate that the overall business confidence level of the SMMEs has declined during the final quarter of 13. The overall decrease in the business confidence index for the fourth quarter of 13 could be attributed to global uncertainty, threads of strikes in the mining sector, contraction of the primary sector as well as increase in unemployment rate, reduction in growth of household spending on goods and services and currency depreciation. The worst performing sector during the period under review was the trade sector. 18
Most of the businesses surveyed cited a number of inhibiting factors impacting negatively on their businesses. These include high employee costs, high operating costs and high government taxes. 19