ISSN 1811-5187 AFRICAGROWTH INSTITUTE Tel: (021) 914 6778 Fax: (021) 914 4438 www.africagrowth.com South African SMME Business Confidence Index Report: 1st Quarter 2016 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... 10 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... 10 Figure 10: 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 100, where 0 represents the lowest Business confidence rating and 100, 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 increased during the first quarter of 2016. Below are the results for the first quarter survey of 2016. 2. Background Information about sample Out of 760 randomly selected SMME managers and/or owners, 88 responded to questions posed in the survey. The provincial distribution of the SMMEs for this study is shown in Figure 1 below. 3
Provincial Distribu0on 2% 2% 4% 0% 8% 31% Gauteng KZN 24% Western Cape Eastern Cape Northern Cape 29% Limpompo NW Province Free State Mpumalanga Figure 1 Provincial Distribution From the Figure 1, Gauteng, Western Cape and KZN provinces had the highest response rate. The three provinces combined represent 84% of the responses received. In terms of sector distribution, Figure 2 below shows that the services sectors was the most represented. Main economic sector 45% % 35% % 25% 20% 15% 10% 5% 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 12% for Construction and 12% for electricity, gas and water. In the trade sector, the wholesale subsector dominates with 53% and retail subsectors score 47%. For the Services sector, Financial & Business dominate with a representation of 48%, followed by catering and accommodation at 39%. Figure 3 displays a summary of the sub-sector distribution. Sub- sectors 80% 70% 60% % % % 20% 10% 0% 71% 12% 12% 6% 53% 47% 48% 4% 9% 39% Catering & AccommodaMon Community, Social & Personal Transport & Storage Financial & Business Retail Wholesale Miining, Quarrying & Agriculture Electricty, Gas & Water ConstrucMon Manufacuring 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 (70%) have staff strength of less than 20. 5
Number of employees % 35% % 25% 20% 15% 10% 5% 0% 34% 36% 25% 2% 2% less than 5 less than 20 less than less than 200 More than 200 SMMEs Figure 4: Number of Employees Figure 5, which depicts the turnover distribution, shows that most of the firms (48%) recorded an annual turnover of above four (4) million Rand during the first quarter of 2016. Annual turnover (millions) % 45% % 35% % 25% 20% 15% 10% 5% 0% 48% 16% 14% 11% 11% 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 Government taxes & regulations, employee costs, operating costs, insufficient demand and BEE regulations respectively as major limiting factors to their operations. Figure 6 shows the response distribution. Limi0ng factors 16% 14% 12% 10% 8% 6% 4% 2% 0% 6% 14% 4% 7% 7% 11% 6% 14% 1% 13% 4% 4% 9% 0% 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 % of SMME owners indicated that they have been able to employ more people whilst 47% were of the view that the employment situation had remained the same with 13% indicating that it had worsened. Financial situation: The financial situation for the industrial sector during the first quarter of 2016 has increased from the previous quarter. Of the total surveyed, 47% of the SMME owners indicated that there has been an improvement in their financial situation. 33% of the SMME owners indicated that there has been no change in their financial situation for the first quarter of 2016, and 20% indicated a worsening of their financial situation. New orders or contracts: 33% of SMME owners indicated an increase in new orders whereas 27% were of the view that orders have remained the same with % indicating a decline. Selling price: In the case of selling price, 53% of SMME owners indicated an upward trend, 33% indicated no change and 13 % witnessed a downward trend Business situa0on in last 3 months industry 60 20 47 13 47 33 20 33 27 53 33 13 10 0 Number of people employed The financial situamon New orders/ contracts Selling prices Up Same Down Figure 7: Industry Business Situation for last 3 months Trade Sector: Number of people employed: In the trade sector, 43% of SMME owners indicated that employment had increased whilst 43% were of the view that it had remained the same and 14% indicated that it had deteriorated. Financial situation: 36% the SMME owners showed that the financial situation had improved whilst 36 % were of the view that it remained unchanged and an estimated 29% indicated a worsening of their financial situation. 8
Volume of demand: In this quarter, 43% of SMME owners were of the opinion that the volume of demand had increased whilst 29% were of the view that it remained unchanged, whilst 29% indicated a decline. Stock levels: In the case of stock levels, 43% of SMME owners indicated an upward trend, 36% indicated no change and 21% witnessed a decline. Business situa0on on last 3 months trade 20 43 43 14 36 36 43 43 29 29 29 36 21 10 0 Number of people employed The financial situamon Volume of Demand Stock levels Up Same Down Figure 8: Trade Business Situation for last 3 months Services Sector: Number of people employed: 13% 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 17% indicated it had deteriorated. Financial situation: 22% of SMME owners indicated that the number of people employed had gone up whilst % were of the view that it remained unchanged and 48% indicated a deterioration. Demand for services: 17% of SMME owners were of the view that volume of demand had gone up whilst 43% were of the view that it remained the same and 39% of them indicated that it had gone down. Selling prices: In this sector, 26% of SMME owners indicated an upward trend, 70% showed no change in selling prices and 4% witnessed a decline. 9
Business situa0on in last 3 months services 70 60 20 10 0 13 70 17 Number of people employed 22 The financial situamon 48 17 43 Demand for services 39 70 26 4 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 10, 11 and 12 respectively. Industrial Sector: Number of people employed: 53% of SMME owners indicated that employment will go up whilst 33% were of the view that it will remain the same and 13% were pessimistic about the number of people being employed. Financial situation: 60% of SMME owners indicated that this will go up whilst, 13% were of the view that it will remain unchanged and 27% indicated a deterioration; New orders or contracts: 60% of SMME owners indicated that new orders will go up whilst 7% were of the view that it will remain the same and 33% of them indicated that it will go down; Selling price: 73% indicated an upward trend, 27% did not think there will be a change and none were of the view that the selling prices will go down. 10
Business outlook industry 80 70 60 20 10 0 53 33 13 Number of people employed 60 60 13 The financial situamon 27 7 New orders/ contracts 33 73 27 0 Selling prices Up Same Down Figure 10: Industry Sector Business Outlook Trade Sector Number of people employed: % of SMME owners indicated that employment will increase, 43% were of the view that it will remain the same and 7% indicated a decline; Financial situation: 57% of SMME owners indicated that this will go up whilst 29% were of the view that it will remain unchanged and 14% of SMME operators indicated a deterioration; Volume of demand: 57% of SMME owners were of the opinion that the demand for services will increase whilst 14% were also of the view that it will remain the same and 29% of them indicated a downward trend. Stock levels: 64% of SMME owners indicated an upward trend in future, 21% indicated there will be no change and 14% were of the view that it will deteriorate. 11
Business outlook trade 70 60 43 57 57 64 20 10 7 29 14 14 29 21 14 0 Number of people employed The financial situamon 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 70% were of the opinion that it will remain the same and 9% indicated there will be a deterioration; Financial situation: 43% of SMME owners indicated that this will increase whilst 39% were of the view that it will remain unchanged and 17% indicated there will be a deterioration; Demand for services: In this sector 43% of SMME owners indicated that the volume of demand will go up whilst 43% were of the view that it will remain the same and 13% of them predicted a possible decline. Selling price: 26% of SMME owners indicated there will be an upward trend, 65% do not think there will be a change and 9% think that the selling price will go down. 12
Business outlook services 70 70 65 60 20 10 22 9 43 43 39 17 43 13 26 9 0 Number of people employed The financial situamon 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 decreased from 31% during the fourth quarter of 2015 to 25% in the first quarter of 2016. This represents a decrease of 18.75%. 4.1.2 Trade Sector Present Outlook The trade sector also recorded an increase in confidence level. Confidence level improved from 28% during the last quarter of 2015 to 49% in the first quarter of 2016. This represents an increase of 75.09%. 4.1.3 Services Sector Present Outlook The service sector recorded a decrease in business confidence from 32% during the fourth quarter of 2015 to % in the first quarter of 2016. This represents a decrease of 6.2%. 13
60 20 Present outlook 57 53 52 46 45 47 37 39 43 44 46 49 41 46 49 45 46 47 47 49 43 42 44 47 48 49 48 53 53 51 41 43 38 42 35 35 37 41 45 43 41 43 35 37 35 36 35 31 33 35 37 36 36 38 36 37 39 34 33 28 29 31 27 26 26 26 28 27 31 33 23 24 28 32 25 10 0 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q4-15 Q1-16 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 % in the final quarter of 2015 to 29% in the first quarter of 2016. This represents a decrease of 28.11%. 4.2.2. Trade Sector Future Outlook The business confidence index for future outlook in the trade sector increased from 33% in the fourth quarter of 2015 to 58% in the first quarter of 2016. This represents an increase of 75.76%. 4.2.3. Services Sector Future Outlook The confidence index for future outlook in the services sector decreased from 44% during the fourth quarter of 2015 to % in the first quarter of 2016 (see Figure 14). This represents a decrease of 10.06%. 14
80 70 60 20 10 0 Future outlook 72 73 66 68 56 57 59 64 56 58 59 62 67 70 66 62 55 57 57 57 58 443 44 46 52 58 57 60 51 52 54 56 49 43 46 48 48 51 43 43 43 45 45 43 35 36 37 38 43 39 39 39 34 34 35 28 29 35 38 45 44 39 41 38 41 32 31 34 28 28 33 29 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q4-15 Q1-16 Industry Trade Services Figure 14: Future Outlook 4.3 Overall Present Index. The overall business confidence index, for the present outlook increased from.5% during the final quarter of 2015 to 34.9% during the first quarter of 2016. This represents an increase of 14.48%. 60.0.0.0.0 20.0 Overall present outlook 47.6 49.2 44.443.744.245.9 44.144.8 46.0 43.0 43.5 44.3 38.5.6 38.1 35.5 37.538.4 33.0 33.8 35.8 37.7 32.333.1 34.9 31.9 28.3.5 10.0 0.0 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q4-15 Q1-16 Figure 15: Overall Present Outlook Change 15
4.4. Overall Future Index. The future outlook in the first quarter of the 2016 survey results increased from 39.1% in the final quarter of 2015 to 42.2% (see figure 16). This represents an increase of 8.01%. Overall future outlook 70.0 60.0.0.0.0 20.0 10.0 0.0 45.647.5 66.4 59.358.160.5 61.5 57.8.0 37.4 33.2 51.2.6 41.543.342.1 45.1 32.2 56.5 48.3.142.3 44.9 38.9 52.9 43.9 39.1 42.2 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q4-15 Q1-16 SMME Figure 16: Overall Future Outlook Change 4.5. Overall Business confidence The overall SMME Business Confidence Index (Figure 17) increased from 34.78% in the final quarter of 2015 to 38.6% in the first quarter of 2016. This represents an increase of 10.85%. 16
60.0.0.0.0.6.2 55.3 52.852.4 53.7.8 48.9 41.1 36.9 38.6.2 48.3 42.0 41.8 39.8 39.8 49.8 48.6 45.9 41.3 36.2 37.837.4 37.9 38.6 34.8.2 20.0 10.0 0.0 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q4-15 Q1-16 Figure 17: SMME Business Confidence Index On both average and period-to-period quarterly basis, the overall business confidence increased during the first quarter of 2016. Figure 18 indicates that the general trend has been one of an unstable growth pattern in the business confidence level. 1.00 SMME Business Confidence Index Growth (I) point growth 0. 0.00-0. Q1-06 Q3-06 Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Q1-11 Q3-11 Q1-12 Q3-12 Q1-13 Q3-13 Q1-14 Q3-14 Q1-15 Q4-15 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 increased over the same quarter for 2016. 17
0. SMME Business Confidence Index Growth (II) year- on- year growth 0. 0.20 0.10 0.00-0.10-0.20-0. - 0.06 Q1-16 0.01 Q4-15 Q2-15 Q1-15 Q4-14 - 0.08 Q3-14 Q2-14 - 0.09 Q1-14 - 0.09 Q4-13 Q3-13 Q2-13 Q1-13 0.02 Q4-12 0.03 Q3-12 Q2-12 - 0.07 Q1-12 Q4-11 Q3-11 Q2-11 0.02 Q1-11 Q4-10 Q3-10 Q2-10 - 0.05 Q1-10 Q4-09 Q3-09 Q2-09 Q1-09 - 0.14-0.14-0.21 0.29 0.26 0.13-0.26-0.24-0. 0.31-0.24-0.14-0.21 0.19 0.24 0.14 0.29-0.24-0. YOY Growth Figure 19: SMME Business Confidence Growth (II) The overall increase in trend can be attributed to the marked improvement in the confidence of the SMMEs in the trade sectors of the economy. The best performing sector was the trade sector which improved, on average, from.56% in the fourth quarter of 2015 to 53.62% in the first quarter of 2016. This represents an increase of 43%. The business confidence in the services sector decreased from 38.37% in the fourth quarter of 2015 to 35.15% during the first quarter of 2016, representing a decrease of 9.21%. The industrial sector witnessed the biggest decline in confidence from 35.44% in the fourth quarter of 2015 to 26.94% in the first quarter of 2016 representing a decrease of 31.55%. 5. Conclusion Findings from the survey indicate that the overall business confidence level of the SMMEs has improved during the first quarter of 2016. The overall increase in the business confidence index for the first quarter of 2016 could be attributed to an increase in household spending on goods, improvement of the rand over the quarter as well as a marked effort by the SARB to stabilize the economy. The best 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 government taxes, insufficient demand and BEE Regulations. 19