October 8, 2009 - Business Report - By Lucky Biyase
The Small, medium and micro enterprise (SMME) sector has passed the worst of the recession, a survey, released by think tank Africagrowth Institute, showed last week.
Confidence in this sector, considered the backbone of the South African economy, has been gradually picking up in line with the international trend, according to the survey, which assessed the performance of the sector in the third quarter of the year.
The survey shows the confidence index in the trade subsector rose to 32.8 percent from 25.87 percent in the previous quarter.
Confidence in the industrial subsector grew to 38.86 percent from 31.33 percent, whereas the services sector advanced less strongly to 43.77 percent from 41.69 percent.
The results are based on the responses from about 140 small businesses out of 1 700 surveyed nationwide as part of the study sponsored by the Industrial Development Corporation.
The overall business confidence index, which averages all the three subsectors, rose to 48.9 percent from 40.23 percent in the previous quarter.
Head of the Africagrowth Institute professor Nicholas Biekpe said this was a reflection of a better-than-expected current account figure for September.
"Even though this is still very low, it represents a significant rise. We must remember that unlike big business, SMMEs tend to exhibit large swings in business confidence, which is a reflection of their vulnerability," he said.
However, most of the businesses cited a number of inhibiting factors.
"They complain of high operating costs, inadequate access to bank credit, excessive government taxes, labour laws and employee costs, crime and the insufficient demand for products and services," Biekpe said.
Martin Nazeem, the managing director at SMME funding and development institution Business Partners, said the study was a true reflection of the general trend in the sector.
"If we've not bottomed out, we are at the top of bottoming out. For instance, our clients who had been distressed and unable to pay have been reduced and the sentiment is high. Some of them are even contemplating expansion," he said.
He added that even in the retail sector people had started to purchase more, although in nominal terms.
"The easing interest rate allows for consumers to have a little bit of disposable income. We must remember that even our previous boom was driven by consumer spending," Nazeem said.
On the hindering factors, Nazeem said this needed to be debated because some countries had different taxes for small businesses and big businesses.
"Banks are easing (lending rules) but are still wary - that is why access is still inadequate," he said, adding that this uptick should be treated with caution because the recovery would not be rapid.
The director at the Centre for Small Business Development at the University of Johannesburg, Thami Mazwai, welcomed the growth but warned that it was still off a low base.
"We must also remember that those SMMEs in the textile, automotive and consultancy sectors were in dire straits and the factors cited for growth had no bearing on these sectors.
"We welcome the positive growth and we do need a flush of optimism for encouragement,'' he concluded.