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.
ISSN 1811-5187
AFRICAGROWTH INSTITUTE
Tel: (021) 914 6778Fax: (021) 914 4438
www.africagrowth.com
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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
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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.
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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.
Figure 2: Distribution by Economic Sector
31%
29%
24%
4% 0% 0% 8%
2% 2%
Provincial Distribu0on
Gauteng
KZN
Western Cape
Eastern Cape
Northern Cape
Limpompo
NW Province
Free State
Mpumalanga
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Industrial Trade Services
30% 30%
40%
Main economic sector
5
Sub-sector analysis in the broader industrial sector indicates that the manufacturing sub-sector 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.
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.
0% 10% 20% 30% 40% 50% 60% 70% 80%
Manufacuring
ConstrucMon
Electricty, Gas &
Water
Miining, Q
uarrying & Agriculture
Wholesale
Retail
Financial &
Business
Transport &
Storage
Community, Social
& Personal
Catering &
AccommodaMon
71%
12% 12% 6%
53% 47% 48%
4% 9%
39%
Sub-‐sectors
Industry Trade Services
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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.
Figure 5: Annual Turnover
0% 5%
10% 15% 20% 25% 30% 35% 40%
less than 5 less than 20 less than 50 less than 200 More than 200
34% 36%
25%
2% 2%
Number of employees
SMMEs
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
less than 0.15 less than 0.4 less than 2 less than 4 more than 4
11% 14%
11% 16%
48%
Annual turnover (millions)
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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.
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.
0% 2% 4% 6% 8%
10% 12% 14% 16%
6%
14%
4%
7% 7%
11%
6%
14%
1%
13%
4% 4%
9%
0%
Limi0ng factors
8
Industrial Sector:
Number of people employed: In the industrial sector 40% 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 40% 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
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.
0
10
20
30
40
50
60
Number of people employed
The financial situaMon
New orders/contracts
Selling prices
40 47
33
53 47
33 27
33
13 20
40
13
Business situa0on in last 3 months industry
Up Same Down
9
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.
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 30% 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.
0
10
20
30
40
50
Number of people employed
The financial situaMon
Volume of Demand
Stock levels
43 36
43 43 43 36
29 36
14
29 29 21
Business situa0on on last 3 months trade
Up Same Down
10
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.
0 10 20 30 40 50 60 70
Number of people employed
The financial situaMon
Demand for services
Selling prices
13 22
17 26
70
30
43
70
17
48 39
4
Business situa0on in last 3 months services
Up Same Down
11
Figure 10: Industry Sector Business Outlook Trade Sector
Number of people employed: 50% 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.
0 10 20 30 40 50 60 70 80
Number of people employed
The financial situaMon
New orders/contracts
Selling prices
53 60 60
73
33
13 7
27
13
27 33
0
Business outlook industry
Up Same Down
12
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.
0
10
20
30
40
50
60
70
Number of people employed
The financial situaMon
Volume of Demand
Stock levels
50 57 57
64
43
29
14 21
7 14
29
14
Business outlook trade
Up Same Down
13
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 30% in the first quarter of 2016. This represents a decrease of 6.2%.
0
10
20
30
40
50
60
70
Number of people employed
The financial situaMon
Demand for services
Selling prices
22
43 43
26
70
39 43
65
9 17
13 9
Business outlook services
Up Same Down
14
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 40% 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 40% in the first quarter of 2016 (see Figure 14). This represents a decrease of 10.06%.
37 31
39 46 45
41 47
43 38
35
44 46 41
35 37 35 37
28 29 28 35 36 35
23
49
33 31 25 27 26
33
50
35 41
46 45
26
40 40
49 46 43
47
36 34 26
57
27 31
38
52
36
47
24 28
49 43 42 44
47 53
48
40
49
37
48 50 53 51
36 42 41
45
30
43 41
33 38
43
53
37 39 32 30
0
10
20
30
40
50
60 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
Present outlook
Industry Trade Services
15
Figure 14: Future Outlook
4.3 Overall Present Index. The overall business confidence index, for the present outlook increased from 30.5% during the final quarter of 2015 to 34.9% during the first quarter of 2016. This represents an increase of 14.48%.
Figure 15: Overall Present Outlook Change
44 44
56 57 59 55 64
57
43 35 36
46 43 37 38 35
43
29 35 31
45 45 39
28
57
43 40
29
43 46 56 58
50 57
68
57
28 34 34
50 51 48 48 39 39
29
73
38 41 34
50 41
57
28 33
58 50 52
66 59
72 62
67 70
49
32
43
58 57
40 43 52 54
39
62 51
41 38
56 66
45
60
44 40
0 10 20 30 40 50 60 70 80
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
Future outlook
Industry Trade Services
35.5 33.0 38.5
47.6 44.4 43.7 44.2 45.9
33.8
44.1 44.8 49.2
46.0
38.1 40.6 37.5 38.4
28.3
43.0
32.3 33.1 35.8
43.5 37.7
44.3
31.9 30.5 34.9
0.0
10.0
20.0
30.0
40.0
50.0
60.0
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
Overall present outlook
16
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%.
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%.
45.6 47.5
59.3 58.1 60.5 57.8 66.4
61.5
40.0 33.2
37.4
51.2 50.6 41.5 43.3 42.1 45.1
32.2
56.5
40.1 42.3 38.9 48.3 44.9
52.9 43.9
39.1 42.2
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0
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
Overall future outlook
SMME
17
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.
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.
40.6 40.2
48.9 52.8 52.4 50.8
55.3 53.7
36.9 38.6 41.1
50.2 48.3
39.8 42.0 39.8 41.8
30.2
49.8
36.2 37.8 37.4
45.9 41.3
48.6
37.9 34.8 38.6
0.0
10.0
20.0
30.0
40.0
50.0
60.0
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
-‐0.50
0.00
0.50
1.00
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
point g
rowth
SMME Business Confidence Index Growth (I)
Quartely growth (period-‐on-‐period) Average quarterly growth
18
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 30.56% 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.
-‐0.21 -‐0.14 -‐0.14
-‐0.05 0.29 0.26
0.13 0.02
-‐0.30 -‐0.24 -‐0.26
-‐0.07 0.31
0.03 0.02
-‐0.21 -‐0.14 -‐0.24
0.19 -‐0.09 -‐0.09
0.24 -‐0.08
0.14 0.29
0.01 -‐0.24
-‐0.06
-‐0.40
-‐0.30
-‐0.20
-‐0.10
0.00
0.10
0.20
0.30
0.40
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
year-‐on-‐year growth
SMME Business Confidence Index Growth (II)
YOY Growth
19
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.
