Junk status hits entrepreneur confidence levels

Johannesburg – Small business owners are less confident about the economy, mostly due to political uncertainty which led to the credit rating downgrade.

This is according to Business Partners Limited SME Index, which shows the confidence levels for the first quarter of 2017 are down three percentage points to 37%.

Business owners are less confident that government is doing enough to develop small and medium enterprises (SMEs).

This comes following the downgrade to junk status by Standard & Poor’s and Fitch. Ratings agency Moody’s is also expected to downgrade the sovereign rating, which is currently two notches above junk status at Baa2 with a negative outlook, Fin24 reported.

READ: Moody’s may downgrade SA in coming weeks – economist

The downgrades came following President Jacob Zuma’s Cabinet reshuffle, which saw former Finance Minister Pravin Gordhan being replaced by former Home Affairs Minister Malusi Gigaba.

Economists previously predicted that business confidence would take a knock following the downgrade. South African businesses had been feeling the pressure of a low growth environment, which was accelerated by the political uncertainty following the Cabinet reshuffle, explained Momentum Investment’s economist Sanisha Packirisamy.

FNB economist Mamello Matikinca previously told Fin24 that business confidence would be the biggest hit. This would see investment declining and ultimately job shedding.

The downgrade has impacted SMEs severely, said Ben Bierman, managing director of Business Partners. He explained that the survey results show a loss of confidence and optimism among entrepreneurs.

Last year, confidence levels had started to improve, but declined significantly following the downgrade, explained Bierman.

“We had noticed an uptick in confidence over the last three quarters, showing that business owners remained upbeat about the commitments made by both the public and private sector to drive economic growth in the country,” he said. 

Other findings from the survey show that entrepreneurs have an average confidence level of 54% about the economy’s ability to foster business growth in the next year. Entrepreneurs are 46% confident that the ease of access to finance will improve. Both indicators declined five percentage points from the previous quarter, the report stated.

Cash-flow, economic conditions and funding are the three main concerns for entrepreneurs, the survey showed. “This is again indicative of the current uncertain economic situation facing South Africa,” said Bierman.

The survey also showed that entrepreneurs regard the involvement of business mentors as important by 82%. About 86% of entrepreneurs surveyed plan to make use of a business mentor in future.

Given the difficult economic conditions ahead, Bierman called for corporates and government departments making use of SME services to stick to payment deadlines. About 41% of respondents said that late payments are still a challenge for their businesses. 

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