Declining SMME index indicates narrowing entrepreneurial supply base

The Absa SMME index declined during Q1 2014, with a total quarterly decrease of 2.2% and a yearly decrease of 3.8%. The index declined to a two-year low in Q4 2013 (from 95.6 to 93.4).

Although South Africa has not yet entered a recession, the overall index clearly reflects slower growth over the last few years.

Both the number of employers and the number of self-employed has declined to just above 2-million, representing around 13.3% of South Africans at work. This is the lowest percentage since the Absa SME index began and extremely low for an emerging-market economy. The number of employers declined by 2.5% for the year to end March 2014, which is not only faster than the GDP decline for the year, but also the biggest decline in two years.

“The Absa SME index began declining in Q3 2013 and is continuing. While other numbers such as overall employment have improved, the number of employers and self-employed has not. South Africa’s economy clearly needs more resilient entrepreneurs,” says Happy Ralinala, Head of Absa Business Banking.

Self-employed take the brunt of the economic strain

Sluggish economic conditions over the last two years have had a significant effect on the self-employed, with the number of people running their own businesses in decline for five consecutive quarters. The number of self-employment individuals declined by 6.8% over the last year to 1 253 000 adults. There was a 2.9% decline between Q4 2013 and Q1 2014, leaving the self-employment number at its lowest since the Absa SME index was first initiated in 2008.

“Upheaval in the South African economy is affecting the natural formation of smaller businesses. The number of self-employed stepping up to become employers themselves seems to have run out of steam. It is clear from our research that South Africa’s self-employed numbers are in rapid decline compared with the rest of Africa, where nearly half of the workforce is self-employed,” says Ralinala.

The increase in fuel prices has further added to the already considerable pressure on SMEs, having increased by 138% since the start of 2009. This, coupled with electricity price increases and e-tolling, has forced many SMEs to become even leaner.

“With critical sectors of our economy under severe pressure, there is a pressing need for the public and private sectors to create a supporting, access-conducive environment to nurture small enterprises. SMEs play a crucial role in our economy and are under increasing pressure to survive in the face of a protracted economic downturn,” concludes Ralinala.