A technical recession in Q1, coupled with a slow economic growth forecast, sees SA expecting tough economic times ahead. However, this is no reason not to start a new business, says Nedbank.
Nedbank economist Busisiwe Radebe says globally, the economic outlook is uneven, with regions like the US and China performing better than many developing markets. In SA, however, Nedbank forecasts growth of only 0.6% this year - marginally up on last year's 0.3% - and growth of under 2% over the next three years.
Radebe says usually, economic growth of around 5% is needed to create jobs. "So currently, jobs are not really being created due to anaemic growth and low levels of business and consumer confidence."
Although this might sound like bad news for small business, she says new firms and small companies face risks and challenges irrespective of whether they start during boom or bust times, and slow economic growth shouldn't necessarily mean investments should be delayed.
Nedbank's Q4 2016 Small Business Index showed South African companies were feeling the pressure of the struggling economy, with the cash flow confidence rating dropping in the quarter. Slow payments, low economic confidence and the exchange rate had a negative impact, particularly on the mining, agriculture, forestry and fisheries sectors, the index revealed.
According to the Nedbank Small Business Index for the second quarter of this year, business confidence decreased dramatically in the first half of 2017. There's no doubt that small businesses are feeling the effects of the technical recession. The Small Business Index score is now at its lowest in four years. Drought, political uncertainty and negative growth are taking its toll, she adds.
The recent credit rating downgrade to junk status hasn't helped, and the index endorses the view that the economy is in a challenging phase, with clients struggling to stay afloat. The index highlights the need for small enterprises to engage with their personal bankers for ways in which to extract maximum savings, says Radebe.
However, she points out that usually, following a period of weak or negative growth, something of a rebound can be expected. "Granted, we have had political turmoil in Q2 which could affect that bounce back, but we can nonetheless expect sectors like agriculture, mining and manufacturing to do better this year."
Radebe explains that in order to thrive in a period of weak economic growth, new and small businesses will have to have sound business plans, strong differentiators, good marketing plans and possibly also value-added services. "If you can identify or create a need in the market, any time is an opportune time to start a business. And there is good news in the recent interest rate cut and indications that we are in a downward rate cycle, which means the cost of servicing debt is likely to go down in future," she says.
Radebe was speaking ahead of the Small Business Expo that is co-located with the #BuyaBusiness Expo to be held at the Ticketpro Dome in Northriding from 31 August to 2 September.
The events, hubs for small business development, showcase new business opportunities and service providers, training and insight for South Africa's small businesses and would-be entrepreneurs.
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