Absa SME Index declines due to economic slowdown - CNBC Africa

Absa SME Index declines due to economic slowdown


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Increased petrol prices have had a particularly significant effect on small businesses. PHOTOS: Getty Images

The index declined to 93.4, its lowest in two years, from 95.6 in the last quarter of 2013. The number of employers also declined by 2.5 per cent for the year to end March 2014, which was also the biggest decline in two years.

“The decline of the Absa Small to Medium Enterprises index started in the third quarter of 2013 and seems to be 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 entrepreneurs,” Happy Ralinala, head of Absa business banking, said in a statement.

Self-employed people in particular, according to Absa, have suffered the most from sluggish economic growth. Self-employment numbers declined by 6.8 per cent over the last year to 1,253,000 adults.

(WATCH VIDEO: State of S.Africa's SME market)

There was also a 2.9 per cent decline between the fourth quarter of 2013 and the first quarter of 2014, which left the self-employment number at its lowest since 2008, when the Absa Small to Medium Enterprises (SME) Index was first initiated.

“Upheaval in the South African economy is impacting on the natural formation of smaller businesses. The number of self-employed stepping up to become employers themselves seems to have run out of steam,” Ralinala explained.

“It is clear from our research that South Africa’s self-employed numbers are in rapid decline compared to the rest of Africa, where nearly half of the workforce is self-employed.”

The fuel price, which increased by 138 per cent since the start of 2009, also added substantial pressure on SMEs. This is coupled with increased electricity prices and the introduction of e-tolls.

(READ MORE: SMEs must be considered in S.Africa's national budget)

"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," said Ralinala.

"SMEs play a crucial role in our economy and are under increasing pressure to survive in the face of a protracted economic downturn."