Following a technical recession in Q1, and with slow economic growth forecast, South Africa can expect tough economic times ahead. But this is no reason not to start a new business, says Nedbank.
Nedbank economist Busiswe Radebe says the global economic picture is uneven, with regions like the US and China performing better than many developing markets.
In South Africa, 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.
“Usually, to create jobs you need to see economic growth of around 5%. So currently, jobs are not really being created due to anemic growth and low levels of business and consumer confidence.”
While this may sound like bad news for small business, Radebe says new businesses and small businesses face risks and challenges whether they start during boom or bust times, and that slow economic growth does not necessarily mean business investments should be put on hold.
Nedbank’s Q4 2016 Small Business Index showed that South African businesses were feeling the pressure of the ailing economy, with the cash flow confidence rating dropping in the quarter.
Slow payments, low economic confidence and exchange rate had a negative impact, particularly on the mining, agriculture, forestry and fisheries sectors.
According to the Nedbank Small Business IndexTM for the second quarter of this year, business confidence decreased dramatically in the first half of 2017. Small business is definitely feeling the effects of the technical recession, says Radebe, reflecting in the Small Business Index score which is now at its lowest in 4 years.
Drought, political uncertainty and negative growth are taking its toll, she notes.
Seen in the light of the recent credit rating downgrade to junk status, the Index endorses the view that the economy is in a challenging phase, and clients are struggling to keep afloat.
The Index highlights the need for small enterprises to engage with their personal bankers for ways in which to extract maximum savings.
However, Radebe notes: “Usually after you have a period of weak or negative growth, you can expect something of a rebound. Granted, we have had political turmoil in Q2 which could affect that bounceback, but we can nonetheless expect sectors like agriculture, mining and manufacturing to do better this year.”
In addition, China’s better-than-expected growth of 6.9% in the second quarter and recovery in other developed markets might be seen as cause for optimism for exporters, she says. “In the short term, we can expect to see growth potential in agriculture and produce, mining and manufacturing, services, and even in small luxury goods in the so-called ‘lipstick index’ – an indicator that says when spending is constrained, consumers buy more small luxury goods.”
Radebe points out 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, a hub for small business development, showcase new business opportunities and service providers, training and insight for South Africa’s small businesses and would-be entrepreneurs.
Nedbank will host daily Money Matters workshops at the Small Business Expo to inform business owners about sound financial practices within a business.