Over One-Third of Small Businesses Struggle to Afford Alternative Power Solutions
The ongoing energy crisis in South Africa is taking a toll on small and medium-sized enterprises (SMEs), with 34% of businesses unable to afford the costs associated with installing backup power supplies or alternative energy sources. This has resulted in a decline in SME business confidence, hindering the country’s post-pandemic economic recovery and growth prospects.
According to the Business Partners Limited SME Confidence Index for the first quarter, 37% of SMEs are unable to access financing programs that would enable them to invest in alternative energy solutions. Despite these challenges, business owners are demonstrating resilience as they prepare for the busy season.
David Morobe, executive general manager for Impact Investing at Business Partners Limited, acknowledges the impact of the energy crisis on small businesses but encourages owners to take advantage of the support available. He highlights the positive development that business owners are now 66% more confident that their clients will pay within the agreed-upon time frame compared to last year.
One such initiative that has contributed to this progress is ‘Pay in 30’, launched by Business for South Africa (B4SA) in collaboration with industry bodies. Over 50 major corporations have committed to paying their small business suppliers within 30 days. Morobe urges small business owners to focus on improving their invoicing systems and promoting prompt payment.
SMEs Must Prioritize Cash Flow Management
Effective cash flow management remains the biggest challenge for local SMEs, according to the most recent SME Confidence Index. Economic conditions and access to funding are the other top challenges. However, the impact of crime has decreased compared to the previous quarter, although this may change due to recent unrest in certain areas.
Despite some concerns, business owners have shown a more optimistic outlook for the end-of-year rush in 2023 compared to the previous year. Confidence in business growth over the next 12 months stands at 71%. The SME Index also reveals increased confidence in finding skilled staff and improved access to business finance in the coming year.
However, confidence in the South African economy’s conducive environment for business growth has declined. Only 56% of SMEs surveyed express confidence in the country’s economic progress, down from 77% a year ago.
Main Reason for Decreased SME Confidence
The intensified energy crisis is the primary reason for the decline in SME confidence, with many businesses struggling with the effects of an unreliable power supply. Grid collapse is a significant concern for 45% of SMEs, who believe it is inevitable.
While some SMEs have invested in backup power supplies and alternative energy sources, many cannot afford the associated costs. Only 18% have solar energy solutions, 26% use generators, 17% rely on inverters, and just 6% have access to other energy sources such as geothermal, wind, or biomass.
These figures highlight the financial pressure faced by SMEs and hinder progress towards greener energy solutions. Although 45% of SMEs consider investing in green energy important, their immediate focus is on maintaining operations, even if it means relying on diesel-powered solutions.
The latest SME Index results emphasize the urgent need for alternative energy solutions as the energy crisis persists. Business Partners Limited aims to support small businesses by making their Energy Fund more accessible, helping them navigate challenging and volatile conditions while strengthening their resilience.