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 at least 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 economic growth and impacting various sectors.
According to the Business Partners Limited SME Confidence Index for the first quarter, 37% of SMEs do not have access to financing programs that could help them invest in alternative energy solutions. Despite these challenges, business owners are displaying resilience as they prepare for the upcoming busy season.
David Morobe, the executive general manager for Impact Investing at Business Partners Limited, acknowledges the negative effects of the energy crisis on small businesses. However, he urges entrepreneurs to take advantage of the support being provided to them. One positive development is that business owners are now 66% more confident that their clients will pay within the agreed-upon timeframe compared to last year.
A significant step forward in supporting small businesses is the implementation of initiatives like ‘Pay in 30’. This initiative, launched in 2020 by Business for South Africa (B4SA) in collaboration with industry bodies, ensures that small business suppliers are paid within 30 days by over 50 of the country’s largest corporates.
With growing confidence in prompt payment, Morobe encourages small business owners to focus on improving their invoicing systems and promoting a culture of timely payment.
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SMEs must improve 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 identified in the first quarter. However, the impact of crime has fallen out of the top three, although this may change due to recent unrest in certain areas.
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Despite these challenges, business owners have shown a more positive 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%, only a 3 percentage point drop from the same quarter in 2022.
The SME Index reveals an even split in confidence levels when comparing quarter-on-quarter and year-on-year data. Confidence in finding skilled staff members has increased by 16 percentage points compared to last year, and there is also optimism that access to business finance will improve in the next 12 months.
However, SMEs are less confident in the country’s economic progress, with only 56% expressing confidence compared to 77% a year ago.
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Why SME confidence decreased
The decline in SME confidence can be attributed to the worsening energy crisis, which has left many businesses struggling with an unreliable power supply. For 45% of SMEs surveyed, the possibility of a grid collapse is a major concern.
While some businesses have invested in backup power supplies and alternative energy sources, many simply cannot afford the associated costs. Only 18% of survey respondents have solar energy solutions, 26% have generators, 17% rely on inverters, and just 6% have access to other energy sources such as geothermal, wind, or biomass.
These figures highlight the pressure faced by SMEs and the challenges in transitioning to greener energy solutions. Despite the importance of green energy to 45% of SMEs, their focus remains on keeping their operations running, even if it means relying on diesel-powered solutions.
The latest SME Index results underscore the urgent need for alternative energy solutions as the energy crisis continues. Business Partners Limited is committed to making its Energy Fund more accessible to help small businesses navigate these challenging conditions and strengthen their resilience.