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Business activity rose in the second quarter of 2015 driven mainly by an increase in self-employment, despite weak economic conditions, energy constraints and higher costs due to inflation. This is according to the overall Absa SME Index, which picked up from 94.9 in the first quarter to 95.2 in the second quarter of 2015 in spite of the contraction in the economy during the quarter.

The Absa SME Index continued in positive territory as it went up by 2.4% year on year after increasing by 1.5% the previous quarter, making it the highest uptick since the second quarter of 2013. However, the growth was marginal on a quarter-on-quarter basis as it only grew by 0.3%, lower than the previous quarter.

With business confidence at low levels there was a drop of employers from 767 000 in first quarter to 759 000 in the second quarter. This drop is not unusual when the economy contracts – many employers, particularly smaller ones, can close down.

The number of employees grew by 3.7% in the second quarter, which could be ascribed to higher government employment rather than private sector employment. Meanwhile, the number of self-employed persons rose by 6.4% year on year and by 3.4% quarter on quarter.

This is the main driving force behind the increase in the Absa SME Index as many people may have started their own business as a way of earning an income during a very weak economic period. Self-employment is a situation in which an individual works for himself or herself instead of working for an employer that pays a salary or a wage.

Progress is possible

KeaObaka Mahuma, Head of Enterprise and Supply Development at Barclays Africa, says: “While this is good news, it can be even better news if these self-employed can grow their businesses and employ others in the process. More likely, however, it is a survival method at present with many working age people not able to find employment, and so they take up survivalist enterprises to help make ends meet. The Absa SME Index performance for the second quarter was neither the strongest nor the weakest but shows that progress is possible despite falling economic activity.”

He adds that if the increase in the number of self-employed people can be properly supported it can help job creation over the longer term. South Africa will need to rely on the power of SMEs to create the vast proportion of jobs the country so desperately needs.