The latest hike in South African interest rates would negatively impact small and medium enterprises, franchisees, property investors and farmers as already stretched consumers tightened their belts further, analysts said on Friday.
The South African Reserve Bank’s (SARB’s) Monetary Policy Committee (MPC) hiked the repo rate to 6.25 percent late on Thursday – the second interest rate rise this year – bringing the prime lending rate to 9.75 percent.
Analysts said SMEs were already facing tough economic challenges and that higher interest rates would add pressure by making debt more expensive.
“Profit margins are also likely to be impacted in the long term due to a lower demand from consumers who will tighten their belts as disposable income decreases,” said Sanjeev Orie, chief executive officer of Business Value Adds at FNB.
“This means that businesses that are highly geared and operating on low margins may struggle to service their debt commitments. As a result, small businesses may run into cash flow problems, making it difficult for them to manage running costs and payments to staff and suppliers for goods and services,” he said.
Morné Cronjé, head of FNB Franchising, said a rise in interest rates discouraged investment in the franchise industry and made it difficult for franchisees to borrow money to finance their operations, payroll and general purchases.
“Franchise owners need to be savvy and come up with real ways to increase their cash flow and cut unnecessary expenses. The more you understand the fundamentals of maintaining your business, the more likely it will survive,” said Cronjé.
Commercial property investors will also be negatively affected due to a decrease in consumer spending, which will impact them directly if they are trading from the property, or indirectly if their tenants suffered as a result of the interest rate increase.
But the worst hit could be struggling farmers who were already facing rising debt levels due to the weak rand and severe drought, said Dawie Maree, head of information and marketing at FNB Agriculture.
