SMEs operating in retail, transport, and other essential sectors can adjust their product offerings to align with spending patterns and optimise logistics to meet demand.
The growth of South Africa’s Small and Medium-sized enterprises (SMEs) has been considered one of the significant ways to grow the country’s economy and fight the high unemployment rate.
However, Finance Minister Enoch Godongwana said little during Wednesday’s Budget 2025 speech about how the government will assist the sector in ensuring it thrives during difficult times.
Garth Rossiter, Lula’s chief risk officer, said it is important to understand the pressures SMEs face in order to survive.
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What SMEs hoped for
He said SMEs hoped to hear how their tax contributions would be pumped back into desperately needed infrastructure investments.
“The speech provided an opportunity for Treasury to show how it will fund reliable energy, transport, security and water.”
However, Rossiter, said he was disappointed to notice that the speech did not mention small businesses or SMEs.
The plan to increase the VAT rate will also hurt small businesses albeit it is positive to see that the planned rate of increase was lower than earlier planned.
SMEs forced to cut jobs
Rossiter said the VAT increase is like a smack in the face for small business owners, who will be forced to make job cuts to keep their doors open.
Tax brackets have also not been adjusted for inflation, which he says means that individuals will end up paying more despite no formal tax increases being announced.
However, he is satisfied with the announcement of increased spending on infrastructure.
“This is something the SME sector has been pleading for as it contributes to its ability to create job opportunities for more people.”
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The reality of SMEs
He said the country’s economic environment continues to pose significant challenges for SMEs.
According to their data, business turnover has fallen by more than 50% in the past 12 months.
“This is clear evidence that the struggles are not isolated to any industry but are reflective of a broader, systemic downturn.
“The past year has been one of survival for many South African SMEs. Economic stagnation, high interest rates, and declining consumer spending have created an unforgiving business landscape.
“Yet with resilience and strategic financial management, SMEs can position themselves for recovery and future success.”
Economic growth and SME resilience
Standard Bank Group Head of Value Propositions and Client Experience Jenine Zachar said that even though small businesses were not mentioned during the budget speech, there are key opportunities that owners can take advantage of.
“The economic growth forecast for 2025 is 1.6%, rising to 1.8% in 2026, reflecting a gradual recovery.
“While growth remains slow, infrastructure investment and policy reforms are expected to create pockets of opportunity.
“Slower growth means muted consumer demand, requiring SMEs to be agile in cost management and revenue generation.”
He added that businesses that diversify their income streams expand into regional markets, and integrate digital tools into their operations will be better positioned to sustain growth.
Trade finance and expansion capital can provide the necessary support for SMEs looking to scale.
Social grant increases and consumer demand
Zachar said that with 28 million South Africans receiving social grants, including increases in old age and disability grants, consumer spending on essential goods and services is expected to remain steady.
SMEs operating in retail, transport, and other essential sectors can adjust their product offerings to align with spending patterns and optimise logistics to meet demand.
Financial institutions supporting these businesses with inventory financing and working capital solutions can help them respond effectively to shifts in consumer demand.
