South Africa's SMEs optimistic about 2025 economic climate, but will it last?
South African small and medium enterprises (SMEs) entered 2025 with an encouraging sense of optimism. This is according to the latest SME confidence Index, conducted by Business Partners Limited, which reveals that over 58% of respondents felt optimistic about the economic climate in 2025.
David Morobe, executive general manager: Impact Investing at Business Partners Limited, notes that this surge in confidence is a positive shift for a sector that has weathered significant economic uncertainty in recent years. 'SMEs have displayed resilience and renewed hope for business growth in 2025, supported by factors such as the first interest rate cut since 2020 and lower inflation,' he says.
Confidence indicators show positive trends
Year-on-year, SME confidence improved across multiple areas. Levels of confidence that the South African economy will be conducive to business growth in the next 12 months increased by 9 percentage points, reaching 69%, while confidence levels that SMEs will experience business growth in the next 12 months rose to 84%, a 6-percentage point increase year-on-year. Confidence levels in access to business finance also climbed to 64% - up by 7 percentage points year-on-year – while levels of confidence in finding skilled staff improved to 72%, up by 3 percentage points year-on-year.
Despite these gains, confidence in certain key areas remains subdued. SME confidence in South Africa's labour laws supporting business growth declined by 4 percentage points year-on-year to 59%. Whereas confidence in government efforts to foster SME development increased by 5 percentage points year-on-year, it dropped 3 percentage points quarter-on-quarter to 47%.
Can this optimism withstand external challenges?
While SMEs started the year with confidence, several external factors have already posed challenges for business growth in the first quarter. The national return of loadshedding and the introduction of water shedding in Johannesburg raise concerns about operational stability. Additionally, while South Africa's Government of National Unity (GNU) has remained somewhat stable, policy differences surrounding the outcomes of the rescheduled Budget Speech and international relations could impact SME confidence.
'SMEs thrive on stability, and while their confidence was high going into 2025, it remains critical that external factors such as infrastructure reliability be addressed. It is also important that investment into initiatives that stimulate economic growth and advance cooperation among Government leaders is prioritised to support sustained business growth,' says Morobe.
The top three challenges identified in the SME Index are cash flow, economic conditions, and funding. While late client payments continue to be a concern, h the confidence that clients will pay on time has remained at 72% quarter-on-quarter. However, this represents a 3-percentage point improvement year-on-year.
What SMEs need to thrive
Access to finance remains a critical factor, with SMEs indicating importance levels of 86% when it comes to funding as essential for growth and sustainability. The importance of access to SME-specific information and resources increased to 85%, while mentorship remains highly valued, with an 83% importance rating. Social media as a marketing tool gained further recognition, rising to 86% in importance, a 2-percentage point increase year-on-year.
Infrastructure concerns and opportunities
For the first time, the SME Confidence Index explored perceptions of local infrastructure and its impact on business success. While a majority of SMEs view road (53.85%), water (62.35%), and waste/sanitation (61.65%) infrastructure in their business areas as suitable, a notable percentage of respondents indicated that infrastructure remains inadequate or only slowly improving.
'The findings highlight the need for ongoing investment in infrastructure to ensure businesses can operate optimally,' says Morobe. 'The government's commitment to accelerating infrastructure investment, as outlined in the recent 2025 Budget Speech, is a step in the right direction,' he concludes.
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