Half of SMEs may not survive the next year without urgent help
The small and medium enterprise (SME) sector in South Africa is often referred to as the 'backbone' of the economy, however, the sector is in danger, as a report reveals that half of the businesses cannot survive the next 12 months in their current situations.
The first Small Business Growth Index (SBGI) by Absa and the South African Chamber of Commerce and Industry (SACCI) released on Friday, showed that urgent support is needed in the sector.
The index is conducted by the Bureau of Market Research (BMR) and shows real-time barometer tracking the conditions shaping small business performance.
SBGI was launched in February 2025, with the idea to monitor sales growth trends, identify emerging business opportunities and employment trends, and measure SME job creation contributions.
ALSO READ: How mental health affects entrepreneurs
SMEs growth in SA
The report shows that only one in four businesses is growing, meaning there is significant vulnerability in the sector.
The findings of the report are based on a survey of more than 1 600 small businesses across all nine provinces. Ronnie Mbatsane, managing executive for SME Business at Absa Business Banking, said these are businesses with 50 or fewer employees.
It draws on a range of indicators — including current performance, operating conditions, cost pressures, cash flow, debt levels, investment intentions, growth expectations and perceived skills gaps.
SMEs in a vulnerable zone
Professor Paul Kibuuka, head of the Economic Research division at the BMR, said the country's SMEs are in a vulnerable zone, as they are caught between recovery efforts and rising operational costs.
52.8% of the survey's respondents said they are trading with difficulty or at risk of closure.
The report reveals that in the past six months, SMEs have experienced significant cost inflation across all major categories. Transport and fuel costs saw the steepest increases.
Utilities (electricity, water) and raw materials/stock costs also rose sharply. Borrowing costs, rental, wages and taxes have all increased for most firms, compounding the strain on margins.
ALSO READ: Challenges and opportunities for SMEs in 2025
Current business challenges
'SMEs play a pivotal role in South Africa's economy, contributing to employment, innovation and inclusive growth. However, these businesses continue to face a host of challenges exacerbated by recent economic disruptions, infrastructural deficiencies, and regulatory burdens,' reads the report.
One of the greatest challenges is inadequate capital. Lack of capital emerges as the most significant obstacle, limiting SMEs' ability to scale, invest in equipment or respond to market demands.
The second is increased competition. 'Businesses report growing pressure from both formal and informal competitors, including larger firms with greater resources and political connections.'
The greatest challenge remains limited access to finance. 'Despite the existence of loan schemes and support initiatives, many SMEs remain excluded due to eligibility barriers, bureaucratic processes or limited institutional support.'
NOW READ: Mid-year financial check for SMEs: Tips to prepare for the next six months
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
IOL News
2 days ago
- IOL News
Uncertainty around tariffs as markets digest a raft of economic data
Governor Lesetja Kganyago targets inflation of 3%. Image: SARB/Facebook This week there was significant uncertainty about the implementation of American President Donald Trump's 30% tariff on South African exports and in the end it was delayed by one week to August 7. We also saw a major shift in our inflation targeting regime with the Reserve Bank announcing that future Monetary Policy Committee' (MPC) decisions would be anchored around the lower bound of the 3-6% target band. The indicators to keep an eye on were June PPI numbers, Absa and the Bureau of Economic Research' Purchasing Managers Index, and new vehicle sales data for July. At Thursday's MPC meeting the repo rate was cut by 25 basis points by a unanimous decision. The repo now stands at 7% and the prime lending rate at 10.5%. In their statement the MPC said that the economic outlook is weak despite the uptick of economic activity inthe second quarter. With possible higher US tariffs on South Africa, the MPC's growth projection is revised down from 1.2% to 1%. For the inflation outlook they mention that the rand has strengthened, and inflation expectations have moderated. In June the headline inflation rate was 3% and the core inflation rate 2.9%. Food inflation has risen, mainly due to meat prices and fuel prices are also falling more slowly now, compared to the recent past. The end result is that they expect headline inflation to rise over the next few months, averaging 3.3% for the year, in line with their earlier forecasts. This benign inflation environment was echoed by the June PPI inflation rate. The producer price index (PPI) rose by 0.6% year-on-year, up from 0.1% in May. The increase was primarily driven by higher producer prices for food, beverages and tobacco products. These increased by 4% year on year and contributed 1.2 percentage points to overall producer inflation. The prices for coke, petroleum, chemical, rubber and plastic products declined by 4.7%year-on-year, subtracting 1 percentage point. On a monthly basis, PPI rose by 0.2% in June. As for anchoring future MPC decisions around a 3% inflation rate, Governor Lesetja Kganyago noted that this was not an official National Treasury approved change in the target but rather the preference of the SA Reserve Bank (SARB). It is similar to the move to 4.5%. The June consumer inflation was in line with the preferred rate of 3%; but the SARB expects inflation to pick up over the next few months. Looking ahead, the SARB's Quarterly Projection Model (based on the newly adopted 3% target) suggests five more cuts over the next two years. Absa and the Bureau's PMI d recorded an expansion for the first time in nine months, increasing by 2.3 points to 50.8 in July 2025. It is attributed to an increase in demand with the sub-indices for new sale orders and business activity increased. The index tracking expected business conditions in six months' time declined but is still above the 50-neutral level. New vehicle sales continued growth streak with 51 383 units sold in July, up 6 931 units sold in July 2024. This made for the highest monthly passenger car sales performance since January 2017, driven by car rental sales. Domestic sales of new light commercial vehicles, bakkies and mini-buses also recorded strong gains. Finally, it is unclear if the one-week postponement of the implementation of the 30% US tariff gives South Africa enough time to secure a better deal with the US. Newspapers reported on Friday that the government's contingency plan is an export support desk will serve as a one-stop contact point for exporters, providing real-time updates, guidance on compliance, and support in pivoting to alternative markets. Tax incentives have been mentioned for the motor vehicle and agricultural sectors, but not confirmed by National Treasury. Waldo Krugell is a Professor of Economics, North-West University, Potchefstroom. Image: Supplied Waldo Krugell is a Professor of Economics, North-West University, Potchefstroom. *** The views expressed here do not necessarily represent those of Independent Media or IOL BUSINESS REPORT
IOL News
2 days ago
- IOL News
Manufacturing sector sees unexpected resurgence in July after eight months of decline
The last time the headline PMI was in the above-50 expansionary territory was in October 2023 at 52.6 points. Image: David Ritchie/Independent Newspapers. Manufacturing activity in South Africa in July returned to positive territory for the first time in nine months, in a significant turnaround for the struggling economy. The Absa Purchasing Managers' Index (PMI) released on Friday indicated that the index edged above the 50-point mark and recorded an expansion, following eight consecutive months in contractionary territory. The last time the headline PMI was in the above-50 expansionary territory was in October 2023 at 52.6 points. According to Absa, new sales orders rose by 9.7 points to 55.9 in July, recording a third consecutive month of improvement and signalling a much stronger recovery in demand at the start of the third quarter. 'Export sales also showed a significant increase, but at a low level, signalling that manufacturers remain cautious amid regulations and ongoing trade negotiations,' Absa said. 'The improvement in demand fostered an uptick in production, seeing the business activity index tick up 5.2 points to 47.1 points in July – still coming in below the neutral-50 mark for the ninth consecutive month.' Absa added that the supplier deliveries index increased by 1.4 points to 56.4 in July on the back of the strong uptick in new orders, which typically leads to longer delivery times and some delays. 'Despite the strong recovery in demand which filtered through into an uptick in production, the employment index declined by 6 points in July, reaching 43.7 - reversing the gains made in June and returning to levels seen earlier in the year,' it said. 'The weak employment level may be due to the slow recovery in activity, which, despite ticking up, remains in contractionary territory, signalling that manufacturers may wait to see a stronger recovery in demand before increasing employment.' The purchasing price index also increased by 1.2 points in July, signalling growing cost pressures as the cost of some input materials increased. Absa noted that crude oil prices increased fuel prices in the country, with petrol and diesel prices rising by 52 to 84 cents a litre, depending on the grade. It said the positive news was that, despite the uptick in the index, the current levels remained the second-lowest in over eight years. Furthermore, despite heightened global uncertainty, Absa said the rand stayed below R18/$ for July. However, Absa note that expected business conditions in six months' time declined from 62.5 points in June to 56.4 in July. 'Although still above the 50-neutral level, the direction of the index suggests that manufacturers are faced with an increasingly volatile and challenging trading environment on both the global and domestic front.' Investec economists have welcomed the findings of the PMI, a survey conducted by the Bureau for Economic Research (BER) and sponsored by Absa. Investec economist Lara Hodes said the PMI moved into expansionary territory in July after tracking below 50 since October last year. 'Specifically, it rose by 2.3 points to 50.8. The new sales orders index jumped to 55.9 from 46.1 previously, indicating 'a much stronger recovery in demand at the start of the third quarter,' according to the BER,' Hodes said. 'Export sales picked up from low levels logged in previous months; however, uncertainty around trade tariffs has weighed notably on manufacturers.'
The Citizen
5 days ago
- The Citizen
Good news for GDP: Manufacturing PMI reaches above 50 points, but employment levels still weak
A score above 50 indicates the sector is growing, while a score below 50 means it is shrinking. Manufacturing PMI in July 2025 has reached above the 50 point mark and recorded an expansion for the first time in nine months. The Absa Purchasing Managers' Index (PMI) is an economic activity index based on a survey conducted by the Bureau for Economic Research (BER) and sponsored by Absa. It measures the health of South Africa's manufacturing sector. For July 2025, the seasonally adjusted PMI increased by 2.3 points to 50.8. The increase is attributed to a strong recovery in demand. ALSO READ: Absa PMI increases but in contractionary territory for eighth consecutive month First in nine months Absa said the last time the headline PMI was in the above-50 expansionary territory was in October 2024 at 52.6 points. PMI is based on feedback from purchasing managers about business like new orders, production levels, employment, supplier deliveries and inventories. A score above 50 indicates the sector is growing, while a score below 50 means it is shrinking. The index matters because it is used as an early warning system for the economy. Manufacturing drives growth, as the sector is linked directly to exports, employment and demand for raw materials. Drivers of the good news 'New sales orders rose by 9.7 points to 55.9 in July, recording a third consecutive month of improvement and signalling a much stronger recovery in demand at the start of the third quarter,' read the Index. BER said export sales also showed a significant increase, but at a low level, signalling that manufacturers remain cautious amid regulations and ongoing trade negotiations. The improvement in demand fostered an uptick in production, seeing the business activity index tick up 5.2 points to 47.1 points in July – still coming in below the neutral-50 mark for the ninth consecutive month. ALSO READ: Act now to absorb impact of Trump tariffs on SA vehicle manufacturing sector – BLSA Recovery in demand The index shows that the supplier deliveries increased by 1.4 points to 56.4 in July on the back of the strong uptick in new orders, which typically leads to longer delivery times and some delays. 'Despite the strong recovery in demand, which filtered through into an uptick in production, the employment index declined by 6 points in July, reaching 43.7, reversing the gains made in June and returning to levels seen earlier in the year. 'The weak employment level may be due to the slow recovery in activity, which, despite ticking up, remains in contractionary territory, signalling that manufacturers may wait to see a stronger recovery in demand before increasing employment.' Growing cost pressures BER added that the purchasing price index increased by 1.2 points in July, signalling growing cost pressures as the cost of some input materials increased. 'Crude oil prices increased fuel prices in the country, with petrol and diesel prices rising by 52 to 84 cents a litre, depending on the grade. The positive news is that, despite the uptick in the index, the current levels remain the second-lowest in over eight years.' The index tracking expected business conditions in six months' time declined from 62.5 points in June to 56.4 in July. 'Although still above the 50-neutral level, the direction of the index suggests that manufacturers are faced with an increasingly volatile and challenging trading environment on both the global and domestic front.' NOW READ: Sectors showing growth in job opportunities in SA
