Challenges and opportunities for SMEs for the year ahead

IOL News

2 days ago

A crucial factor in the success of many of these businesses was having a proactive plan to address the challenges they encountered.
Image: Pexels
South African small and medium enterprises (SMEs) have had a tumultuous few years, affected by a broad spectrum of political and economic issues.
Despite these challenges, many business owners managed to keep their businesses afloat, and some have even found opportunities for growth and development.
A crucial factor in the success of many of these businesses was having a proactive plan to address the challenges they encountered.
This was according to Jeremy Lang, Managing Director at Business Partners Limited, who unpacks the four major challenges SMEs continue to face and must find ways to navigate this year: Supply chain disruptions
The 2024 national general election results were painted as a democratic milestone but brought, and continue to bring, uncertainty and fears of political instability. Geopolitical conflict also continues to affect supply chains, impacting global sentiment and lowering confidence levels among local SMEs.
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According to the PwC 2023 Global Risk Survey, supply chain disruptions were identified as the primary external contributor to company risk, a trend that persisted in 2024. The backlog at the Port of Durban, a key logistics hub, serves as a notable example of the significant delays affecting local rail and port operations.
The recent increase in tariffs on South African exports to the United States will affect many South African SMEs in that value chain.
2. Loadshedding
While South Africa has enjoyed a prolonged period of (mostly) uninterrupted power supply, power outages were an ongoing issue up until the second quarter of 2024 with a daily average of 2.5 hours without power.
Major retailers like Shoprite reportedly spent a monthly R100 million on diesel when the country was experiencing Stage 6 load shedding.
With recent, sporadic blackouts being implemented by Eskom in quarter one of 2025, there are concerns that the ability to meet the energy demand is still very much in doubt.
Persistent rolling blackouts last year contributed to a reduced growth forecast by the International Monetary Fund (IMF).
The South African Reserve Bank estimated that loadshedding reduced GDP growth by between 0.6 and 2% between 2023 and 2024.
3. Rising inflation
Rising food and fuel prices, coupled with a weakening rand and increased debt-servicing costs, pushed inflation to a high of 5.6% in February 2024.
These conditions, combined with a prime lending rate of 11.75%, meant rising operational costs and reduced profitability.
Many SMEs had to choose between passing on price hikes to customers and risk losing market share or absorbing increased costs and eradicating profit margins.
Although the interest rate is currently on a decline, it will still take a while until it is at pre-Covid-19 levels.
4. Limited access to funding
Only one in five SMEs manages to secure the financial support they need to grow their businesses.
In South Africa, 87% of small businesses have never accessed credit due to traditional lending practices like reliance on collateral and rigid credit scoring systems creating financial exclusion.
This exclusion is particularly pronounced among small and early-stage enterprises which make up the 'missing middle' of SMEs and don't fit traditional financiers' one-size-fits-all requirements.
The truth is that funding is available, SMEs need to demonstrate that they are well-managed businesses with growth potential.
SMEs must approach funders aligned to their funding needs.
Funders want to invest in operations that show viability, scalability and a good return on investment for both the SME and the financier.
5. Turning obstacles into opportunities
Lang believes that 2025 may offer more innovative and forward-thinking business owners the chance to transform some of these ongoing challenges into opportunities. Love local
As geopolitical tensions persist across the globe, businesses are increasingly sourcing materials and products locally. SMEs can capitalise on this shift by integrating into local supply chains of larger corporations.
The South African Revenue Service (SARS) also strengthened this incentive by placing a 15% VAT as of 1 September 2024 in addition to its existing flat 20% customs rate on imports from foreign ecommerce retailers like Shein and Temu that have reportedly exploited tax loopholes and the de minimis tax rule, which used to allow small online purchases under R500 to be taxed only at a flat 20% customs duty, without VAT.
This initiative is aimed at protecting local industries and improving revenue. Leverage green tech
The growing demand for sustainable alternatives presents an opportunity for SMEs in the renewable energy sector.
Businesses can adopt renewable energy to cut costs and reduce operational disruptions should load shedding resurface, as well as provide affordable and reliable solar solutions, battery storage systems, or energy-efficient appliances.
Either of these approaches would make an operation attractive to green-conscious customers and investors. Inflate value
When costs go up, customers tend to seek out products and services that are cost-effective.
SMEs can capture market share by addressing inflation-driven concerns and providing high-quality, affordable solutions to their customers.
To tackle these issues, SMEs may need to conduct research or even implement technological solutions such as artificial intelligence in their operations to improve internal processes, resolve customer problems, and reduce production costs.
According to the Q4 2024 Business Partners Limited SME Confidence Index, when asked if their businesses had ever collaborated with other small businesses to cross-sell each other's products or services, 42.56% of SMEs responded that they had not, while 37.57% indicated that they had successfully collaborated.
Partnering with other SMEs is another effective way to provide value for customers. Get funding-ready
Both the challenge and the key to financial resilience during challenging economic times is gaining and maintaining access to capital.
Funding enables SMEs to overcome the impact of inflation, load shedding, and supply chain disruptions; and to invest in alternative energy solutions.
It supports cash flow which in turn allows entrepreneurs to invest in initiatives that help them to manage rising costs and maintain competitive pricing strategies.
'By embracing innovation, addressing operational challenges head-on, and securing the necessary funding, South African SMEs can build resilience and position themselves for sustainable growth,' says Lang. 'With the right strategies, these businesses can not only overcome current hurdles they are facing this year, but also unlock new opportunities to thrive in an ever evolving economic landscape,' he said.