Challenges and opportunities for SMEs in 2025

The Citizen

2 days ago

2025 may offer more innovative and forward-thinking business owners the chance to transform ongoing challenges into opportunities.
South African Small and Medium enterprises (SMEs) have been negatively affected by political and economic issues of the past months. SMEs play a crucial role in the country's economic growth and job creation.
However, many owners managed to keep their businesses afloat, while some have found opportunities for growth. Before finding these opportunities, entrepreneurs had to devise a proactive plan to address the challenges they encountered over time.
Jeremy Lang, Managing Director at Business Partners Limited, unpacks four challenges that business owners might encounter this year and how to navigate them.
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1. Supply chain disruptions
'The 2024 national general election results were portrayed as a democratic milestone, but they have brought, and continue to bring, uncertainty and fears of political instability. 'Geopolitical conflict also continues to impact supply chains, affecting global sentiment and eroding confidence levels among local SMEs,' said Lang.
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. Load shedding
He added that, despite South Africans enjoying long periods of uninterrupted power supply, the second quarter of 2024 was marked by frequent power outages, with a daily average of 2.5 hours without power.
'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 load shedding reduced GDP growth by between 0.6 and 2% between 2023 and 2024.'
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3. Rising inflation
Lang said 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 risking 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
He said 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.'
Lang said 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.'
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Turning obstacles into opportunities
He believes that 2025 may offer more innovative and forward-thinking business owners the chance to transform some of these ongoing challenges into opportunities.
1. Love local
Lang said that as geopolitical tensions persist globally, businesses are increasingly sourcing materials and products locally. SMEs can capitalise on this shift by integrating into the 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 e-commerce retailers like Shein and Temu.'
These retailers 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 designed to protect local industries and increase revenue.
2. Leverage green tech
He added that the growing demand for sustainable alternatives presents an opportunity for SMEs in the renewable energy sector.
Businesses can adopt renewable energy to reduce costs and minimise operational disruptions in the event of load shedding resurfacing, 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​.
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3. Inflate value
Lang added that 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 address these issues, SMEs may need to conduct research or implement technological solutions, such as artificial intelligence, in their operations to enhance internal processes, resolve customer issues, and reduce production costs.'
According to the 2024 Business Partners Limited SME Confidence Index in the fourth quarter, 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.'
4. Get funding-ready
Lang added that both the challenge and the key to financial resilience during challenging economic times are 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.'
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