Sometimes, it’s difficult not to feel that in spite of the hope a new year brings, challenges never cease to disappear. Thankfully, with sober-minded planning and an eagle’s eye on trends and risks. So what are the challenges faced by SMEs that need to be conquered in 2025? Let’s see.
Economic Challenge For SMEs
South Africa’s economy has seen both positive and negative effects during 2024. There was some relief on the petrol prices towards the end of the third quarter and even the Rand had positive changes, but soon after it seemed like all hope was lost.
2024’s economic growth is trending towards 2%. 2025 growth is expected to be around 1,5%, although the government is optimistic and expecting more. Furthermore, the previous year saw the country’s sovereign risk premium improve from 327 to 240 basis points. With this, South Africa’s 10-year bond yield dropped to below 10%. This should improve overall sentiment about the country for foreign investors.
News outlets reported that there was a lower uptake in job creation in the last few months of 2024. This will also have an impact on the economic outlook for 2025.
Interest rate and inflation changes affect SMEs differently, says Miguel da Silva, Group Executive of Business Banking at Tymebank. “Smaller businesses have less room for manoeuvre, while medium-sized businesses may handle challenges better but face scaling and compliance issues.”
However, since inflation dropped from 5,3% at the start of the year to 2,9% in November, reaching its lowest level since February 2021, this change ushered in the recent interest rate cuts. A further 25-basis point cut is expected on 30 January 2025, which will finally bring the repo rate back to 7,50%.
Supply Chain Challenges Persist
The supply chain in South Africa has many issues that cause logistical delays. Some of these are import bottlenecks, poor infrastructure with regard to roads and railways.
Furthermore, municipal inefficiencies that fail to keep up with maintenance and service delivery disrupt businesses.
AI and Technology
AI technologies are seeing exponential growth. This is evident in many software and productivity tools integrating AI into their platforms. For example, Co-pilot or Gemini. SMEs can utilise artificial intelligence in the form of automation, and generative tools to increase productivity or even obtain a competitive advantage.
What makes the adoption of this technology difficult is the skills gap relating to effectively using these tools, as well as the high cost of some tools. It’s important to note that AI also needs to be applied ethically. Thankfully, South Africa has an AI Policy Framework that outlines strategic principles to guide AI adoption in the country.
Coupled with technology is the urgent need to ensure that South African businesses are prepared for m-commerce, especially since this number is expected to double to 20% of the digital economy this year.
Businesses can also look forward to relying more on cloud technologies to make operations easier.
Cybersecurity Challenges for SMEs
Any business is vulnerable to cyber attacks, but large corporations might have the financial means to implement additional measures that keep sensitive information safe. With that being said, the smaller the business, the more there is to lose: Because they cannot afford robust cybersecurity, there is a greater risk of cyber attacks succeeding, leading to an increase in cyber fraud and theft of customer data.
Reaching the Informal Economy
According to recent statistics, the informal economy contributes approximately 6-10% of South Africa’s GDP. It is also the sector that can fast-track employment the quickest.
The sector requires funding to achieve its goals, and initiatives such as the Department of Small Business Development’s Informal Micro Enterprises Development Programme deliver grants primarily for equipment expansion. Yet, the complex market requires more than just funding tools.
Cash is still king in the informal market and this adds another angle of complexity. The South African Reserve Bank is working towards a cashless economy by 2035, aiming to transform the country’s payment landscape. However, digital payments are already the most common way of transacting (58% of SMEs use digital transactions).
The challenge here is how entrepreneurs operating in the informal economy can utilise consumer payment innovation and contactless solutions that help their businesses grow and keep customers safe.
The South African entrepreneur is resourceful and innovative. In the face of challenges, it is especially then when solutions are developed that improve the lives of everyone.