SME Trends in South Africa 2025

This report on small and medium enterprise (SME) trends includes information on size estimates and the state of the industry in terms of growth and challenges. Key trends that are analysed include job creation, government support, red tape, failure rates, entrepreneurship levels, access to finance, enterprise and supplier development and the township and informal economy. Other significant trends discussed include franchising, female entrepreneurship, digital transformation, tech startups and competition. 

Introduction

• The government and experts have long held that supporting SMEs is key to reducing unemployment.
• In 2023, formal small businesses accounted for 33% of employment, and informal businesses a further 17%.
• However, the overall contribution of SMEs to job creation and value-add is low compared to many other developing economies.
• The sector has largely failed to create many jobs due to the country’s low rate of entrepreneurship, poor SME survival rates, red tape and government inefficiency, difficulties accessing finance and a concentrated economy.
• Nevertheless, digital transformation, digital finance, the emergence of tech startups and support for high-growth businesses provide an opportunity to grow the SME sector.

Trends

• Banks’ share of total credit to SMEs has declined in recent years.
• Digitalisation of financial services.
• Increase in the share of formal small businesses owned by black people.
• Increased focus by government and big businesses on assisting township and rural based businesses.
• Industry Recent job losses and a decline in turnover in the SME sector.
• Slow improvement in government paying suppliers on time.
• South Africa is falling behind other African countries in venture capital funding.
• The emergence of tech startups.
• The number of franchises has declined in recent years, but the share of black franchisees has increased.

Opportunities

• Better monitoring of state SME programmes.
• Business support programmes that back high-growth SMEs.
• Credit bureau information that keeps better track of SMEs.
• Credit guarantee lending can be improved.
• Fintech and non-bank lending to SMEs.
• Getting the state to pay SMEs on time.
• Increase in VC funding.
• Increasing procurement to SMEs through an e-procurement portal or set-asides.
• More effective enterprise and supplier development programmes.
• Offering digital services to SMEs.
• State-funded programmes aimed at entrepreneurs in townships and rural areas.
• The promotion of franchising as a secure route to business ownership.

Challenges

• Access to finance, while a low share of bank credit goes to SMEs.
• Compared to other emerging markets, very few people own or run a business.
• Government inefficiency.
• The government often fails to pay suppliers within 30 days.
• Highly concentrated economy makes it difficult for SMEs to compete.
• It’s unclear how successful ESD programmes have been.
• It’s unclear how successful township programmes have been.
• Lack of monitoring by the government of SME programmes.
• Red tape affects SMEs.
• SMEs have struggled to create jobs.
• Tax incentives have not assisted SMEs as intended.
• The economic slowdown.
• Uncertainty over whether set-asides for SMEs are appropriate given the cost to taxpayers.

Outlook

• South Africa’s SME sector has struggled to create the jobs that the country badly needs, partly due to the many challenges that the sector faces and the poor economy.
• The outlook for SMEs is mixed.
• The increase in tech startups and growth in venture capital funding for these startups bodes well for future growth.
• There has been an increase in the share of formal small businesses owned by black people.
• Banks’ share of total credit to SMEs has declined in recent years, while South Africa is falling behind other African countries in VC funding.
• Experts say that without significant reform, it is unclear whether the sector will experience substantial growth.
• A key question is whether SME support should be focused on high-growth SMEs that create the highest number of jobs and turnover, or on the thousands of microenterprises that struggle to survive but create very few jobs.