Tawanda Korombo | March 16, 2025
Small to medium-sized businesses play a pivotal role in South Africa's economy, but they may have been forgotten when Finance Minister Enok Godonwana gave a speech on the 2025 budget this week.
Shawn Theunissen, founder of Property Point and ETTP, said the 2025 budget statement “we missed the opportunity to utilize SME as a catalyst for economic growth and employment.”
“Instead of bold actions, we saw vague commitment and a lack of urgency for issues that are most important to small businesses,” he said.
The proposed 0.5% VAT increase on 2025/26 was expected to add an additional direct financial burden to SMEs, as a further 0.5% increase the following year. Increased VAT rates will increase operational costs for small businesses and further narrow down profit margins when consumer spending is already weak.
Worse, Garth Rossiter, chief risk officer for LULA's Small Business Service Provider, said during the Finance Minister's budget speech, “There was no mention of SMEs or SMEs.” This was despite the importance of small businesses within the economy, as small business owners constitute the country's largest employer segment.
“They are forced to cut jobs to keep their doors open while public sector wages increase, which makes it difficult for them to lose their stomachs, especially deaf,” says Rossiter.
No formal tax increases have been announced, but adjustments to the tax range for inflation mean that individuals will pay more.
Rossiter said South Africa's economic environment continues to pose major challenges for small and medium-sized businesses, highlighting the surge in liquidation of small and medium-sized businesses last year.
“Faced with the end of last year, liquidation has jumped very significantly. Rossiter explains:
SMEs have dropped more than 50% over the past 12 months as they have been marked by stagnant growth, high interest rates and increasing financial pressures over the past year.
“The past year has been one of the survival for many South African small businesses. The economic stagnation, high interest rates and reduced consumer spending have created a relentless business environment. However, resilience and strategic financial management allow small businesses to position themselves for recovery and future success,” says Rossiter.
However, the budget statement had some positives for small businesses. The increased spending on infrastructure was a petition as the SME sector contributes to the ability of job creation and South Africa to create employment opportunities.
Others were hoping for the R100 billion transformation fund and R20 billion SME funding initiative, which were promoted to be quickly tracked over the past few months, but there was no clarity from the Treasury about the timeline and accessibility of these funds.
Similarly, Theunissen, the Public Procurement Act (2024), which requires 40% of state contracts to be awarded to small businesses, has been largely addressed. This raises concerns that small and medium-sized businesses will continue to be excluded from government procurement opportunities, with large companies controlling the bidding process and corruption.
“Government procurement must be a growth driver for small and medium-sized businesses, but without the strict enforcement of clear implementation measures and payment timelines, it remains a broken system,” Theunissen said.
Despite past promises to implement 30-day payment rules, delays in government payments to small businesses remain a major challenge. This issue has been repeatedly raised in previous budgets, but many small businesses continue to experience long payment wait times, leading to serious cash flow constraints.
New white paper released by Lila this week, title SMEs Survival in the Severe Economic Situation: Condition of SMEs in South Africa in 2025says these companies are being tackled by small and medium-sized businesses that are working on the high borrowing costs caused by rising interest rates in early 2024, and are facing a sustained credit bundle.
Despite the South African Reserve Bank (SARB) starting interest rate cuts later in the year, relief is too late for many companies already in debt, the paper shows.
High levels of gearing make small and medium-sized businesses vulnerable to interest rate fluctuations and are forced to pay premiums on loans taken to cover stocks, materials or operating expenses. This financial burden has been exacerbated by a low expansion environment, further eroding margins as companies cut prices and write off debts.
The white paper also flags the daily nasty increase in debtors. It is now at its highest since the quarter 2022, showing delayed cash flows that curb the ability of SMEs to reinvest in growth and innovation. Unlike larger companies with leverage to implement faster payments, small businesses lack the influence to promote collections, making them volatile double-binding.
The report also states that small businesses have a unique economic cycle that tends to lag behind consumer recovery. It is dynamically exacerbated by the long-term financial stress of 2024. Although SARB rate reductions provide a faint light of hope, the depth and speed of these reductions determine the economic stability that SMES still repeats from structural challenges.
Looking ahead, the paper states that the establishment of a national unified government after last year's election will strengthen investors' sentiment, and planned infrastructure investments can unlock sector opportunities such as construction and manufacturing.
However, the uncertainty reflected in the 2025 branched GDP growth forecast is looming. IMF Project 1.5%, Investec looks at about 2.0%, and PWC offers a range of 0.5% to 1.3%.
This refers to gradual growth, a potential lifeline for small and medium-sized businesses. However, the path to recovery depends on deeper rate reductions, maintaining retention policy support to facilitate credit squeezes and restore confidence in cash flow, the white paper says.
“Disclaimer – the views and opinions expressed in this article are the views of the author and are not necessarily those of the Bee Room.”
