The report shows that only one in four businesses is growing, meaning there is significant vulnerability in the sector.
The small and medium enterprise (SME) sector in South Africa is often referred to as the ‘backbone’ of the economy, however, the sector is in danger, as a report reveals that half of the businesses cannot survive the next 12 months in their current situations.
The first Small Business Growth Index (SBGI) by Absa and the South African Chamber of Commerce and Industry (SACCI) released on Friday, showed that urgent support is needed in the sector.
The index is conducted by the Bureau of Market Research (BMR) and shows real-time barometer tracking the conditions shaping small business performance.
SBGI was launched in February 2025, with the idea to monitor sales growth trends, identify emerging business opportunities and employment trends, and measure SME job creation contributions.
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SMEs growth in SA
The report shows that only one in four businesses is growing, meaning there is significant vulnerability in the sector.
The findings of the report are based on a survey of more than 1 600 small businesses across all nine provinces. Ronnie Mbatsane, managing executive for SME Business at Absa Business Banking, said these are businesses with 50 or fewer employees.
It draws on a range of indicators — including current performance, operating conditions, cost pressures, cash flow, debt levels, investment intentions, growth expectations and perceived skills gaps.
SMEs in a vulnerable zone
Professor Paul Kibuuka, head of the Economic Research division at the BMR, said the country’s SMEs are in a vulnerable zone, as they are caught between recovery efforts and rising operational costs.
52.8% of the survey’s respondents said they are trading with difficulty or at risk of closure.
The report reveals that in the past six months, SMEs have experienced significant cost inflation across all major categories. Transport and fuel costs saw the steepest increases.
Utilities (electricity, water) and raw materials/stock costs also rose sharply. Borrowing costs, rental, wages and taxes have all increased for most firms, compounding the strain on margins.
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Current business challenges
“SMEs play a pivotal role in South Africa’s economy, contributing to employment, innovation and inclusive growth. However, these businesses continue to face a host of challenges exacerbated by recent economic disruptions, infrastructural deficiencies, and regulatory burdens,” reads the report.
One of the greatest challenges is inadequate capital. Lack of capital emerges as the most significant obstacle, limiting SMEs’ ability to scale, invest in equipment or respond to market demands.
The second is increased competition. “Businesses report growing pressure from both formal and informal competitors, including larger firms with greater resources and political connections.”
The greatest challenge remains limited access to finance. “Despite the existence of loan schemes and support initiatives, many SMEs remain excluded due to eligibility barriers, bureaucratic processes or limited institutional support.”
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