South Africa’s small business landscape

South Africa’s small business sector continues to demonstrate remarkable resilience in the face of economic uncertainty, rising operational costs and ongoing structural constraints.

The latest Small Business Growth Index (SBGI) – a national initiative by the Absa Group, the South African Chamber of Commerce and Industry (SACCI) and the Bureau of Market Research (BMR) at the University of South Africa – provides a real-time pulse check on the health, confidence and future prospects of small enterprises across all nine provinces during the second half of the year 2025.

The H2 FY2025 SBGI report, based on responses from 2 134 MSMEs, places South Africa’s composite small business confidence score at 51.5 points. This rating falls within the “vulnerable” band of the index, indicating fragile stability and modest improvement from H1. While the sector is slowly regaining momentum, many enterprises remain under pressure as they navigate a challenging operating environment.

Business performance: rising optimism despite tough conditions

The current business performance remains mixed where in H2:

• 41.9% of SMEs reported weak or critical cash flow.
• 24.3% were trading with difficulty.
• 9.4% remained at risk of closure.

Yet, when asked about the year ahead, sentiment shifted notably with:

• 59% anticipating growing strongly or moderately – a substantial jump from the 33% reporting growth in H1.
• Only 12% foresee contraction or closure, down from 20%+ in H1.

This sharp rise in forward-looking confidence is one of the most encouraging insights in the H2 survey results.

Cost pressures remain the sector’s most severe challenge

The cost of doing business increased between H1 and H2 across all cost categories notably:

• Utilities, transport, raw materials, financing costs and wages showed strong upward pressures.
• Transport costs saw the highest reported increases (77%).
• 95% of SMEs are concerned about rising input costs and 92% about energy affordability.

Not surprisingly, 67% plan to increase prices by at least 10% within the next six months, yet many fear this may push customers away or worsen cash flow.

The H2 report highlights that only 38% of SMEs can survive more than 12 months under current cost conditions without support – another indicator of persistent fragility.

Finance conditions: high demand, low confidence

Small businesses continue to struggle with accessing affordable finance:

• 70.5% expect to need additional funding in the next six months.
• Only 29% are confident they will secure it.
• Self-funding remains the dominant source of capital (40%), followed by family and informal networks.

SMEs overwhelmingly prefer grants (65%) and asset finance (30%) as the most desirable future-finance instruments. This aligns with the sector’s need for working capital and growth-enabling tools rather than debt-heavy products.

Digital growth momentum continues

A standout trend in H2 is the growing reliance on digital platforms:

• Online trading grew net +10.3%, the strongest performance displayed by a category across all operational metrics.
• 67% of SMEs plan to expand online sales in the year ahead.

Digital adoption is no longer a supplementary activity – it is fast becoming the primary pathway to new markets, particularly for younger entrepreneurs and micro-enterprises.

Skills gaps constrain market access

The SBGI reveals that many SMEs lack the skills needed to compete in modern markets with:

• 40% to 45% requiring improvement in marketing, technology, digital processes and financial management.
• Cybersecurity and green/sustainable practices are emerging deficits.
• 43% are uncertain about where to access appropriate skills development support.

These gaps limit market access, export readiness and competitiveness – highlighting a major opportunity for targeted public-sector and private-sector training interventions.

Comparing H1 and H2: what has shifted?

What improved from H1 to H2:

• Business outlook improved significantly (from 33% reporting growth to 59% anticipating growth).
• Digital confidence and online trading expanded.
• Slight improvements in provincial and sectoral resilience.

What worsened or remained concerning:

• Cost pressures intensified, especially for transport and electricity.
• Cash-flow weaknesses persist and worsened marginally.
• Access to finance remains largely unchanged, with confidence still low.
• Concern over infrastructure failures (power, water, transport) increased.

Overall, H2 shows a sector that is determined to grow despite mounting pressures, driven by digital expansion and renewed entrepreneurial intent.

A sector at a crossroads – and a call to action

The SBGI findings make one thing clear: South Africa’s small businesses are resilient, but resilience alone is no longer sufficient. The path to sustainable growth requires:

• Lowering cost burdens.
• Improving market access.
• Accelerating digital enablement.
• Expanding blended finance and grant support.
• Strengthening local infrastructure and regulatory efficiency.

The SBGI exists to amplify the real voices of SMEs and to ensure their lived experiences shape policy and industry responses.

As we prepare for FY2026, our collective mission – government, industry, academia and financial institutions – is to convert the optimism revealed in H2 into real opportunities for expansion, innovation and inclusive growth.