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Picture: 123RF
Picture: 123RF

According to the World Bank, the small to medium enterprise (SME) sector is a critical component of a successful economic strategy. SMEs comprise 90% of the business and 50% of employment globally, and can contribute up to 40% of the GDP of an emerging economy.

In SA, there are more than 2-million companies representing 98% of formal business, says the UN Conference on Trade and Development, but continue to struggle with support, a high rate of failure and the fallout of the pandemic. This concerning narrative is echoed by the World Economic Forum, which has highlighted how SMEs are critical to economic growth in Africa but that financing and other factors continue to inhibit growth.

The sector is vulnerable to economic downturns, economic shocks, market volatility and geopolitical uncertainty, and it is still finding its feet after the ripple effects from 2020. As the general election looms in May, it is time for SMEs to prepare for what lies ahead so they can embed resilience and agility and potentially thrive despite disruption and disharmony. 

There are five key issues that will affect the SME sector over the course of the next year:

A low-growth economy and persistently high unemployment

The IMF recently downgraded its growth forecast for SA in 2024 to 1%. The reasoning behind this move was cited as logistical challenges and energy shortages significantly constraining growth. The low-growth economy makes it harder to reduce unemployment or grow tax revenues, so it is no surprise that in this environment business confidence indicators are declining. This is reflected in the RMB’s Bureau for Economic Research business confidence index falling to 31 points in the fourth quarter of 2023, down from 33 points in the third quarter of the same year.

The national election and geopolitical conflict

The general election in SA will probably cause disruption, and this is going to have a knock-on effect on the SME sector, which is traditionally vulnerable to the risks of social unrest, looting and violence. This will be compounded by the ongoing geopolitical conflict in the Ukraine and Middle East as the unrest in these regions is affecting global supply chains alongside global sentiment. The latter has an effect on business confidence levels, which affects SMEs. Local SMEs need to remain aware of the potential effect of these risks on their companies and build flexibility into their risk mitigation strategies.

Risks can be opportunities for SA SMEs

The energy, water and logistics challenges affecting the country are ongoing, alongside the continued erosion of municipal services and critical infrastructure that pose a risk for SMEs. However, these are also an opportunity for the private sector to step in and provide these services and “state-proof” infrastructure. In the solar sector, for example, there is the opportunity for solar installers and the creation of a supply chain reliant on green technologies.

Sustainability will gain traction across business and supply chains.

Organisations are under pressure to incorporate sustainability into their business practices and adhere to regulatory requirements and good governance. In SA, entrepreneurs have a strong social conscience, which is seeing an uptick in initiatives and solutions that have a positive social impact. This is reflected in the evolution of the supply chain — geopolitical tensions alongside local port and logistics constraints mean many businesses are keen to bring their supply chains closer to home. For SMEs, this is an opportunity to become part of the supply chain for the larger enterprise and potentially benefit from the African Continental Free Trade Area (AfCFTA), which has opened up the potential for increased intra-African trade. 

Technology and skills development

While technology and skills are inherently connected, both are critical trends shaping the SME landscape today. Technology innovations and emergent solutions offer SMEs the ability to gain a competitive advantage on both the local and international stages. This is also reflected in the shift from corporate to SMEs by skilled South Africans. They are taking their entrepreneurial spirits and their smart skill sets into fresh ventures that are leveraging technology and their expertise. However, less educated entrepreneurs have a harder time succeeding and need more support and mentorship to ensure they thrive.

It is key that SMEs focus on becoming more resilient to ensure their sustainability and survival. Every small business needs to leverage its size, skill sets and abilities to pivot and adapt, staying ahead of the enterprise behemoth and ongoing uncertainty. While it is easy to get stuck in the negativity, this environment is rich with opportunities for those SMEs that are ready and willing to take a chance.

• Wijnberg is CEO of business growth agency Fetola. 

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