2024 is ending the year better than it began, with improved consumer and business sentiment largely attributed to the election outcome, a suspension of loadshedding for over eight months and a significant drop in inflation.
In October South Africa’s annual inflation slowed to 2,8%, with policymakers forecasting it will remain below 4% over the next three quarters (economists anticipate interest rates to drop by between 75 and 100 basis points in 2025).
This is all good news for SMEs who, despite a challenging year, are upbeat about what lies ahead; according to a recent Sage survey, 78% of SMEs report a high level of confidence and optimism about their future success.
Against this backdrop, Miguel da Silva, group executive of business banking at TymeBank, outlines what SMEs need to factor in as they head towards what is hopefully a new economic dawn in 2025.
Optimism abounds but consumers remain under pressure
There is a lot of evidence that clearly shows consumers continue to be under pressure and are struggling to service their debt. Even with the drop interest rates, consumers are anticipated to spend far less this silly season. Many will forgo getaways – or shorten them – and lavish seasonal festivities, instead using any income they receive to survive through the six-week holiday period.
This automatically impacts SMEs and seasonal traders. Take Black Friday, which SMEs typically see as the preface for the festive season and an opportunity to make significant turnover. Just looking at TymeBank’s customer data compared to last year, Black Friday’s performance was down across the board. Consumers shopped less and spent less with the spend per account dropping by 19.08%.
Faced with lower demand from customers who are cutting back on spending, this is the time for business owners to:
- Review costs. Whether it’s reducing your energy consumption or using technology to automate more processes, identifying where you can cut back will be vital as we await a lift in consumer optimism.
- Repay loyalty. Offering discounts or incentives to loyal customers during this festive season can help increase your income.
- Plan ahead. Being informed and anticipating potential risks and opportunities from the changing economic landscape will allow you to better adapt and thrive in your sector.
Funding applications get the nod – if the ducks are in a row
Despite the credit crunch among consumers and their inability to splurge this year, lower interest rates and lower inflation, and the optimism in the market overall has meant there is a silver lining this festive season, with SME funders more willing to finance entrepreneurs than they have been.
The irony is that only one in five SMEs secure the funding they need, often because they do not know how to access it. I particularly agree with Luncedo Mtwentwe, CEO of Vantage Advisory, who highlights that while there is plenty of funding available, SMEs must have a viable proposition that shows growth, scalability, and turnover increases. Presenting a good idea is one thing but having a minimum viable product (MVP) and proof points that show their concept works, is key.
With January and February being traditionally hard for SMEs and cost pressures affecting profit margins, SMEs should get their ducks in a row and give financers what they need to gain access to funding.
Trump’s tariffs
This one could hurt. The outcome of the US President-Elect’s decision around tariffs and agreements like the African Growth and Opportunity Act (AGOA) – which supports African nations’ access (South Africa included) to US markets and is set to expire in September 2025 – will have an impact on South African exporters.
Professor Andre Roux, an economist and futurist at the Stellenbosch Business School, says that with Trump’s preference for a protectionist trade policy, there are myriad warnings of collateral impacts on South Africa. For example, the shift might lead to a resurgence of USA domestic manufacturing, potentially reducing demand for some African exports, including SA.
SMEs currently selling to the US may need to look domestically or at other markets. The African Continental Free Trade Area (AfCTA), for example, is expected to open up a market of 1.3 billion people, providing good growth opportunities for SMEs.
Conclusion
While we’ve seen some green shoots, we are not out of the woods yet. SMEs will continue to feel the impact of consumers under pressure as well as a shift in trade relations. Prudence is required, even if the economy is looking slightly rosier. I’ve said it before, and I’ll say it again: optimism needs to be tempered with caution.
We are living in extraordinary times. 2025 will be no different. The message for SMEs is to be resilient, adaptable, embrace innovation and prioritise the customer experience. South Africa is rooting for you.