After starting the year on an optimistic note, South African small and medium enterprises (SMEs) were confronted by a wave of new uncertainties that disrupted planning and dampened confidence.
This is according to the Quarter 1 2025 SME Confidence Index by Business Partners Limited, which reflects a decline in overall sentiment amid fiscal and political volatility.
The postponement of the national budget speech for the first time in South Africa’s democratic history left 57,5% of SMEs surveyed feeling uneasy. Further contributing to this unease was the R75-billion revenue shortfall announced in February, which raised concerns around less government support, slower economic growth, and weaker service delivery. In fact, 34,9% of SMEs selected all three of these concerns when asked how the shortfall could affect them.
David Morobe, executive GM: impact investing at Business Partners Limited, says: “Budget uncertainty creates significant challenges for SMEs, particularly in a fragile macroeconomic environment. The lack of clarity earlier in the year disrupted financial planning, with over half of SMEs (54%) reporting that they had made changes to their accounting systems in anticipation of a VAT increase, only to reverse those changes.”
Compared to Q1 2024, all indicators of confidence declined. Confidence that the South African economy will be conducive to business growth dropped by 4 percentage points year-on-year to 65%, while confidence in business growth over the next 12 months decreased by 3 percentage points to 80%.
SMEs also reported reduced confidence in accessing finance (down 5 percentage points year-on-year to 62 percentage) and in finding appropriately skilled staff (down 6 percentage points year-on-year to 70%).
“This decline in confidence was driven by both global and local factors,” explains Morobe. While we welcome the positive development in the latest economic figures released by Statistics South Africa that the country’s GDP grew by 0,1% in Quarter 1 and 0,8% in Quarter 2, SME sentiments were that rand volatility, shifting international trade dynamics, and delays in national budget clarity all fed into an increasingly unpredictable operating environment.”
A notable 37,5% of SMEs reported being directly impacted by the rand’s volatility in early 2025, while 33,8 percent indicated indirect effects. Much of this instability was driven by global geopolitical shifts, but domestic uncertainty has compounded the effects.
Concerns are also mounting around the impact of tariff changes and protectionist policies from the US. Many SMEs flagged these as growing threats, especially in sectors dependent on exports or globally sourced inputs.
SMEs appear to be placing slightly less importance on key business support mechanisms. Access to finance, while still considered vital, saw a 5-percentage point drop in perceived importance compared to the same quarter last year, now sitting at 82%. Importance placed on access to SME-specific information also dropped to 84% (down 3 percentage points year-on-year), while mentorship and social media tools both saw 3-percentage point declines year-on-year.
Confidence in labour laws being conducive for SME growth remained flat at 59% quarter-on-quarter but is down 3 percentage points compared to Q1 2024. Confidence in government support for SMEs held steady at 47%, though also down 3 percentage points year-on-year.
Confidence that clients will pay on time remained at 70%, but this too is 5 percentage points lower than a year ago. Private sector support showed only a marginal quarter-on-quarter increase (to 57%) but is down 3 percentage points year-on-year.
The top three challenges identified by SMEs remained consistent with previous quarters: Cash flow, followed by economic conditions and funding.
“These persistent issues, combined with the new uncertainties introduced in Q1, show just how critical it is for the country to provide a stable, predictable environment for SMEs,” Morobe emphasises. “The clarity that was eventually provided in the final budget – including the decision not to increase VAT but instead raise fuel levies and increase borrowing – may help ease short-term planning, but the long-term implications remain to be seen.”
With public debt now projected to reach 77,4% of GDP, SMEs are bracing for potential downstream impacts. The fuel levy increase alone will elevate operating costs, squeezing already tight margins.
While SME resilience remains evident, the decline in confidence recorded in Q1 2025 suggests that continued uncertainty could dampen recovery efforts. Restoring business optimism, says Morobe, will require policy consistency and meaningful reform.
“For SMEs to thrive, they need clear signals that both government and the private sector are invested in creating a supportive, predictable business environment,” he concludes.