Unlocking a new era for growth and innovation
By Janice Johnston
In South Africa, small and medium enterprises (SMEs) comprise 91% of formalised businesses, provide approximately 60% of employment and contribute as much as 34% to the GDP.
Their success is critical to the nation's economic growth, particularly regarding job creation and reduced inequality.
As we enter 2025, several critical trends are expected to influence the trajectory of South African SMEs, which are positioned to play an increasingly pivotal role in driving economic growth and development in the years ahead.
These trends are influenced by global shifts, technological advancements, and local socio-economic conditions.
For SMEs to thrive in this rapidly evolving landscape, they must adapt to challenges and importantly, essential stakeholders must commit to providing them with an enabling environment.
Digital Transformation and E-commerce Expansion
One significant trend expected in 2025 is the continued shift towards digital transformation. The COVID-19 pandemic accelerated the adoption of digital tools and e-commerce platforms, and this trend is anticipated to deepen.
SMEs will increasingly rely on technology to streamline operations, enhance customer engagement, and expand their market reach, supported by the decreasing cost of such technology.
Digital marketing strategies, including social media advertising and influencer marketing, will be essential for building brand awareness and engaging customers in a competitive market.
Increased Use of Artificial Intelligence (AI) and Automation
AI offers powerful tools and capabilities for small and medium businesses. In 2025, South African SMEs will need to adopt AI-driven tools to optimise operations, reduce costs, and make more data-driven decisions.
Automating repetitive tasks can save time and improve productivity, allowing SMEs to focus on strategic activities.
AI tools can also help SMEs understand customer behaviour for more personalised marketing.
As the cost of AI and automation technologies decreases, these tools will become more accessible to smaller businesses, providing a competitive edge in the marketplace.
Sustainability and Green Business Practices
Adopting sustainable practices not only benefits the environment but also enhances business performance, builds reputation, and drives long-term growth.
This year, South African SMEs will need to align their operations with sustainable practices to reduce their environmental impact.
More businesses will focus on adopting green technologies, conserving resources, and reducing waste to remain relevant in an increasingly environmentally conscious market.
Sustainable practices may include energy-efficient technologies, sustainable sourcing and packaging, as well as practices like precision farming and water conservation in agriculture.
Green business practices can open up new opportunities for SMEs by attracting sustainability-conscious consumers and accessing financial incentives.
Access to Funding through Alternative Financing Models
Traditional financing channels have often been a significant barrier for SMEs in South Africa given the constraints of banks and traditional financial institutions to extend credit to small businesses due to perceived risks, lack of collateral, and limited financial history. In 2025, alternative financing models are expected to play an even more significant role in providing SMEs with fit-for-purpose capital.
Blended finance arrangements, venture capital, growing seed and Enterprise and Supplier Development funds, as well as innovative alternative lending platforms, will continue to gain traction.
Additionally, there is growing appetite from government and Development Finance Institutions (DFIs) to increase support for SMEs through targeted funding programmes. The rise of fintech companies in South Africa will also provide SMEs with access to digital financial products such as purchase order and invoice financing, merchant cash advances, and working capital loans.
In 2025, South African SMEs will hopefully see increased collaboration between the private sector, government, and financial institutions to foster an ecosystem of funding and investment. Such collaborations will enable more businesses, especially in underserved sectors, such as the township economy and youth and black women-owned businesses, to access growth capital.
Collaboration and Networking Opportunities
This trend toward collaboration is well positioned to assist small businesses to increasingly partner with larger corporations, government agencies, and other SMEs to leverage resources, share knowledge, and enter new markets.
Through strategic partnerships, SMEs can enhance their innovation capacity, gain credibility, and access new business opportunities.
Business incubation and acceleration programmes, as well as networking initiatives, will become more important, providing SMEs with mentorship, business development support, and access to capital.
These platforms provide the opportunity to facilitate collaboration, knowledge-sharing, and joint ventures, empowering SMEs to scale faster and more effectively.
Notwithstanding the protracted challenging economic and social environment, South African SMEs are entering a potentially exciting and transformative phase as they adapt to new technological advancements, shifting consumer preferences, and evolving market dynamics.
The trends for SMEs in 2025—digital transformation, AI adoption, sustainability, alternative financing, and collaboration— are tailwinds for growth, innovation, and impact. By embracing these trends, SMEs can build resilient, sustainable businesses that contribute significantly to South Africa’s economic prosperity.
Janice Johnston is the CEO of Edge Growth Ventures.
BUSINESS REPORT