South African SMEs entered 2025 with an encouraging sense of optimism, according to the Q4 2024 SME Confidence Index released in March. But would that optimism last? Business Partners, a loan provider for small to medium businesses, asked – and six months later, the Q1 2025 Index has answered: no.
The latest Index by Business Partners reflects a dip in sentiment amid fiscal and political volatility. South Africa’s postponement of the national Budget left 57.5% of SMEs uneasy.
Read: Budget deadlock ends as National Assembly approves Appropriation Bill
February’s R75-billion revenue shortfall only added to the worry, sparking concerns over reduced government support, slower economic growth, and weaker service delivery. In fact, 34.9% of SMEs cited all three as potential impacts.
Read: Tight-lipped Treasury braces for tough Budget to plug R75bn shortfall
David Morobe (pictured), executive general manager: impact investing at Business Partners, says: “Budget uncertainty creates significant challenges for SMEs, particularly in a fragile macro-economic 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.”
Business sentiment drops year-on-year
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%) 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% indicated indirect effects.
According to the Index, 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 United States. Many SMEs flagged these as growing threats, particularly in sectors dependent on exports or globally sourced inputs.
Key support mechanisms losing ground
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 with the same quarter last year, now 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 stakeholder support stable, but low
Confidence in labour laws being conducive for SME growth remained flat at 59% quarter-on-quarter but is down 3 percentage points compared with Q1 2024.
Confidence in government support for SMEs held steady at 47%, although 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.
SME challenges persist
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 says.
“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.
Although 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 says.
