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Why growth prospects for SMMEs look promising despite VAT whiplash and trade war chatter

Why growth prospects for SMMEs look promising despite VAT whiplash and trade war chatter
Kara le Roux
By Kara le Roux
7 May 2025
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By the end of April, small businesses across South Africa were bracing for the knock-on effects of a VAT hike that never came. SMMEs juggling rising costs and shrinking margins faced the policy flip-flop as a costly distraction in an economy that demands constant adaptability.

Finance Minister Enoch Godongwana’s surprise double-VAT hike was announced during his March Budget 2025 address and scrapped just days before its 1 May implementation. 

In a rare show of alignment, opposition parties from the DA to the EFF pushed back on the plan, which proposed two VAT increases over two years. While the political theatre played out in Parliament, entrepreneurs were spending real money preparing for what now amounts to an expensive false start.

But if South African business owners have proved anything, it’s that they’re quick on their feet. With infrastructure gains, renewed tourism and digital growth on the horizon, conditions are seemingly shifting in their favour. 

A global game of tariff roulette


As if local volatility weren’t enough, South African businesses are still holding their breath following US President Donald Trump’s “Liberation Day” speech and his promise to resurrect tariffs that could clobber SA’s citrus and automotive sectors.

Read more: US tariff uncertainty casts shadow over South Africa’s citrus lifeline

“For smaller businesses in the export chain, this uncertainty might prompt a focus on building cash reserves, more flexible supplier arrangements and conversations with foreign buyers to prepare for all eventualities,” said Miguel da Silva, group executive for business banking at TymeBank. 

Da Silva is, however, quick to remind that turbulence also opens new doors: “Opportunities will also present themselves as the rest of the world looks for better deals elsewhere.”

A shift in sentiment and strategy


In the face of all the uncertainty, something curious is happening: business confidence is creeping up. 

The South African Chamber of Commerce and Industry’s Business Confidence Index hit 125.8 in February — a multiyear high. Tourist arrivals were also up 7.4% in March compared with February 2025. 

Read more: After the Bell: The critical reasons why South Africa is good at tourism

“Overseas visits increased from France, the Netherlands, Australia and Russia by nearly a third. The steady resurgence is a lifeline for SMEs in an industry still recovering from the Covid shock,” said Da Silva. 

This economic boost is not lost on the country’s risk-watchers.

Garth Rossiter, chief risk officer at Lula, a lender that specialises in SME funding solutions, said: “Beneath the noise, the truth is this: South Africa’s conditions for small business growth in 2025 are stronger than they’ve been in years. 

“We’ve raised concerns about political volatility, power insecurity and infrastructure decay,” Rossiter added, “but in an age dominated by attention-grabbing headlines and short-term pessimism, it’s equally important, if not more so, to spotlight the real progress being made.” 

Spaza support finally formalised


Amid VAT whiplash and trade war chatter, a quieter development offers a glimmer of structure to smaller businesses in the country. 

The Department of Trade, Industry and Competition, together with the Department of Small Business Development, rolled out the R500-million Spaza Support Fund on 8 April. 

Read more: Chaos as large crowd swamps launch of government’s R500m support fund for spaza shops

“[This] means that individual spaza shops will get up to R50,000 through a combination of training support and a blended loan, and the latter that the SSSF [Spaza Shop Support Fund] will facilitate a group-buying system, helping shops to access bulk markets,” said Da Silva, adding that it is an opportunity for spaza shop owners who are feeling pressure from retail chains.

Resilience forged in adversity


If South African SMMEs have developed a superpower, it would be resilience. Rossiter calls them “battle-tested”. 

Unlike firms in developed markets, they’ve survived the pandemic with no government bailouts. Now, they’re digital, agile and more resourceful than ever. 

“The digital economy – expected to reach 20% of GDP in 2025 – is fuelling rapid expansion in fintech, e-commerce and agri-tech,” said Rossiter. “This strategic resilience is now a core competitive advantage.” 

And, for once, power cuts aren’t the national conversation. In its Winter 2025 outlook, Eskom stated that no load shedding is expected if unplanned outages remain below 13GW. 

Read more: Eskom bets on 13 GW ceiling to deliver a load shedding‑free winter

While not completely eliminated, load shedding is no longer a daily inevitability and the rollout of renewable energy is creating even more opportunities. 

“Rolling blackouts occur regularly in the USA too, from California to New York, so it’s important to bear in mind that the grass isn’t always greener across the pond,” Rossiter explained. “Deregulated generation and grid reform are transforming power from a constraint to an opportunity for growth.” 

Infrastructure gets its groove back

Ports, rail and road upgrades are all beginning to show movement. “These logistics improvements will also lower costs and improve market access for SMEs across manufacturing, agriculture and retail,” said Rossiter. 

Read more: Building on optimism — big infrastructure projects return to SA in water, housing, energy sectors

Meanwhile, the weak rand is a blessing for exporters, tourism operators and remote service providers, Rossiter believes. “SMEs offering goods or services to international markets – from boutique wine to app development – are capitalising on foreign currency inflows while keeping operating costs in rands,” he explained. 

The rate debate continues


Despite easing inflation, the South African Reserve Bank remains cagey on interest rates. 

“The bank’s Monetary Policy Committee has made it clear that [it is] not only watching local inflation but also keeping a close eye on global events, even hinting at possible rate hikes if global uncertainty increases and impacts the rand further,” Da Silva noted.

His view is that growth problems are structural, not cyclical, and unless something gives in the economy’s fundamentals, aggressive rate cuts may do little to boost economic growth. 

“SMEs should prepare for a cautious approach from the Reserve Bank in the coming months,” Da Silva said, “with the possibility of fewer rate cuts than initially hoped for in 2025.” DM


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