SMEs face new opportunities, challenges as key economic events unfold in February

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While plenty of conversations about igniting SME growth happen within government chambers, they often do not make their way into the budget, leaving SMEs to fend for themselves.

Nonetheless, February is still a good time for SMEs to go into planning mode and adjust their own budgets, aided by insight into economic indicators and what our finance minister tables in Parliament.

With that in mind, Miguel da Silva, group executive of business banking at TymeBank, considers key economic events that come into play this Budget month, from hikes in the fuel price, a decrease in the repo rate, and, potentially, a continued lift in consumer spending.

Fuel price hike: A pinch on operations

This month’s dreaded fuel price announcement saw 93 and 95 unleaded petrol increase by 82c/l, 0.005% diesel jumps by R1.01/l, while 0.05% diesel increases by R1.05/l and paraffin spikes following a 97c/l hike. These hikes directly impact SMEs that rely on vehicles for deliveries and logistics, raising operational costs.

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Unfortunately, government intervention options are limited in this scenario. The fuel price is driven by particularly cold winters in the US, UK and EU, the price of Brent Crude, which is in part affected by sanctions in Iran and Russia, and a weakening rand thanks to fewer rate cuts in the US.

SMEs must take this on the chin and, if they haven’t already, put a financial safety net in place to guard against external factors.

SMEs’ hard costs to rise alongside the latest electricity tariff increase

The return of load-shedding after just over 300 days, albeit temporary, was a setback, coming straight after the announcement of the 12,7 % increase in electricity effective 1 April. While far lower than what Eskom wanted (36%), the NERSA-approved hike is still way above inflation and will definitely hurt[1], adding to the cost of doing business in South Africa, which is bad news for the SMME/ SME sector.

It is clear the public outcry that greeted Eskom’s initial request forced the utility to reconsider its stance, with Eskom Chairman Mtetu Nyati saying future increases will be characterised by low electricity tariffs. Time will tell.

Repo rate relief offsets fuel price increases

The drop in the repo rate by 25 basis points to 7.50% announced on 30 January 2025 by the South African Reserve Bank is good news for indebted SMEs.

While further cuts are anticipated in the coming months, according to a Reuters poll of 19 economists, this could change, depending on unforeseen circumstances like the impact of policy amendments in the US.

US Policy and repercussions for South African SMEs

US President Trump’s second presidency has introduced uncertainty for South African exporters to that market, particularly those who have benefitted from preferential treatment under the African Growth and Opportunity Act (AGOA).

Given the rocky state of US-Sa relations exhibited this past week, it is anyone’s guess whether this important agreement, which is set to expire in September 2025, will be renewed. More generally, future policy changes could affect global interest rates and, consequently, South African SMEs' operational costs.

Consumers are spending again

Despite economic fluctuations, consumers made a comeback in late 2024[3], with consumer spending in South Africa increasing to R3,140,788m in the third quarter of 2024, up from R3,125,507m in the second quarter.

The surge in spending is partly attributed to lower interest rates and increased disposable income because of the introduction of the two-pot retirement system. Increased purchases were also driven by a recovery in household incomes, improved political risk and consumer sentiment, all of which is contributing to a more positive consumer outlook for 2025.

According to Nqaba Ndiweni, PwC Africa Consumer, Industrial Products and Services (CIPS) Industry Leader[4], lower inflation, interest rate cuts and rising salaries await South Africans this year, which is good news for the overall economy.

For consumer-facing companies, he says it signals some improvement in customer spending power alongside some positive trends in consumer confidence, after several years of more constrained household budget conditions.

We are not out of the woods yet

“SMEs are in a stronger position now than they have been in years but there is no room for complacency. SMEs need to remain agile while developing contingency plans to weather future economic storms that could be brought about by factors such as geo-political unrest and policy shifts in world markets. The current period of relative stability is the ideal time to implement these safeguards.

“February presents a complex economic landscape for South African SMEs. By understanding the interplay of fuel and electricity prices, interest rates, consumer spending, and potential policy shifts, SMEs can make informed decisions and navigate the coming months strategically. Building financial resilience and adapting to changing circumstances will be key to success in this dynamic environment,” concludes da Silva.