2024 ended with a glimmer of optimism for South Africa's economy, however, small and medium enterprises (SMEs) the backbone of the nation need to be prepared for a number of factors including: potential shifts in the economic landscape, the ceaseless rise of artificial intelligence (AI), as well as cybersecurity threats.
This is according to Miguel da Silva, Group Executive of Business Banking, Tymebank.
SMEs need to prepare themselves for unforeseen events which can have an impact on the economy such as local and global issues; supply chain disruptions; and currency fluctuations.
Meanwhile, government and business are hoping for a 3.3% growth rate by the end of 2025, a stretch goal compared to the South African Reserve Bank’s (Sarb) 1.5% and the International Monetary Fund’s (IMF) 1.2% forecasts.
With all of this as context, here are key areas that SMEs need to prioritise as we kick off 2025.
Artificial Intelligence: friend or foe?
Technology will continue to reshape the SME landscape, offering both opportunities and challenges, according to da Silva.
"2022/23 accelerated the use of AI dramatically. The first LLM (Large Language Model), ChatGPT, arrived with such force it acquired one million users in five days. Looking at its positives, AI can be a powerful tool, streamlining processes, analysing data, and personalising customer experiences, all of which can give SMEs a significant competitive advantage," da Silva said.
"However, challenges like cost, knowledge gaps, and difficulty measuring ROI exist, aside from the ethical, social and technical challenges associated with Gen AI."
Due to the rise in AI applications, it is easy to:
- become overwhelmed by choice
- stagnate during the implementation phase
For many SMEs, the real challenge that AI presents is in bridging the skills gap to effectively choose, adopt and deploy AI solutions. In order to realise its full potential, there needs to be a skills evolution that has increased focus on AI literacy.
South Africa has an effective AI Policy Framework that is designed to outline strategic principles to guide AI adoption in the country, including among SMEs, according to da Silva.
Cybersecurity risks
While SMEs are prime targets for cyberattacks, the truth is that any business that deals with sensitive data must have robust cybersecurity measures in place.
Da Silva said: "While financial limitations may exist for smaller businesses, prioritising cybersecurity is a business imperative."
"Implementing effective risk management is key failing to do so not only threatens your business directly, but also the ecosystem in which it operates."5
Challenge of the online economy
According to da Silva, e-commerce, fintech and digital marketplaces will continue to be significant growth areas for SMEs.
Research released in 2024 by World Wide Worx has noted a 29% growth increase in local online retail from 2022 to 2023 and it is predicted to break the R100 billion mark by 2026. Plus, fulfilment costs are now also cheaper as there are several courier/package delivery options to choose from.
Retailers are expected to be online and provide offline experiences including allowing customers to shop online, collect in-store or to use apps for in-store navigation and deals.
"Small businesses that do not embrace ecommerce will miss out on access to wider national and possibly international markets, reduced operational costs and enhanced customer engagement, not to mention the fact that the consumer has become accustomed to online everything," da Silva said.
"SMEs who are not present will find this a growing problem."
Interest rates and inflation: a balancing act
Interest rate and inflation changes have a different impact on SMEs, according to da Silva.
Smaller businesses have less room for manoeuveur, while medium-sized businesses may handle the challenges better but face scaling and compliance issues.
Inflation decreased from 5.3% at the start of the year to 2.9% in November which is its lowest level since February 2021. The drop in inflation paved the way for the interest rate cuts which saw borrowing costs drop to their lowest level since April 2023.
"The inflation rate is expected to remain below the Sarb's 4.5% midpoint range in 2025, which should see interest rates continue to decrease," da Silva said.
"Economists anticipate a 25-basis point cut when the next interest rate decision is announced by the Sarb on 30 January 2025, which would take the repo rate to 7.50%."
2025 could provide some respite for consumers and businesses alike which could be an opportunity for SMEs to consider investing for growth.
The environment remains uncertain, both locally and internationally, and SMEs need to be prepared for moves in the political and economic landscape that could push them to change to their course.
IOL Business