SME's in South Africa Showing Green Shoots

With Global markets in disarray and US tariff’s likely to hinder current GDP growth in South Africa further, there remains a stubborn optimism among businesses despite ongoing headwinds.

Recently released retail and motor vehicle sales data from Stats SA underpins this perspective showing that the auto industry managed a 3,1% growth in June 2025 while retail trade sales increased by 1,6% year-on-year in June 2025. Retail trade sales for the second quarter of 2025 increased by 3,7%, compared with the second quarter of 2024.

While other sectors such as construction are still battling, these green shoots show that there is some resilience remaining in the economy despite severe risk factors.

Optimism on the rise: Lula report shows ‘green shoots’ for SMEs in South Africa.

A recent Lula Pulse Report reveals that while many businesses are still operating under tough conditions, there are “green shoots” that point to a more positive future.

“Small and medium-sized businesses are the lifeblood of our economy, employing up to 60% of the private sector workforce and generating approximately 40% of the country’s GDP,” says Lula’s Chief Risk Officer, Garth Rossiter.

“We’re seeing the mood on the street being surprisingly resilient. Despite the lingering clouds of geopolitical uncertainty, a palpable sense of optimism is taking hold, with both businesses and consumers feeling more confident about the future. There is a fair deal of recognition that, while there is a lot of negative international news, there are few places globally that offer the same business opportunities as South Africa,” he adds.

“We see a lot of headline-grabbing negative reporting, but, on the ground, this positive shift suggests we can expect a healthy period of consumer spending and business growth. The unpredictable nature of international politics, particularly the tariff situation with the US, has created a new reality for many companies.

“While we can’t always change the political decisions being made abroad, local businesses are not standing still. They have always been resilient, and they are already reshaping their strategies, diversifying their supply chains, and targeting new markets from Europe to Africa and Asia,” says Rossiter.

Adaptation is crucial.

“The US market, while important, represents just 8% of our total exports. With almost a third of those exports exempt from the new tariffs, the real direct impact is confined to about 5% of the total export value. This will most certainly impact some industries more than others, such as the automotive and agricultural sectors, and will have an indirect impact on others, but the agility of our businesses highlights a positive narrative of resilience and forward-thinking in the face of external challenges.

“This ability to adapt in the face of challenges is what truly sets South African businesses apart. We are passionate about supporting these businesses and seeing them thrive,” says Rossiter.

The most recent Lula Pulse Report highlights several key indicators of this shift:

• Stabilizing turnover: After a tough 12 months, turnover levels for SMEs have stabilized, marking the beginning of a road to recovery.
• Improved GDP forecasts: GDP forecasts for the remainder of 2025 have improved, driven by easing inflation and a recent decline in interest rates. This is expected to encourage consumer spending across most sectors.
• Easing financial pressure: The peak of the interest rate hiking cycle has been reached, and initial cuts have occurred, which signals easing financial pressure on businesses.
• A cautious optimism: The formation of the Government of National Unity has been met with cautious optimism for increased political stability and a more consistent policy direction, which is crucial for business confidence.

Cash Flow Still A big Challenge for SME’s

Rossiter notes that cash flow remains a primary obstacle to SME growth, but that Lula is committed to providing proactive, tangible support.

“It is a critical moment for our economy. By providing practical, accessible support and fixing the fundamentals – both in policy and in finance – we can ensure that business confidence translates into measurable economic growth and that our invaluable SME sector not only survives but thrives,” Rossiter concludes.