Lula sees 'green shoots' for SMEs in South Africa

Despite a challenging economic period, there are clear signs of recovery and reason for optimism within the South African small and medium-sized enterprise (SME) landscape.

This was according to a recent Lula Pulse Report, which revealed 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,” Lula’s Chief Risk Officer, Garth Rossiter said.

“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 added.

“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,” Rossiter said.

He believes this 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," Rossiter further said. 

“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,"he added.

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.

Rossiter said 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 further said.

BUSINESS REPORT