How South African SMEs are thriving through digital transformation

Recent reports of an uptick in business liquidations in South Africa, 145 in October alone, may have understandably set off alarm bells about the health of the country’s small business sector, but while closures have a profound impact on communities and livelihoods, they don’t tell the full story.

A sector under pressure, but still standing

Beneath the surface, the reality is more nuanced. South Africa’s small and medium enterprises (SMEs) are showing remarkable resilience, adaptability, and even growth, often fuelled by digital transformation and an entrepreneurial spirit that refuses to be extinguished.

Despite the uptick in liquidations, SMEs remain a driving force in South Africa’s economy. According to the South African Chamber of Commerce and Industry (Sacci), the country is home to approximately 2.67 million small, medium, and micro-enterprises (SMMEs). Of these, 91% of formal businesses are SMEs, collectively contributing around 60% of employment and 34% of national GDP. These figures underscore the sector's foundation role in the economy.

It’s no secret that South Africa’s SMEs are operating in a challenging environment, navigating a fragile recovery and new uncertainties, such as shifting US trade policies. Persistent issues such as unreliable energy supply, difficulties accessing affordable finance, and lagging digital infrastructure continue to put pressure on business owners.

Yet even in a challenging environment, Xero’s 2025 State of Small Business Report reveals that 83% of South African SMEs reported revenue growth in the past year, and 90% were optimistic about future growth. This highlights the resilience of South African SMEs.

Digital tools as enablers of resilience

A key component of this ability to navigate challenging economic conditions is technology use. Nearly half of small businesses (45%) surveyed cited technology as one of the most valuable factors to their business in the past year.

Small businesses are leveraging technology to strengthen their ability to handle future external shocks, using it to streamline processes, innovate and operate efficiently. For those using cloud tools, more than half (58%) said it has helped them better manage their finances or simplify financial processes, and 40% said it allows them to reduce admin or automate tasks, saving them time.

Global alignment: B20’s SME and digital agenda

South Africa’s digital momentum is in step with global priorities. The recent B20 South Africa Summit, which brings together international business leaders, placed SMEs and digital transformation at the heart of its agenda. The B20’s Digital Transformation Task Force has called for inclusive infrastructure, AI literacy programmes, and interoperable digital public systems to ensure small businesses are not left behind.

This aligns perfectly with what SMEs themselves identify as critical barriers. Policy interventions must focus on unlocking access to affordable finance and investment capital. Furthermore, in an ongoing cost-pressure environment where input prices continue to rise, solutions that help SMEs manage cash flow are essential for survival. These needs, combined with the urgent call for reliable energy, transport, and IT infrastructure, form the core of a sustainable growth strategy.

From individual grit to systemic resilience

The examples of digital transformation are everywhere, even if they don't make the headlines. When a small retailer uses a cloud platform to manage inventory and help manage supply chain disruption, or when a local consulting firm uses digital tools to collaborate with international clients, they are proving that adaptation is possible.

However, South Africa’s economic strategy cannot be built on individual "grit" alone. Resilience is a systemic outcome. SMEs need access to affordable finance, reliable infrastructure, and digital tools to thrive. With the right environment, South Africa’s small businesses can not only survive but lead the country’s economic recovery and transformation.

The business shutdowns may dominate headlines, but the broader narrative is one of strategic adaptation and digital acceleration. South African SMEs are still building, and with the right tools and policy alignment, they’re building smarter, faster, and stronger than ever before.

Louise Southall is an economist at Xero

*** The views expressed here do not necessarily represent those of Independent Media or IOL.

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