By Daniel Hatfield – CEO of Edge Growth
For years, South Africa has been saying that small and medium enterprises (SMEs) are the growth engine of our economy. There is good global evidence that economies with strong SME and entrepreneurial ecosystems are often more resilient and employment-intensive. Yet the real question is not whether SMEs matter, it is whether we are creating the conditions for them to grow sustainably.
The biggest challenges for SMEs remain the fundamentals: unreliable operating conditions, regulatory friction, mismatched finance, limited market access, and the capabilities and capacity to grow a business. Small businesses cannot overcome a broken operating environment. Every hour spent navigating compliance or red tape is an hour not spent selling, delivering, or hiring.
A key takeaway from this year’s State of the Nation Address (SONA) is that government is once again placing SMEs at the centre of the growth and jobs agenda. President Ramaphosa explicitly linked SME growth to job creation, acknowledged the struggle many SMEs face in accessing funding and markets, and recognised that regulatory hurdles remain a real constraint.
He announced more than R2.5-billion in funding for over 180 000 SMEs, a further R1-billion in guarantees, and proposed changes to make credit more accessible and affordable.
From the 2026 Budget perspective, the most practical measures were the increase in the compulsory VAT registration threshold from R1-million to R2.3-million, the increase in the voluntary VAT threshold from R50 000 to R120 000, changes to the turnover tax threshold, and the rise in the capital gains tax exemption for small business sales by older persons.
For many small businesses, these measures will reduce compliance pressure and improve cash-flow flexibility at a fragile stage of growth. The guarantee and credit-access commitments could also make a real difference if executed well, with capital structured properly, priced right, and flexible enough to fit SME realities.
While these commitments are positive, simply providing funding isn’t enough. In our experience over the last 19 years, the structure and patience of capital often matter more than the headline rate. Funding must match the affordability, strategy, and growth path of the business. That means quicker decisions, better underwriting skills, forward-looking credit assessment, and instruments designed for SMEs.
Capital alone often exposes other constraints: weak sales capability, poor market access, limited management depth, or an unreliable operating environment. Investment must be paired with mentoring, practical support and enabling policy changes. This points to a systems approach: SME growth is not just about finance. Capital, markets, capability, infrastructure, and regulatory ease all need to move together.
But we also need to be honest about what sits on the business owner’s side of that equation. Many SMEs struggle not only because of a difficult operating environment, but because starting and scaling a business demands a diverse and often complex set of disciplines – from financial management and sales to operations, people management and strategic planning. Acquiring these capabilities takes time, access to quality support, and the right kind of mentoring. Enabling conditions are necessary, but they are not sufficient on their own.
Interventions around electricity, water, logistics, and municipal functionality may matter more than standalone SME programmes. SONA’s focus on water, infrastructure, logistics reform and digital government services is highly relevant, even if not packaged as “SME policy”. Regulatory reforms, such as the Business Licensing Bill, must make it easier, not harder, to start and run a small business.
Compliance often sits with the founder or a very small team. Every hour spent navigating admin is an hour not spent selling, delivering or hiring, so every reduction in friction counts.
The private sector also has a critical role to play. When corporations support businesses within their supply chains, they can combine market access, capability development, and capital. This alignment often produces better results than arms-length funding alone.
More intentional, fit-for-purpose funding models, linked to procurement opportunities and post-investment support, can help SMEs turn capital into sustainable growth.
While the latest commitments are helpful, they are only part of the answer. Real SME-led growth requires coordinated action: better market access, lower regulatory friction, faster and tailored financing, stronger municipal service delivery, and practical support for business capability, alongside sustained investment in equipping entrepreneurs with the diverse skills and disciplines needed to start and scale their businesses.
Daniel Hatfield is the Chief Executive Officer and co‑founder of Edge Growth, an SME development specialist and impact investor.
