While financial limitations may exist for smaller businesses, prioritising cybersecurity is a business imperative. Picture: Pixabay
Miguel da Silva
2024 ended with a glimmer of optimism for South Africa's economy. However, SMEs – the backbone of the nation – need to be prepared for various factors, including the potential shifts in the economic landscape, the ceaseless rise of artificial intelligence (AI), and ever-present cybersecurity threats.
SMEs will need to brace themselves for unforeseen events, including local and global issues, supply chain disruptions, and currency fluctuations, all of which can impact the economy. Meanwhile, the 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.
There are key areas that SMEs need to prioritise as we kick off 2025: AI, cybersecurity, e-commerce and the digital customer journey, as well as understanding the impact of interest and inflation rates on their enterprise.
AI – friend or foe?
Technology will continue to reshape the SME landscape, presenting opportunities and challenges.
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.
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 boom in AI applications, it is easy to a) become overwhelmed by choice, and b) stagnate during the implementation phase. Further for many SMEs, the real challenge that AI presents is in bridging the skills gap to effectively choose, adopt and deploy AI solutions. 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.
Cybersecurity risks for SMEs
Unfortunately, SMEs are prime targets for cyberattacks. The truth is, regardless of size, any business that deals with sensitive data must have robust cybersecurity measures in place.
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.
AI has undoubtedly heightened the risk of cyber fraud, as is evident from the explosion of sophisticated AI-driven phishing scams. A security strategy tailored to the challenges posed by AI is required to address these risks – ironically, we are seeing the emergence of AI-powered solutions to combat cyber threats.
The challenge of the online economy
E-commerce, fintech and digital marketplaces will continue to be pivotal growth areas for SMEs. Indeed, research released in 2024 by World Wide Worx notes a massive 29% growth increase in local online retail from 2022 to 2023, with the prediction to break the R100 billion mark by 2026. Furthermore, fulfilment costs are now also cheaper than ever, with several courier/package delivery options to choose from.
Seamless omni-channel integration is thus a key development. Retailers are expected to increasingly be online and provide offline experiences, such as allowing customers to shop online and collect in-store or to use apps for in-store navigation and deals.
Small businesses that do not embrace e-commerce 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. SMEs who are not present will find this a growing problem.
Interest rates and inflation – a balancing act
Interest rate and inflation changes affect SMEs differently. Smaller businesses have less room for manoeuvre, while medium-sized businesses may handle challenges better but face scaling and compliance issues.
Fortunately, inflation dropped from 5.3% at the start of the year to 2.9% in November, reaching its lowest level since February 2021. This paved the way for the recent interest rate cuts – the first since the pandemic – 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. Economists anticipate a 25-basis point cut when the next interest rate decision is announced by the SARB on January 30, 2025, which would take the repo rate to 7.50%.
All things being equal, 2025 could provide some respite for consumers and businesses alike. For SMEs, this could be an opportunity to consider investing for growth.
That said, the environment remains uncertain, both locally and internationally, and SMEs need to be prepared for moves in the political and economic landscape that could force them to change course.
Miguel da Silva is a Group Executive of Business Banking at Tymebank
BUSINESS REPORT