Why do more than three quarters of small businesses fail in South Africa?

Available data shows that more than three quarters of South African small businesses fail (Cova Advisory as cited in BUSINESSTECH). This is an absolutely shocking statistic given the already low levels of entrepreneurship as well as the high level of unemployment. Furthermore, this very high small business failure rate is impacting negatively on both economic growth and job creation in South Africa to the detriment of South Africa’s economic well-being.

The question could be asked as to what the problems confronting small businesses are giving rise to this high failure rate. To answer this question, the results of the 2025 Absa/SACCI/BMR Small Business Growth Index (SBGI) H1 are highly relevant. It appears from these results that 52.8 percent of responding small businesses (50 employees or less) indicated that they are either contracting, trading with difficulty or at risk of closure, should the prevailing cost pressure and adverse macroeconomic environment prevails. Furthermore, 43.7 percent indicated that their profits declined during the past six months while more than half of businesses indicated that the cost of doing business also increased during the past six months. This situation to a large extent explains the high level of small business failure in South Africa.

Given all of these indicators of high small business failures, the question can now be asked as to why small businesses are so incredibly vulnerable that they eventually fail. It appears from the Absa/SACCI/BMR Small Business Growth Index survey that there are various factors exogenous and endogenous to small businesses which give rise to businesses contracting, trading with difficulty or at risk of closure. The major exogenous factors identified by small businesses include inter alia loadshedding, rising energy costs, producer price inflation, reduced consumer spending, cyber incidents, infrastructure breakdowns, water shortages and ageing infrastructure, supply chain slowdowns/interruptions, an unconducive regulatory environment, adverse macroeconomic developments (i.e. tight monetary policies and commodity price increases) and labour shortages.  The main endogenous factors include inadequate capital, limited access to finance and funding, ineffective marketing, cashflow management, attracting talent, developing better IT solutions and investing in new ICT technology.

To address the various exogenous and endogenous factors impacting businesses, businesses indicated that they require government interventions to address these factors. The first and foremost intervention small businesses require from government is ensuring easier access to affordable finance and grants, reducing bureaucracy and red tape with respect to small businesses, reducing VAT, providing urgent relief for energy and load shedding costs, support with debt management and addressing the various infrastructure problems. It is clear from the views expressed by small businesses that should the abovementioned exogenous and endogenous factors be addressed and should government provide the required interventions, then business failure rates could be largely mitigated. The SBGI H1 study also shows that small businesses are largely underutilizing potentially valuable resources such as trade bodies, incubators and private consultants. The strengthening of partnerships between universities, incubators, associations and government is also likely to present a united, easily navigable support network, which can mitigate the risk of small business closure. There is, however, a sentiment among small businesses that if the required support and interventions are not forthcoming, this will put them at greater risk of contracting, trading with difficulty or closing down.

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Full SBGI H1 Report available here>