Small businesses are entering a period of heightened financial strain as the rand weakens and volatility in global markets intensifies. Economists and industry experts say the current currency environment is driven by geopolitical tensions and capital outflows.
According to Investec Bank chief economist, Annabel Bishop, the rand’s recent decline reflects a broader “risk-off” sentiment among global investors, with emerging markets like South Africa bearing the brunt.
Data from Investec shows the local currency has weakened significantly against major global currencies, placing it among the worst-performing emerging market currencies tracked by Bloomberg.
This macroeconomic shift is translating into immediate operational challenges for SMEs.
Weak rand
Economist Dawie Roodt explained that a weaker rand “imports inflation into the economy,” raising the cost of goods and services priced in foreign currencies.
“Small businesses are particularly vulnerable because they don’t have the scale or financial tools to hedge against currency movements,” Roodt said. “When the rand weakens, their input costs rise almost immediately.”
This is especially evident in sectors reliant on imports such as retail, manufacturing, and agriculture. This is where businesses are forced to either absorb higher costs or pass them on to already strained consumers.
Fuel price pressures across the economy
The impact of a weaker rand is further compounded by rising oil prices, with global benchmarks influenced by ongoing tensions in the Middle East. Analysts at Schroeders have pointed to sustained higher oil prices compared to pre-war levels, which directly affects South Africa’s fuel costs.
According to the South African Reserve Bank(SARB), fuel is a key driver of inflation in the local economy. As transport and logistics costs increase, SMEs across sectors, from delivery services to informal traders face higher operating expenses.
“Fuel is a universal input cost,” chief economist at director at Econometric Azar Jammine noted . “When it rises, it pushes up the cost structure of almost every business, and SMMEs feel that impact disproportionately.”
Consumers pull back as inflation rises
As inflationary pressures build, consumer behaviour is also shifting. Households are allocating more of their income to essentials such as food, fuel, and transport.Leaving less for discretionary spending.
This trend is damaging for small businesses operating in sectors like hospitality, beauty, retail, and township economies.
“SMMEs depend heavily on local demand,” the Small Enterprise Development Agency (SEDA) said in a statement. “When consumers cut back, small businesses are often the first to feel the decline in spending.”
The result is a dual pressure, rising costs on one side and weakening revenue on the other.
Interest rate risks add another layer of strain
With inflation expected to rise in the coming months, economists anticipate that the Monetary Policy Committee may respond with tighter monetary policy.
Higher interest rates would further complicate the operating environment for SMEs, many of which already struggle to access affordable financing.
“An increase in rates raises the cost of borrowing and reduces cash flow flexibility,” said Jammine. “For small businesses, that can mean delaying investment, cutting jobs, or even closing down.”
While most SMEs face headwinds, some may benefit from a weaker rand. Exporters and tourism-related businesses, for instance, can become more competitive globally as their goods and services become cheaper in foreign currency terms.
“Uncertainty is the biggest enemy of small business,” Roodt added. “You can’t price properly, you can’t forecast properly, and you can’t invest with confidence.”
However, experts caution that these benefits are limited and do not offset the broader economic strain on the majority of small businesses.
