Small Business Development Minister Stella Ndabeni-Abrahams is right about one thing. South Africa’s SME funding gap is enormous, and government resources alone will never be sufficient to close it.
Speaking on her return from the World Economic Forum in Davos, the Minister acknowledged that her department’s R2.9bn budget is inadequate relative to the scale of the challenge. With an estimated 2.5 million micro, small and medium enterprises in the country, she noted that supporting even 120,000 businesses represents “a tiny drop in the ocean”. Her conclusion is that government must increasingly look to venture capital firms, angel investors and foreign funders to fill the gap.
The intent is commendable. The policy logic behind the proposed solution is not.
Private investment capital does not move in response to appeals or moral persuasion. It moves in response to yieldand return on investment. Venture capital funds, family offices and angel investors deploy capital where the risk-adjusted returns make sense. That is not cynicism. It is the basic architecture of capital markets. Without commercial logic, investment vehicles do not survive.
If the Minister were approached in her personal capacity to invest her own capital into a high-risk SME, she would ask the same questions any rational investor would ask. What is the business model? What differentiates this company? What is the probability of failure? What is the expected return? These are not hostile questions. They are the questions that protect capital.
South Africa does not suffer from a shortage of goodwill. It suffers from a shortage of consistently investable conditions.
The forgotten middle child of the economy
South Africa’s SME conversation is dominated by the extremes. Policy attention gravitates towards the youngest child: startups and micro-enterprises that demand attention, absorb resources and carry promise, but statistically will mostly fail. At the other end sit large corporates, well-capitalised and politically visible, with established balance sheets and market power.
Between them sits the cohort that receives remarkably little attention: the middle child of the economy.
These are businesses turning over roughly R30m to R1bn a year. Firms that have survived the fragile early years, built real customer bases, developed intellectual property, proven resilience and learned how to operate within South Africa’s uniquely difficult business environment. They are no longer dependent infants, but they are also not yet fully scaled.
There are an estimated 50,000 to 60,000 such businesses nationally. Most have grown to this point with limited or no government support. These are not hypothetical job creators. They already employ people. They already pay tax. They already train staff. They already build supply chains.
Yet in policy design, funding frameworks and political narrative, they are often treated as an afterthought.
This is where the opportunity cost becomes severe. These middle-child businesses do not need grants or protection. They need access to growth capital, reliable infrastructure, predictable regulation and procurement environments that reward competence rather than compliance theatre. With the right conditions, many of these firms are capable of scaling rapidly and absorbing meaningful employment.
From an investment perspective, this cohort also presents a more rational proposition. Capital follows yield, and middle-market businesses offer meaningfully better risk-adjusted potential than early-stage startups, particularly in a low-growth economy.
The irony is that South Africa already has the entrepreneurs policymakers claim to want. They are simply not being prioritised.
The Davos shift towards economic realism
The Minister’s comments came against the backdrop of the World Economic Forum in Davos. Yet one of the most important shifts evident at this year’s forum appears to have been missed.
Beneath the formal speeches and inclusion rhetoric, the real conversations have moved decisively towards economic realism. Governments and business leaders are increasingly acknowledging that the era of aspirational policy language, what might politely be described as soft socialism, has delivered weak growth, fragile supply chains and eroded productive capacity across much of the developed world.
Major economies are now reassessing their structures. The United States, United Kingdom and Australia have begun confronting the reality that decades of de-industrialisation have left them overly dependent on services and intermediated value. Countries that once manufactured now increasingly facilitate.
The global shift is towards economic sovereignty. Governments are asking harder questions about what they actually own, what they produce, what they can beneficiate and where their strategic advantage lies.
South Africa faces the same reckoning. We have followed global de-industrialisation trends with damaging consequences. The ongoing instability in the automotive sector is one visible example. Energy insecurity, logistics failures and policy uncertainty have hollowed out productive capacity across the economy.
The appropriate response is not to ask private investors to fund broad SME activity out of goodwill. That thinking belongs to the same soft-socialist tradition that assumes capital can be socially instructed rather than economically attracted.
The response should instead be to define national strategic sectors and deliberately concentrate capital, infrastructure investment and policy alignment into them. That is the approach serious economies are now taking.
It is not cheap. Strategic sectors require long-term planning, hard trade-offs and significant capital investment. Nuclear energy is one example where South Africa holds advanced technical capability but lacks political clarity. Advanced manufacturing, agro-processing, critical minerals beneficiation and logistics infrastructure are others.
These are the kinds of sectors where public and private capital can be aligned. Not because investors are being asked to be charitable, but because the environment supports commercial return.
The lever government actually controls
There is nothing structurally preventing venture capital or angel investment from growing in South Africa. The country already has sophisticated financial markets, deep entrepreneurial talent and global connectivity.
What it lacks is a consistently investable environment.
Fix infrastructure reliability. Stabilise regulation. Reward performance in procurement. Reduce policy volatility. Prioritise sectors with real competitive advantage. Support the middle-market businesses that already work.
Do those things and private capital will not need to be asked. It will arrive on its own.
