South African businesses struggling

Published: 16 June 2026

Running a business in South Africa is becoming increasingly difficult as companies grapple with sluggish economic growth, mounting regulatory requirements, skills shortages and the continued failure of key state institutions, according to leading economist Dawie Roodt.

The Efficient Group chief economist says the country's business environment has become so challenging that it now poses a significant obstacle to economic expansion and investment.

"It is extremely difficult to do business in South Africa because, apart from the state that is highly inefficient, corrupt and incompetent, they are supposed to support business, but they don't," Roodt told Daily Investor.

He singled out local authorities and state-owned enterprises as major contributors to the problem, arguing that their inability to provide reliable services and support has created additional costs and uncertainty for businesses.

"The state is a major obstacle to economic growth in the country and to the very heavy tax burden that goes with that," he said.

Roodt's comments come amid growing concerns about the increasing compliance burden faced by businesses operating in South Africa.

Research by Sabinet recently found that the country's regulatory framework has expanded significantly over the past two decades, with labour legislation, environmental regulations, procurement requirements, financial reporting obligations and industry-specific compliance measures adding layers of complexity for companies.

Frequent legislative amendments and the introduction of new municipal by-laws have further complicated compliance efforts, particularly for businesses operating across multiple jurisdictions.

While compliance challenges are a global phenomenon, South Africa's business sector faces additional difficulties stemming from infrastructure failures and administrative inefficiencies.

According to PwC's 2025 Global Compliance Survey, 85 percent of businesses worldwide reported that compliance requirements had become more complex over the past three years.

However, Roodt believes South African firms face a uniquely difficult operating environment.

"We have a lot of legislation making it difficult. Labour legislation and all sorts of other things that we need to comply with make it very difficult to do business in South Africa," he said.

The impact is particularly severe for small and medium-sized enterprises (SMEs), which often lack the financial resources available to larger corporations.

Large companies can afford dedicated legal and compliance teams, invest in backup power solutions, secure alternative water supplies and maintain extensive security systems to mitigate operational risks.

Smaller businesses, by contrast, frequently struggle to absorb these additional costs.

"Business in South Africa is no joke. It's very difficult, especially for smaller businesses," Roodt said.

"They don't have the kind of deep pockets that big businesses have. They can't necessarily get their own security, or their own solar panels and things like that."

The country's high crime levels further compound business challenges. South Africa currently records one of the highest crime rates on the continent, forcing many businesses to spend heavily on security measures to protect staff, customers and assets.

Government has sought to address some of the concerns through the proposed Business Licensing Bill, which aims to establish a unified national licensing framework and a centralised digital platform for business applications.

President Cyril Ramaphosa has acknowledged that entrepreneurs face numerous regulatory hurdles, including licensing requirements, municipal by-laws and administrative red tape.

He has argued that the final legislation should simplify the process of starting and operating a business.

However, critics have warned that the draft Bill could instead create additional layers of bureaucracy if not carefully implemented.

Beyond regulation, Roodt identified weak economic growth as another major constraint on business expansion.

"The economy is not growing, and that is what businesses need. You need a growing economy if you want to grow your business," he said.

South Africa's economy expanded by just 0.5 percent during the first quarter of 2026, according to Statistics South Africa, marking a sixth consecutive quarter of growth but remaining well below levels required to significantly reduce unemployment and stimulate broad-based economic activity.

Economists have also warned that the full impact of geopolitical tensions and rising energy costs, including those linked to conflict involving Iran, may only become evident in second-quarter economic data.

Skills shortages remain another persistent challenge.

According to Statistics South Africa's latest General Household Survey, nearly half of adults aged 20 and older — approximately 18.9 million people — do not possess a matric qualification.

Although educational outcomes have improved over time, employers continue to report difficulties finding suitably skilled workers.

"The quality of labour in South Africa is not up to scratch because of weak skills development systems and the education system that we have in the country," Roodt said.

For the economist, South Africa's challenges are not primarily economic but political.

He argues that solutions to many of the country's problems are well known but lack sufficient political support to be implemented.

"We all know what the economic problems are, and we can fix them," he said.

"I can give you a list of things to do to fix the economic problems, but the reality is that this government is unlikely to implement any of these things because, politically, it's not popular."

As a result, Roodt believes the country's long-term economic performance will remain constrained unless significant policy reforms are introduced.

"Actually, what we've got is a political problem in South Africa," he said.

"So long as we have the current government with the current set of policies, the economy will continue to perform as it has for many years, and we will continue to get poorer."
- investor