ABEL SAKHAU | Building the financial rails that let SMEs power a just transition

Story audio is generated using AI

The risk with South Africa’s 2025 G20 presidency is that it is remembered as just another communiqué. This context demands that it be used to reflect continental realities. We must ask: how do we align a just transition with African financial infrastructure? Locally, how do we institutionalise growth-supporting systems?Africa cannot afford another decade of sustainability rhetoric and recycled ESG pledges that ignore the engine of its economy: small and medium-sized enterprises (SMEs). Solutions lie in financial system frameworks — building the financial rails that enable African SMEs to drive a just, inclusive, equitable and sustainable transition.SMEs represent 95% of registered businesses in sub-Saharan Africa and generate nearly half of the continent’s GDP, yet they remain highly vulnerable. In South Africa, they face unreliable infrastructure — for instance, in 2023, 289 days of electricity power cuts — and high interest rates that limit local spending, their lifeblood. Two in five African SMEs lack access to formal finance, leaving them vulnerable to climate shocks and cash-flow disruptions. For these businesses, a delayed invoice or extreme-weather event is not an inconvenience; it’s an existential threat.South Africa’s fiscal outlook is challenging. Take the metric of tax buoyancy: a ratio of greater than 1.0 means that for every 1% increase in GDP, tax revenue grows by more than 1%, which strengthens fiscal sustainability. In South Africa, the ratio was 0.7 in financial 2024, which means tax revenues barely kept pace with economic growth. This underscores a fragile, uneven economy that is vulnerable to short-term shocks and limits the government’s ability to provide counter-cyclical support when SMEs need it most. Yet SMEs, expected to drive jobs and sustainable growth, lack support.The main constraint is not ambition, but an ineffective financial infrastructure. Initiatives such as TradeRoots Africa and Aséli Impact Capital demonstrate that stronger risk frameworks and deeper capital pools can lower the cost of capital for African infrastructure and the SMEs whose sustainability depends on it. But to scale this, we need more on board.Positioning SME sustainability as a public good that stabilises supply chains, supports jobs and enables climate adaptation will attract international investment as a matter of economic security, not charity.For Sanlam, sustainability is not branding or reporting or a “nice to have”; it’s about access, resilience and participation. We must build financial rails — insurance, risk pooling, cross-border payments, and regulatory clarity — so SMEs can scale from survival to formal, sustainable economic growth.Positioning SME sustainability as a public good that stabilises supply chains, supports jobs and enables climate adaptation will attract international investment as a matter of economic security, not charity. This was the G20’s intended legacy.The ESG approach in our African and Indian markets differs from that of the Global North. However, the core principles remain. Despite the fact that ESG is no longer in the front window, insurance regulators (and investors) expect that the principles are embedded and not tacked on as corporate rhetoric. We are already integrating ESG criteria into underwriting, relying on hard, decision-useful climate-risk metrics.By using forward-looking catastrophe models to price risk on the basis of data, not estimates, we give SMEs predictable protection against floods or droughts. For SMEs, resilience becomes a purchasable asset; insurance shifts from a discretionary expense to essential, reliable protection.Our core sustainability message is that achieving scale and making an impact requires the “crowding in” of corporates. This is partly why we created an internal sustainability index linking ESG KPIs to business value and financial performance. Previously disconnected KPIs are now consolidated, including employee net promoter scores and customer and agency ratings, all tied to the bottom line. We expect others will follow suit.Better data enables fairer insurance pricing and lowers perceived default risk, reducing capital costs. Firms and regulators are building expertise in the new International Sustainability Standards Board standards, IFRS S1 and S2, enabling African SMEs to join global supply chains with actionable disclosures.Administrative friction is another barrier to SME formalisation. Regulatory and administrative reforms, plus updated standards and reporting criteria, are needed. Recent changes help: from April, South Africa increased the VAT registration threshold for small businesses from R1m to R2.3m, cutting compliance costs and improving cash flow. Digital platforms such as BizPortal also streamline licensing and registration, encouraging SMEs to join the formal economy.Payment processing should match the precision of risk pricing. Current payment systems are fragmented and impose hidden costs on African growth. Most intra-African trade is settled in dollars through foreign banks, resulting in delays of two-five days. The pan-African payment & settlement system (PAPSS) enables instant settlement in local currencies, which Afreximbank estimates could save the continent $5bn (about R80bn) annually.Consider a practical example: a Johannesburg supplier ships to Accra. Previously, dollar-cleared payments arrived days late, forcing payday extensions and overdrafts. With PAPSS, funds settle in hours in local currency, wages clear on time and overdraft fees are avoided. Liquidity becomes a feature rather than a risk. In a liquidity-sensitive region where trade drives jobs, these are structural shifts and not merely technical upgrades. Africa’s prosperity hinges on whether its smallest businesses can move funds efficiently, withstand shocks and fully participate in the economy. A strong financial infrastructure for SMEs means investing in robust risk and payment systems to enable access and participation, and implementing regulatory and administrative reforms that lower compliance costs and enable formalisation. It also means integrating ESG criteria directly into SME financing and underwriting.These are essential requirements for a just economic transition and central to creating a sustainable and resilient continent. Sakhau is chief sustainability officer at Sanlam