Lucrative Economic Sectors in South Africa for SMEs

The South African economy is one of the most dominant economies on the African continent. Knowing the key economic sectors of South Africa can help you come up with a profitable startup idea. It will also help you to grow your business rapidly and help support South Africa’s economy. This article will identify suitable economic sectors of South Africa that are profitable for small and medium scale businesses. We have also written down a few examples per industry to give you an idea about what kind of business you can run.

Before we get into the ideas, let’s understand the trending economic sectors and their contribution to South Africa’s GDP growth.

Main Economic Sectors that Support the Economic Growth of South Africa

According to 2018’s Global Financial Centres Index, Cape Town is the #1 financial centre in South Africa, pushing Johannesburg in second place. Initially, South Africa’s economy was rooted in the primary sectors. South Africa is well-known for its gold and platinum mining and export, favourable agricultural environment, and diamonds. Although in recent years, economic growth is mainly driven by the tertiary sector.

A little information on economic sectors. The economy of any country is said to be divided into three main sectors: the primary sector, secondary sector, and tertiary sector.

• Primary Sector (Agriculture): mainly deals with the production of raw materials. The primary sector commonly includes mining, agriculture, fishing, and husbandry.
• Secondary Sector (Industry): deals with the transformation of raw and immediate materials into goods. For example, raw cotton into clothes.
• Tertiary Sector (Services): involves the supply and demand chain. It involves supplying goods and services to businesses or directly to consumers. Retail is the best example of the tertiary sector.

Since 1990, South Africa has experienced rapid technological advancements. With that, the balance of the economy has shifted to the tertiary sector. We can see how the service sector’s contribution is growing with these statistics from Statistica.

In 2009, Agriculture contributed 2.71%, Industry contributed 27.58%, and the Service sector contributed 60.51%. We can see further contribution in 2019 from the Service sector, pushing Agriculture and Industry further behind. In 2019, Services contributed 61.2% of GDP, Industry contributed 26%, and Agriculture contributed merely 1.88%.

Following are the main economic sectors that contribute the most to the South African economy.

Source: Brand South Africa / Stats SA. (Click on the image to follow the source article)

Disclaimer: 

Please note that this data has been taken from 2018-2019 records. Covid-19 has impacted the South African economy badly. In 2021, however, the South African economy is trying to spring back up. This also provides a healthy environment for young entrepreneurs to start their own business on a levelled ground. For 2021 economic data, we recommend you to follow and study the links given below:

• Economic Outlook No 109 – May 2021: South Africa (oecd.org)
• Economic growth | Statistics South Africa (statssa.gov.za)

SME Compatible Economic Sectors in South Africa

Our main purpose with this article is to list all the sectors that are small and medium enterprise-friendly and profitable. Digital Lime Green understands the importance of economic trends and how advantageous they can be for your business or business ideas. Let us explore the possibilities.

This article attempts to list a few trendy South African economic sectors that provide a profitable business environment for small and medium enterprises and young entrepreneurs.

Tourism Sector

The tourism sector in South Africa has observed a boom since 1990. The tourism industry belongs to the service i.e. tertiary economic sector that holds great promise for small business enterprises, startups, and aspiring entrepreneurs. There are many business opportunities in the tourism industry that do not require great capital.

Although the Tourism sector still struggles badly due to Covid-19, it is slowly starting to pick up the pace again. This is the perfect environment if you are planning to launch a new business into the tourism sector. Understand the local tourist trends in your area, decide your niche, and get-set-go! (Source: Stats SA)

According to us, the following ideas may prove useful about the types of small tourism-related business.

Lodging

If you have a decent establishment, you can always go with hospitality services such as providing lodging to tourists. Free market hospitality services like Airbnb are on the rise. You can simply market your place along with photos, put down a price, and you are good to go.

Ride-Sharing and Car Renting

You can provide ride-sharing services or rent your vehicle through various car-sharing platforms, such as Uber and Bolt. Furthermore, you can start your own private business of renting cars to tourists. You will be surprised to know how many tourists with adventurous spirits consider riding on their own rather than using public transport. All you need is at least one or two vehicles, depending on how you want to expand your car rental business.

Souvenir Shops

Tourists love souvenirs! Something that can never be found in their home country or region would attract anyone. A souvenir shop is a great option in the tourism industry. You may set up a physical shop or simply go online, where you can sell souvenirs not only in your region but all over the country or worldwide.

Restaurant and Bar

This business may need a considerable amount of capital. But if it is done right, your restaurant and/or bar will grow in no time. Tourists are always looking for a place to hang out, taste delicious wine or experience local cuisine. South Africa is well-known for its vintage wine culture and vineyards. Your business can collaborate with them to stock authentic wines in your bar.

Translation and Interpretation Services

South Africa is one of the native English countries internationally. Though, not every tourist can speak or understand English. If you are bilingual or multilingual, you may consider providing private translation services or put your skills in the open market. It pays very well, and a couple of good reviews are only going to increase the popularity of your business. You may grow this business as a small firm and expand the services and languages offered.

Finance and Banking Sector

The finance and banking sector contributes the most to South Africa’s GDP growth. The South African banking system is a well-developed, sophisticated system that is backed by a legal framework. The South African Reserve Bank, a few financially strong banks and investment institutes, and a numerous smaller bank makes up the finance sector in South Africa that provides commercial, retail and merchant banking, mortgage lending, insurance and investment-related services, and much more.

The Banks Act 1990 and The Mutual Banks Act 1993 reformed and strengthened the South African financial sector (Source: gov.za) It helped in developing an efficient banking system that has been a founding pillar of supporting the modern South African economy.

The non-banking sector in South Africa is regulated by the Financial Sector Conduct Authority. They are responsible for the regulation of financial markets and institutes. Furthermore, there is a credit regulator entity known as National Credit Regulator (NCR). They are primarily responsible for investigating and providing solutions regarding credit-related issues, consumer education, research, and policy developments.

Brand South Africa has written a great, in-depth article on the Financial sector of South Africa which includes information related to banking and non-banking sectors, and regulatory bodies. Please note that the Financial Services Board given in the reference article was succeeded by the Financial Sector Conduct Authority (FSCA) in 2018.

If you are good with numbers and calculations, the financial sector might be the best choice for you to run a small business.

Forex Trading

Forex trading stands for foreign exchange trading. Currencies are always fluctuating in prices. The logic behind Forex trading is very simple: trading currencies from different countries against each other. Of course, it is not as simple as it sounds. It is a risky business that, without sufficient knowledge, may face losses. You need a considerable amount of startup cost too. But, if you have what it takes, then you are going to dive into the most liquidated market in the world, which is sure to bring you profit.

Bureau de Change

A Bureau de Change provides currency exchange services to tourists and other potential clients. This business requires a proper license. Keep an eye on the foreign exchange market, understand the competitive exchange rates and adjust accordingly. Choosing the location for your business also matters. The ideal location would be international airports, international trade centres, main railway stations, hotels, and so on.

Insurance Agency

If you have experience and knowledge with insurance-related practices and laws, this business idea might be for you. Selling insurance is all about convincing your clients about how beneficial it can be for them. Lay down a business plan, set your goals, register your business, ensure it with insurance (yes, you need insurance too) and you are good to go.

Automobile Sector

South African factories have built motor vehicles and light truck models since the 1920s. The modern South African Automobile sector has been operating since 1995 and is considered the largest on the African continent. It is a promising sector for small and large enterprises alike. It is a diversified industry that supports the growth of the overall economy.

South Africa exports automobile-related products to various countries such as the US, UK, Japan, India, South Korea, Japan, and more. Relatively low manufacturing costs and great production output has made South Africa an attraction for many automobile companies worldwide. This Wikipedia article on the South African Automotive Industry has all the information and statistics you need.

Here, we will dive into some doable small business ideas in the automobile sector.

Automobile Service Station

You can run this business solo or with a partner. An automobile service station requires a small investment and a physical location for your shop. The ideal location would be near the main streets of your city or suburban area. You can stock up on some spare parts for additional business as well. People will always need a car mechanic and your business will constantly get some customers.

Driving School

Driving school is one of the best ways to run a small business in the automobile industry. People are always looking for a mentor to learn how to drive a car as well as getting through the licensing process. As a driving instructor, your task may involve teaching your ‘students’ about vehicle functionalities, how to drive a car, and the procedure for getting a car license. As you gain a reputation in this business, it can bring constant profit to you.

Vehicle Accessories Store

Running a vehicle accessory store is a profitable business idea. You can display and sell brand new parts as replacements or add-ons for vehicles. South Africa has a considerable vehicle population and it will only grow onwards. You can also sell custom, personalised accessories.

Spare Parts Distributor

Just like accessories, you can also get into the spare parts business. It might be a complementary business to your accessories business or you can start one independently. You can go for a physical shop location or opt-in for an online store. The advantage of running your business online is that you can expand your business rather easily with relatively low costs compared to a physical store.

Manufacturing Sector

The manufacturing sector contributes around 13% to South Africa’s GDP. South Africa’s diversified manufacturing base has the potential for rapidly growing the country’s economy. This sector is mainly dominated by the textile industry, agriculture, automotive industry, chemicals, ICT and electrical industry, and metal industry.

South Africa’s manufacturing sector is picking up the pace again in 2021. The said article from Focus Economics also projects that it will continue to grow in 2022.

When we talk about the manufacturing sector, we think about large factories mass-producing goods and commodities. But even on a small scale, contribution to the manufacturing sector is possible. A lot of people are looking for hand-made manufactured products, mainly decorations, clothes, and food. This means, running a small manufacturing business is completely possible. Let us explore the ideas below!

Shoemaking

Shoemaking has been a traditional business for many families for generations, and believe us when we tell you: ‘yes, it is profitable’. If you love crafting, have some stylish, unique ideas for your shoemaking business, then all you need is a little capital and you are good to go. Handcrafted shoes are popular and are in demand. You can also expand this business to handbag manufacturing, belt manufacturing, and so on.

Shoemaking might sound like an unconventional option for many, but there is a recent success story about shoemaking from South Africa. Take a look here! (Source: Brand South Africa)

Fertilizer Manufacturer

Agriculture still has a strong economic stand in South Africa, despite its contribution of 1.88% in 2019. South Africa exports a lot of exotic agricultural products overseas. You can get into the business of home-based gardening and landscaping products like fertilizers and composts. Sell them to your local farmers or gardeners. This business is especially profitable if you are situated in suburban or rural areas.

Also, if you are more interested in the agriculture sector overall, take a look at this article and understand the trends. (Source: Stats SA)

Breadmaker

Who doesn’t love bread? Breadmaking can be a good option for a small business idea. You can solely focus on regular bread or expand it into a bakery that bakes all sorts of things. From baking regular bread, pizza bases to baking delicious cakes, pastries, muffins, there is a lot to explore around.

Watchmaker

Love being a clockwork? Watchmaking and watch repairing can be a business for you. People love stylish, uniquely designed watches. With proper knowledge, strategy, and little capital, this business can contribute greatly to your success. Understand the ongoing trends and plan your watchmaking business accordingly.

Conclusion

The purpose of this article was to identify highly grossing and profitable economic sectors in South Africa. Furthermore, it also aimed at providing certain anchor points as examples for your understanding. Hopefully, the article has given you a basic idea on the same.

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