In both the inspiring and predominantly growth friendly State of the Nation Address (SONA) by the President was followed by the 2018 Budget Speech delivered on 21 February by former Finance Minister Malusi Gigaba, there was a consistent theme of support for SMEs. This is proof that Government is serious about the growth and well-being of SMEs in South Africa.
We have put together key messages for SMEs from the 2018 National Budget Speech in order to encourage business owners to shift from survival mode to a more opportunity-seeking stance:
- Highlighting the positive sentiment, is Government’s commitment to the Preferential Procurement Regulations, as well as the fact that the Public Procurement Bill will be submitted to Cabinet in March 2018 for gazetting the Bill for public comments. This regulation will ensure that SMEs are able to participate fairly in the public procurement process, which will in turn promote black economic empowerment, industrialisation and allow SMEs to create more job opportunities.
- It is also key to note that a directive will be issued next week to all government departments and public institutions, instructing them to pay suppliers on time or be charged with financial misconduct. This is crucial to the survival of small businesses as late payment has a direct impact on the cash flow of an enterprise and the speed of its cash conversion cycle, which ultimately impacts its overall profitability. While this Government decision is nothing new, the threat of being charged with financial misconduct is a welcome addition.
- Another positive opportunity for SMEs is R100 billion Black Business Growth Fund to be created as a result of the finalisation of the revised Financial Sector Codes. This could have a significant impact on black businesses growth as the initiative is expected to dramatically improve access to funding for black owned businesses who previously may have had difficulty to obtain this kind of funding. We are confident that this will impact transformation and look forward to witnessing its implementation.
- The Minister of Finance will approve six special economic zones set to benefit from additional tax incentives including a reduced corporate tax rate for qualifying firms. This overall policy is driven by the Department of Trade and Industry and seeks to encourage investment in the manufacturing and tradable services sectors, and, as such, will provide opportunities for SMEs to tap into by either supplying infrastructure or material in these zones.
The speech, however, was not all positive for SMEs. For example, although Treasury has made the provisional allocation of R2.1 billion for SME start-ups, as announced in the 2017 Medium Term Budget Policy Statement, which will positively impact SMEs when it comes into effect, it is disappointing that it will only begin operating in 2019/20, as SMEs need support now more than ever.
Another setback for both SMEs and consumers alike, is the announcement of the VAT hike to 15%. Although Treasury had to implement measures to minimise the country’s fiscal deficit, this will have an effect on both price-sensitive SMEs as well as consumer expenditure.
However, the outlook for SMEs in 2018 remains mostly positive. Looking at the year ahead for SMEs, under the leadership of President Ramaphosa, it appears that Government will indeed address policy uncertainty through the support and input of the soon to be established Presidential Economic Advisory Council, as announced at the SONA.
The SONA promised to reduce regulatory barriers for small businesses and should see Government repositioned to improve efficient policy administration and implementation at all three spheres of Government. Efficiency and policy certainty will encourage cooperation between investors business, government and labour. This will have a positive impact on business optimism, which combined with the possibility of new infrastructure projects, will lead to higher growth and possibly increased consumer spending, despite the increases in tax.
Despite the challenges that Treasury faced last year, indications are that the country’s economy has turned a corner, and that there is a high probability that the SME sector can meaningfully contribute towards our economy growing at a much faster rate than witnessed over the past two years. The budget speech which focused on driving inclusive growth and prioritising small businesses, will provide impetus to job creation and a higher economic growth trajectory going forward.
As SMEs are a vital ingredient in getting South Africa’s economy back on track, the advice for SMEs is to ensure that they have sufficient resources available to take advantage of growth opportunities. This includes having the right team on board to grow the business, and having sufficient financial resources available to invest in key assets and to meet the working capital demands of growth.