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 2015 Budget – SME friendly Budget to boost job creation and economic development

 

 In his State of the Nation Address (SONA) last week, the President indicated that Government has a plan to solve the country’s electricity supply crisis. Details and time frames for the implementation and roll-out of this plan are number one on many business’ wish lists for the upcoming 2015 National Budget Speech, which the Finance Minister will present to Parliament on Thursday, 25 February 2015.

This is according to Nazeem Martin, MD of Business Partners Limited, who says that the power outages has dampened business confidence in the country, as confirmed by recently released statistics, which reveal that business confidence levels for this time of the year are the lowest in nearly two decades.

In addition to addressing the electricity crisis, Martin expects the Minister of Finance to address other challenges that are currently facing the small and medium enterprise (SME) industry, and hopes that insight is provided as to how space will be created for small businesses to play a larger role in economic development and job creation. He says the formation, sustainability and success of SMEs can drastically reduce the high unemployment rate the country faces, and that Government can contribute towards the formation of more SMEs by encouraging South Africans to pursue entrepreneurship opportunistically and by making it easier for people to become entrepreneurs and establish businesses.

“By encouraging entrepreneurship, simplifying the business formation process, and lessening the regulatory and compliance burden confronting SMEs, South Africa will be in a better position to create wealth, stimulate economic growth and facilitate jobs. Government has the ability to encourage entrepreneurship and assist new business formation by revising current onerous regulations, reducing the plethora of licences, and by beefing up existing non-financial business development, support and mentorship.”

Martin says that he welcomes the President’s SONA announcement to set aside 30% of appropriate categories of State procurement for purchasing from SMMEs, co-operatives as well as township and rural enterprises, as a small business procurement programme is one of the short term solutions which can be implemented by Government. “Also, splitting up the large projects into smaller components will ensure that SMEs have equal access to the possibility of supplying Government with goods and services.”

He says that in many sectors of the economy, a few large businesses control and dominate, making it difficult for small businesses to gain a foothold or market share. “Vigilant, thoughtfully implemented competition laws can ensure a level playing field between big and small business, and provide small business with an equal footing. The existing competition laws will however need to be monitored and policed properly in order to work effectively.”

Martin believes that the best thing that Government can do to create markets for SMEs is to proceed with the implementation of the infrastructure programme, apace and on scale. He says that this will provide Government with the opportunity to procure services and products from local SMEs by breaking-up the various projects into smaller components which can be executed by small businesses. Alternatively, if the large infrastructure projects are awarded to big businesses, Government should insist by assigning a portion of the work to SMEs.”

Government should also address the high costs associated with running a business in the 2015 Budget, says Martin. “This can be done by ensuring that funding is made available at a lower cost than what is currently being provided, and, whenever possible, the expertise and experience of private sector service providers and financiers be called upon to scale-up the provision of finance to SMEs. Alternatively, private sector financiers should be incentivised to finance SMEs, especially start-up businesses, with the current tax benefits to qualifying venture capital firms being simplified, made more user friendly and possibly even extended.

Another significant cost for small business that should be reviewed and further simplified by Government is taxation. At the very least, Government should raise the threshold at which small corporations start paying tax.

“A major hindrance to individuals pursuing entrepreneurship is the plethora of laws, regulations and legislation – the proverbial red tape – which they need to comply with. The range of regulations that small businesses need to comply with serve as an impediment, utilises time and resources which could be more productively employed, increases the cost of doing business drastically and often hampers growth. Government should make it simpler and less time consuming to comply with the current red tape, conduct a formal review of the existing red tape with the view to reducing or streamlining it, and commit to subjecting all new policies, legislation and regulations to impact assessment for SME-friendliness before they are considered for implementation.”

Martin says that in order to be sustainable, grow and flourish, SMEs need technical assistance and mentorship, but they often cannot afford the consulting costs that go along with this. He says that either Government needs to ensure that the Small Enterprise Development Agency (Seda) works more efficiently, or makes use of independent parties to provide this service to SMEs. Establishing these programmes will reduce the failure rate of business in South Africa and equip businesses with the correct tools to grow.

“One of the surest ways for the Finance Minister to boost job creation and economic development is to deliver a small-business friendly Budget – providing SMEs with market opportunities, lowering the costs of finance, expanding the availability of finance and reducing the efforts and costs of compliance. This will enable SMEs to be formed and grow at a faster rate, and thus assist the country in reducing the unemployment rate,” concludes Martin.

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