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 Budget Speech Commentary by Business Partners Limited – Ben Bierman

 

 Minister of Finance Pravin Gordhan delivered a balanced and conservative budget which strives to continue the necessary fiscal consolidation, attempts to address inequality, and will likely ensure that South Africa has a realistic chance of avoiding a ratings downgrade. From a small and medium enterprises (SME) perspective, this should create an economic environment that is more conducive to growth and opportunity.

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This is according to Ben Bierman, Managing Director of Business Partners Limited (BUSINESS/PARTNERS), a specialist risk finance company for formal SMEs, who says that given the current narrative regarding inequality that continues to plague economies around the world, particularly South Africa, the Finance Minister made a progressive move in targeting high-income earners to get the additional revenue required. However we foresee that this is the first of several initiatives in the move to address inequality and we might see more taxes introduced for the wealthy in future.

“Wealth in South Africa is still highly concentrated, with 95% remaining in the hands of 10% of the population. The fact that R4.4billion will be raised through an increase to 45% in the marginal tax rate on income above R1.5 million, which will only affect 103 000 people – less than 0.2% of the population – is evidence of this disproportionate concentration.”

Bierman goes on to highlight the following key elements from the speech which have the potential to assist with the growth and development of small and medium enterprises:

1. Business support and empowerment:

“The allocation of R3.9billion over the MTEF to the Department of Small Business Development for the assistance to small and medium enterprises and cooperatives is an increase of around 9% from what was initially allocated to the department. While this is a significant allocation, it must be noted that only R359 million over the 2017/2018 financial year will be used in direct financial assistance to businesses.”

Bierman adds, however, that the core focus of the Department of Small Business Development to perform a regulatory update of National Small Business Act of 1996 is something that BUSINESS/PARTNERS supports as a matter of urgency. “The Small Business Development Act should be overhauled to better reflect the importance of SMEs and achieve further alignment with the National Development Plan in order to ensure sustainable SME formation and growth.”

2. Prompt payment

“Minister Gordhan emphasised, once again, that suppliers who have met their delivery obligations are entitled to payment within 30 days. This is vital for the survival and growth of SMEs, as slow payment can prevent the survival of businesses. With the right support, the Office of Chief Procurement Officer is well placed to monitor this process.”

3. Economic growth and social protection:

“There is an allocation of R14.5billion for what is referred to as ‘economic growth and social protection’. While there are no specifics around this allocation as of yet, National Treasury will evaluate the proposals made for various initiatives included in this allocation, which could impact SMEs in two ways. The first of these is an allocation of R2billion towards the business incentives for growth in job creation and secondly, the Small Business and Innovation Fund which will be developed by the Department of Science and Technology in conjunction with the Small Business Department.”

4. The proposed creation of a securitisation vehicle for the funding of SMEs.

“While still in the early stages of discussion and development, we – as a risk financier – are quite excited about this in terms of initiating broader access to funding. We believe that this is an excellent and innovative solution which could mobilise funding for SMEs by tapping into additional sources of finance.”

Bierman concludes that, based on the proposed budget, the outlook for South Africa, as well as South African SMEs, is positive. “Government’s biggest responsibility, in regards to SME formation and expansion, is to ensure that that the ecosystem in which these businesses operate becomes more business-friendly and conducive to sustainable growth. We believe that the South African economy – given improved confidence levels and barring constraints – can grow at a 3.5% rate per annum.”



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