The Finance Minister’s Budget Speech for 2018/9 (21 February 2018) outlined the country’s economic growth strategy for the year to come.
Small & Medium Businesses, feeling the pressure of a tight economy, will be hoping to see initiatives from government to support entrepreneurs and enable enterprises to thrive.
Here are a few of the issues keeping Small & Medium Business owners awake at night, and some ways government could address their pain points:
1. The budget shortfall
South Africa’s budget deficit is projected to widen from 3.1% to 4.3% of GDP in the current fiscal year, tax revenue is expected to fall R50.8 billion short of earlier estimates, and government needs to find funds for free tertiary education and other unanticipated costs. Economists predict that we may see an increase in VAT, but increases in personal and corporation tax may also become a reality.
What businesses would like to hear: A VAT increase would bite into consumers’ disposable income, with a knock-on effect for the small business sector. Government should rather look for ways to increase revenues by promoting economic growth; if a VAT increase is unavoidable, it should be targeted at luxury goods and discretionary spending than at day-to-day essentials. However, bringing a tiered VAT structure in place will also complicate VAT admin for smaller companies.
2. The cashflow crunch
According to recent research, 15% of invoices in South Africa are paid late and more than 8% of payments due to the country’s Small & Medium Businesses are never made or made so late that businesses are forced to write them off as bad debt. Government departments and state-owned entities are among the organisations with a reputation for slow payment.
What businesses would like to hear: Budget Speeches have touched on this issue in the past. Small businesses that do business with the public sector would love to hear about tangible steps such as new regulations and legislation to speed up the government payment and procurement process.
3. The infrastructure crisis
Cape Town is counting down to Day Zero, when taps are expected to run dry, and the Eastern Cape is also facing a drought crisis. Meanwhile, the City of Johannesburg is struggling with frequent power outages and a massive backlog in maintenance of critical infrastructure such as its road network. These infrastructure problems are adding to the cost of doing business since companies need to ensure they are resilient enough to keep running through power and water outages.
What businesses would like to hear: Government has promised, over the past few years, to earmark billions of Rands for investment on national infrastructure. Now is the time for national government to step up with concrete plans about how it will work with local government to address the country’s infrastructural challenges. Perhaps tax relief should be on the agenda for businesses that will face existential challenges as a result of the water crisis?
4. The digital dividend
There’s a clear link between adoption of basic, low cost digital tools among Small & Medium Businesses and increased efficiency and growth. Government should look at the causes of low adoption, which range from the high costs of data to low levels of digital literacy.
What businesses would like to hear: The finance minister’s upcoming Budget Speech should focus on closing the digital divide and encouraging small businesses to embrace technology. This could include educational efforts by institutions such as SARS, which could benefit from encouraging small businesses to adopt digital accounting and payroll solutions versus sticking with old and mundane ways.
5. The productivity puzzle
Sage’s live tracker shows that productivity losses caused by unnecessary admin are costing South African businesses R231 every second of the day - adding up to a cost of more than R585 million for 2018 to date. Businesses are still suffering from a significant burden of paperwork, which could be reduced with digital tools.
What businesses would like to hear: Government could make it simpler and faster for small businesses to register as suppliers by making more effective use of digital platforms. It could also take steps to streamline processes such as issuing tax clearance certificates and look at a minor increase in the threshold before small businesses need to register for VAT.
Supporting small business heroes
Some elements government spoke about in the 2017 Budget Speech included:
• Earmarking R3.9 billion for small, medium and micro enterprises over the next three years;
• Plans to provide 2,000 companies in this category with support from the Black Business Supplier Development Programme; and
• An above-inflation increase to the Department of Small Business Development’s total Budget allocation up to 2019/20.
Hopefully, we’ll hear some updates about those initiatives in the coming weeks.
Business builders and small business owners have a central role to play in job creation and economic development. Government should put them at the centre of its strategy to revive the country’s economy – reduced red tape, a supportive business ecosystem, and including small business representatives in policy discussions could all help to create a thriving small business sector.
Pieter Bensch is the Executive Vice President, Africa & Middle East: Sage.