Budget 2019 calls for government to start driving growth for SMEs if these businesses are to survive a tough, sluggish economy and over-indebted consumers. File Image: IOL

DURBAN – Budget 2019 calls for government to start driving growth for small to medium enterprises (SMEs) if these businesses are to survive a tough, sluggish economy and over-indebted consumers.

"With the country’s balance sheet looking decidedly precarious and Eskom’s saga affecting small businesses as they are unable to trade without power, government has to support the SME sector – the lifeblood of our economy – that has been taking significant strain in the last couple of years," said Karl Westvig, chief executive of Retail Capital. 

He said: "Unfortunately, I think SMEs will be ignored with the current focus being on financial restructuring as the biggest dilemma government faces is how to run a country with R445-billion of debt that has the potential to cripple South Africa". 

With the economy only growing at 1 percent there needs to be a significant investment in the SME sector and we would welcome an increase in access to funding which government can support, a lower regulatory burden and lower utility costs such as electricity and fuel.

Support needed

According to Westvig, the government must support the existing SME funders in the market.

“Just as they have done with the R9-billion Jobs Fund announced in 2011 where funding went to commercial entities and aiding in job creation, more needs to be done with the Small Business Fund.  

"If the government could provide funders like us with guarantees then we would be able to raise more capital for funding at lower rates. The biggest issue is when the government creates funds for specific sectors but gets caught up in red tape and those governing the funds who aren’t experienced in that particular sector," said Westvig. 

Overcoming challenges

Of course, the government is facing significant challenges when it comes to the SME sector.

“Not only does South Africa have a low GDP growth rate, but high levels of consumer debt mean customers do not have disposable income as they are spending a large amount on servicing their debt. Furthermore, rising expenses following increases in water, electricity, VAT, and petrol see consumers and businesses carry much higher cost structures also negatively impacting disposable income.”

Adding the uncertainty with the rollout of blackouts, this means there are times when SMEs cannot trade. This, in turn, reduces confidence in the economy and in government.

Impact of upcoming elections 

We have always seen a hold back in investment in the SME sector prior to political events like elections,” he says. “We are already seeing fewer applications for funding and we are expecting business owners to hold back in terms of  investment in their businesses for the whole of April while they wait to see the outcome of elections.”

Rethinking business models

Westvig feels that small business owners must relook their business models to survive 2019.

“They need to adapt and be innovative. For example, a business could change its offering by upgrading its premises, undergoing an internal refurbishment or using digital channels to attract new customers.

“It is all about the value the SME is offering. This extends to its supply chain and whether better suppliers, better terms, and better products can be found. By investing in training staff more, potentially bundling products and services, and other value-adds, SMEs can differentiate themselves from their competitors.”

Enabling environment

Unfortunately, SMEs operate in a complex, fragmented sector that is also highly regulated.

The government has tried to simplify tax admissions but for a new business owner it is just overwhelming.

Westvig adds that the addition of the Protection of Personal Information Act (PoPI) and other new laws, it is incredibly complicated to run a business, meet regulatory requirements, and still drive growth.

“There is no silver bullet solution and government must realise it cannot provide the relief needed on its own. Therefore, it must support those businesses already servicing the SME sector and help them to scale.”

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