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Budget 2022 – the time for pragmatism has arrived

Picture: Steve Buissinne/Pixabay

Picture: Steve Buissinne/Pixabay

Published Feb 21, 2022


By David Morobe

This will be a defining year for South Africa’s economic recovery as Finance Minister Mr Enoch Godongwana prepares to deliver the National Budget Speech on February 23.

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High on the agenda for many South Africans are the steps that need to be taken to address the deep poverty, unemployment and inequality that is so prevalent. And for the country’s growing community of entrepreneurs, issues relating to how the state aims to create an enabling environment for the small business sector to provide them with market access, are particularly important.

The upcoming Budget Speech needs to address, in granular detail, how the assurances made in the recent State of the Nation Address (Sona) will be implemented, as well as the practical imperatives to which the state has committed for putting the economy on an upward trajectory once more.

The time for pragmatism has arrived. And if any aspect of public discourse can provide the small and medium-sized enterprise (SME) community with the solutions it needs, it would be the upcoming Budget Speech.

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The President pointed out at SONA 2022 that the problems of the South African economy are deep and structural. The economic reconstruction and recovery has been held back by an unreliable electricity supply, inefficient network industry and the high cost of doing business. These issues should therefore be at the core of the state’s decisions on how to build an ecosystem in which entrepreneurs are able to thrive.

On this topic, I am encouraged by the President’s commitment to undertake far-reaching measures to unleash the potential of small, micro and medium businesses.

We welcome the appointment of Sipho Nkosi, who will head-up a team in the Presidency to reduce some of the red tape which historically, has served as a barrier to entry and success for SMEs and business in general.

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South Africa has a low ranking of 84 out of 190 countries in terms of ease of doing business. This writer hopes that the establishment of the “red tape team,” will help remove some of the obstacles that SMEs face.

In the Q3 2021 SME Index presented by Business Partners Limited, “less red tape” was third in a list of six imperatives that South African small businesses believe the government should prioritise. The bureaucratic red tape has existed for decades, so this move by the President is definitely a huge step in the right direction.

In expanding on his commentary around how integral the 2022 Budget Speech will be in reducing the high cost of business in South Africa, it is important to note the energy crisis as one of the key deterrents to business growth, as well as foreign investment.

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This is an area on which we must focus more acutely than ever. Our research has shown that the majority of South African SMEs have been badly impacted by the reoccurrence of loadshedding – which in 2022, is entering its 14th year as a South African reality. The impact of this interrupted power supply on the productivity and profitability of small businesses cannot be overestimated. This was a sentiment echoed by the President.

Also, of key interest in this year’s Budget Speech will be the government’s resolutions on the “new, redesigned loan guarantee scheme” as mentioned in the President’s Address.

According to President Ramaphosa, this recalibrated scheme is intended to assist small businesses to recover from the effects of the Covid-19 pandemic, as well as the July 2021 civil unrest that left SMEs reeling. But the question that is foremost on the minds of analysts and the business community across the board, is how this will play out in terms of rands and cents – an answer that Morobe hopes will be outlined in the upcoming Budget Speech.

We are particularly interested in how much finance will be apportioned to non-bank SME finance providers, as well as what the specific mandates of this new scheme will be.

We would also like Godongwana to provide answers in terms of how these funds will be deployed and which sectors will be the state’s focal points. What has become evident is that the finance deployed under the scheme’s 2021 iteration, did not filter through sufficiently to small businesses. Our hopes are that the new bounce-back scheme will deliver what it has promised.

This commentary serves as a segue into the discussion around the localisation of production – a theme illustrated quite literally by the President’s attire, a suit manufactured locally. It was one indication that the government’s Economic Reconstruction and Recovery Plan to revitalise the country’s manufacturing base, is indeed beginning to bear fruit.

The localisation of production is a welcomed proposition – one that needs to encompass sectors beyond clothing, and one that can act as an employment stimulus.

If South Africa is to achieve its goal of building globally competitive export industries, then the focus must be placed on how this can stimulate the SME sector which is strategically positioned as a cornerstone of the manufacturing value chain. What is happening in the clothing industry is hopefully a precursor to the massive rollout of infrastructure as outlined in the Recovery Plan.

The Employment Tax Incentive, while it has been relatively effective in encouraging small businesses to hire, can be enhanced to absorb more young people. The need for employment creation is pronounced given our unemployment rate which has reached its highest recorded level.

Many will be listening attentively to the details of the changes to the scheme that Mr Godongwana will announce in the Budget Speech on 23 February.

Small businesses across the spectrum need to embrace this incentive as the key to playing a role in improving the socioeconomic environment of the country. And we would like to see government putting more weight behind it in this year’s Budget Speech.

We call on government to expand the criteria and where justified, provide more leniency on provisional tax to alleviate some of the cashflow problems experienced by SMEs. This incentive could also include special rates for VAT and/or transfer duties for entrepreneurs who are purchasing business premises for productive purposes.

These are the kinds of changes we are hoping to be announced on February 23, as we work together with government as private sector players, to provide better prospects for the country’s SMEs.

David Morobe is executive general manager for Impact Investing, Business Partners Limited.

*The views expressed here are not necessarily those of IOL or of title sites.