Small and medium enterprises (SMEs), the engine of the economy and an important source of jobs, are likely to be disappointed if they are expecting any major initiative to directly support them.
Small and medium enterprises (SMEs), the engine of the economy and an important source of jobs, are likely to be disappointed if they are expecting any major initiative to directly support them.

OPINION: SMEs shouldn't hold their breath when Mboweni delivers his budget

By Opinion Time of article published Oct 27, 2020

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DURBAN - All eyes will be on Finance Minister Tito Mboweni when he delivers the medium-term budget policy statement later this week, delayed a week no-doubt to align his budget with President Cyril Ramaphosa’s economic recovery plan.

South Africa was facing a fiscal crisis long before Covid-19 turned the world upside down. Ratings agencies started losing patience years ago at the slow pace of reform and spiraling debt. This perilous state of affairs has been amplified by the lockdown which brought our economy to its knees.

Indeed, this midterm budget is as important as any budget speech in the history of our country. However, small and medium enterprises (SMEs), the engine of the economy and an important source of jobs, are likely to be disappointed if they are expecting any major initiative to directly support them.

One only needs to look back over previous budgets to get a good dose of realism - SMEs usually only receive a very small allocation of the budget, which is disappointing considering the sector drives about 30 percent of our GDP, and is, according to the government’s own National Development Plan, a vital contributor to employment in the country.

Another realism injection comes in the form of the government’s much-touted SME support plans during the pandemic. A fraction of the money purportedly set aside to support SMEs through the R200bn loan guarantee scheme was eventually disbursed, with all of it going to bigger, more entrenched businesses.

The exercise, it would appear, was designed to protect banks’ balance sheets more than it was aimed at directly benefiting small businesses in this country.

Businesses in the sub-R10-million turnover range are increasingly turning to alternative non-bank funders. During the pandemic, small business funder Retail Capital disbursed hundreds of millions of rands in funding to small businesses that were unable to access loans from banks because of the onerous terms prescribed by the scheme’s design.

Mboweni is up against a tough challenge in the medium-term budget. If you overlay the hole in the tax revenue created by the lockdown with the limited ability to reduce spending on the public sector wage bill and debt servicing costs, there is precious little government funding available, including for any SME support. He currently has far less to work with than some of his predecessors.

However, just because the SME sector is unlikely to get any meaningful direct support from the government, it doesn’t mean small businesses won’t benefit from government policy that is implemented properly.

Electricity is one area that is glaringly obvious. SMEs are dependent on Eskom and every time the country plunges into darkness it is the small businesses on the front line that pay the biggest price. For many of them, investing in back-up power is too costly, and they depend on a reliable energy grid.

It would be welcomed by the entire country if the current positive momentum in the electricity sector is maintained, such as the decision to allow municipalities to purchase power directly from independent power producers. Similarly, the recent spate of corruption-related arrests provides a glimmer of hope for better functioning, efficient state spending.

While these areas are not seen as SME support, the effects on the economic environment cannot be overstated. It should not be seen in isolation - the fiscal health of our country is important to every single one of our SMEs, whether they provide professional services or sell used car parts.

The budget speech needs to instill confidence. It must paint a picture that the marshals of the state have a plan, and that they intend to stick to it. It also needs to make financial sense while spreading the limited resources wisely. People need to believe that their taxes will be spent on fixing and supporting the country and its economy, not on luxuries for the politically-connected elite.

We are not holding our breath for an SME miracle when Mboweni delivers his speech, but as a country we should demand that the reforms needed to turn the country around finally start happening - despite pressure to cave into populism.

In the meantime, because SMEs aren’t high on the budget agenda besides the usual positive rhetoric, small businesses will need to educate themselves about where and how they can access affordable alternative finance without onerous red tape, so that they can grow and thrive in a post-pandemic world.

Guy Hosking, Retail Capital’s CFO

BUSINESS REPORT ONLINE

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