For the economy to grow, small and medium-sized businesses need fundamental support from the state. The time to act on policy is now, writes Pieter Bensch
We’re racing towards the end of the tax year and the start of the next, with the president’s state of the nation address (Sona) and the finance minister’s budget speech for 2020/21 on the horizon.
Small and medium-sized businesses will be listening closely to find out about government’s spending priorities for the year ahead, as well as its plans to revive the economy.
Let’s consider some of the concerns on small and medium-sized business owners’ minds, and some ways government could address their challenges:
. The tax burden: Finance Minister Tito Mboweni painted an unflattering picture of the economy and the state of public finances in his medium-term budget speech in October.
He highlighted a projected tax shortfall of more than R50 billion as a particular concern.
What’s more, the budget deficit was projected to widen from 3.1% to 4.3% of GDP in this financial year.
South Africa’s national debt now exceeds R3 trillion.
With state-owned enterprises such as the SABC, SAA and Eskom burdened by excessive debt, and the state facing continued demand to invest in social services and infrastructure, government will need to find new revenue sources.
Some economists believe we could see another VAT increase or personal income tax increases – perhaps even both – in addition to the traditional tax hikes.
What businesses would like to hear: With consumers – especially low- to middle-income earners – already under significant financial pressure, tax hikes could eat into disposable income and stifle economic growth.
It could harm small businesses because their customers would have less money to spend.
Many small businesses end up absorbing the last one percentage point increase in VAT, hurting their profitability.
Government should rather look for ways to increase revenue by promoting economic growth.
. The long wait for payment: Many government departments, state-owned enterprises and municipalities have a reputation for slow payment.
This hurts the profitability of small businesses and makes it hard for them to pay their suppliers.
The small business development department said the total value of invoices more than 30 days old and not paid by national departments at the end of the last financial year was R634 million.
The total value of invoices unpaid for more than 30 days by provincial departments was R6.5 billion.
What businesses would like to hear: Small businesses would like to hear about tangible steps, such as new regulations and legislation, to speed up the government payment and procurement process.
. The Eskom crisis: Each day that small businesses experience load shedding further dampens prospects for economic growth.
What businesses would like to hear: Following the ANC national executive committee’s lekgotla last month, the governing party has approved a range of measures to improve energy security, including letting municipalities procure their own energy, expanding the Renewable Energy Independent Power Producer Procurement Programme and freeing up regulations on self-generation by businesses.
The budget speech and Sona must translate these policies into urgent action plans with achievable targets and deadlines.
. The digital divide: Driving wider adoption of digital technologies among smaller businesses could help drive increased efficiency and growth.
Digital technology could integrate informal smaller enterprises into the formal economy, helping them move to the next level of development.
Government should look at the causes of low adoption, which range from the high cost of data to the low level of digital literacy.
What businesses would like to hear: The budget speech and Sona should focus on closing the digital divide and encouraging small businesses to embrace technology.
It could include educational efforts by institutions like the SA Revenue Service, which could benefit from encouraging small businesses to adopt digital accounting and payroll solutions.
After several delays, it is imperative to accelerate the release of more high-demand spectrum to network operators to facilitate the roll-out of mobile broadband.
MAKE SMALL BUSINESS A PRIORITY
There is no sugar-coating it: South Africa’s economy faces a tough year, and the World Bank and International Monetary Fund have forecast GDP growth of below 1% for the year.
Many large businesses have announced they will imminently retrench thousands of workers, but, under the right conditions, small businesses could help close those gaps.
To drive inclusive economic growth, we need to develop and grow our vibrant, resilient small business sector.
Bensch is the executive vice-president of Sage in Africa and the Middle East