SMEs need fundamental and large-scale interventions from the National Budget 2023 as they struggle to recover after the pandemic and after several socio-economic factors have undermined business confidence and hampered efforts to rebuild the struggling sector.
When Finance Minister Enoch Godongwana delivers his budget speech on Wednesday evening, small businesses will be watching with hope for urgent government intervention that will provide much-needed relief to SMEs.
Bounce-back scheme
Last year, Godongwana announced the launch of a government-initiated bounce-back scheme to provide financial support to businesses affected by Covid-19. However, of the R15 billion to be distributed, only R140 million of loans have been approved, with only R77 million disbursed by the end of 2022.
Jeremy Lang, chief investment officer at Business Partners Limited, said the extremely low levels of approval and uptake are evidence of the multi-layered impact of the economic downturn that is undermining progress towards a post-pandemic recovery for SMEs.
“The struggle of local small businesses against the opposing forces of rising inflation and interest rates, petrol hikes and phase 6 load shedding has been well documented, with many businesses closing their doors in 2022.”
Lang recalled President Cyril Ramaphosa’s promise last year to “unleash the potential” of businesses that create the most jobs and give the poor the most opportunities to earn a living and made a wish list for small businesses ahead of his Budget Speech. These include registering SME services to address the energy crisis, investing in transport-related infrastructure as a priority and revising fiscal policies to support industrial development.
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Registering SMEs to tackle the energy crisis
The most immediate concern for South Africa’s SME sector is the impact of the worsening energy crisis, Lang said. In his 2023 State of the Nation Address, Ramaphosa indicated that state-level measures to help small businesses install solar power and energy-saving devices will be rolled out, including through adjustments to the reverse loan scheme.
“Bringing SMEs into the supply chain for alternative, renewable energy sources that will reduce the pressure on the network, is one of the ways the government can improve the sector. I believe that involving small businesses in the process of building an energy-secure country will be the right step.
He also said that eliminating procurement corruption and driving policy reforms in a way that is conducive to the development of small businesses is also very important to provide financial assistance.
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Transport related infrastructure
Last year, the minister committed R17.5 billion to launch infrastructure catalytic projects and while examples of good planning are seen in provinces such as KwaZulu-Natal, a more “targeted approach to address the most important obstacles to growth. small businesses, what is needed, said Lang.
He pointed to the importance of rehabilitating and expanding the reach of the country’s urban rail network as a necessary solution for more efficient public transport. “Initiatives such as the African Continental Free Trade Area are effective in principle, but not in terms of practicality, due to the poor state of South Africa’s railways and roads. A single-minded focus by the public sector to solve these problems should be a major budget priority.
Also read: Energy crisis is a ‘thorn in the side’ of small businesses
Revise fiscal policy
Lang said this year’s budget speech should also detail the government’s plans to boost the growth of the SME sector and encourage entrepreneurial activity through tax breaks and incentives.
“Currently, SMEs that qualify as small business enterprises are exempted from paying income tax on the first R91 250 of their taxable income. This exemption, although updated every year to take account of inflationary pressures, is not increased at a high enough rate to make the necessary difference to small businesses to achieve impact and sustainability.
He said this was a challenge that needed to be addressed quickly and in line with revisions to the current employment tax incentive (ETI), which was increased by 50% to a maximum monthly value of R1 500 in last year’s budget.
“If SMEs benefit sufficiently to develop their businesses and help alleviate youth unemployment, the tax incentives that support these goals should be revised upward at a level that exceeds inflation. Further interventions may include extending the applicable ETI age bracket to 35 and expanding the zone designated special economy in the country to include communities with less resources in all nine provinces.
Lang said this year’s budget will undoubtedly mark a turning point in South Africa’s SME sector. “The progress made in developing small businesses as an engine of GDP is the progress made for people in the field, who can ultimately make a real difference.”