2023 Budget: SMEs need fundamental, large-scale interventions

SMEs need fundamental, large-scale interventions from the 2023 National Budget as they struggle to regain their foothold in the wake of the pandemic and after several socio-economic factors eroded business confidence and thwarted efforts to rebuild the already struggling sector.

When Finance Minister Enoch Godongwana delivers the budget speech on Wednesday afternoon, small businesses will watch with growing expectancy for urgent government intervention that will offer much-needed relief for SMEs.

Bounce-back scheme

Last year, Godongwana announced the launch of a government-initiated bounce-back scheme to offer financial support to businesses impacted by Covid-19. However, of the R15 billion that was to be deployed, only R140 million in loans was approved, with only R77 million disbursed by late 2022.

Jeremy Lang, chief investment officer at Business Partners Limited, says the discouragingly low approval rate and uptake are a testament to the far-reaching impact of the multi-layered economic decline that has undermined any progress towards post-pandemic recovery for SMEs.

“The struggle of local small businesses against the oppositional forces of rising inflation and interest rates, petrol hikes and stage 6 load shedding has been well-documented, with many businesses shutting their doors in 2022.”

Lang recalls President Cyril Ramaphosa’s promise last year to “unleash the potential” of the businesses that create the most jobs and provide the most opportunities for poor people to earn a living and drew up a wish list for small businesses ahead of the Budget Speech. It included enlisting the services of SMEs to solve the energy crisis, investing in transport-related infrastructure as a matter of priority and revising fiscal policy to support industry development.

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Enlisting SMEs to solve energy crisis

The most immediate concern for South Africa’s SME sector is the impact of the worsening energy crisis, Lang says. In the 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 the adjustment of the bounce-back loan scheme.

“Bringing SMEs into the supply chain for alternative, renewable sources of energy that will relieve pressure on the grid, is one way that government can boost the sector. I believe that involving small businesses in the process of building an energy secure nation will be a step in the right direction.”

He also says that rooting out procurement corruption and driving policy reform in ways that are favourable to the development of small businesses, are just as crucial as providing financial means of relief.

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Transport-related infrastructure

Last year, the minister committed R17.5 billion to the launch of infrastructure catalytic projects and while good examples of planning were seen in provinces such as KwaZulu-Natal, a more “targeted approach to dealing with obstacles that are the most imperative to the growth of small businesses, is what is needed,” says Lang.

He points to the importance of rehabilitating and expanding the reach of the country’s urban rail network as a much-needed solution to more efficient public transport. “Initiatives such as the African Continental Free Trade Area are effective in principle, but not in terms of practicality, given the poor state of South African rails and roads. A single-minded focus by the public sector on resolving these issues should be a top budgetary priority.”

ALSO READ: Energy crisis a ‘thorn in the side’ of small business

Revising fiscal policy

Lang says this year’s budget speech should also detail government’s plans to bolster the growth of the SME sector and encourage entrepreneurial activity through tax breaks and incentives.

“Currently, SMEs qualifying as small business corporations are exempt from paying income tax on the first R91 250 of their taxable income. This exemption, although renewed every year to account for inflationary pressures, is not being increased at a rate high enough to make the difference that is needed for small businesses to regain ground in a way that is impactful and sustainable.”

He says this is a challenge that must be tackled as a matter of urgency and in tandem 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 are to benefit materially enough to grow their ventures and help alleviate the scourge of youth unemployment, tax incentives that support this objective must be revised upwards at a rate that exceeds inflation. Further interventions could include extending the applicable age bracket of the ETI to 35 and expanding the country’s designated special economic zones to include under-resourced communities in all nine provinces.”

Lang says this year’s budget will undoubtedly mark a turning point in the state of South Africa’s SME sector. “Progress made towards developing small businesses as engines of the GDP is progress made for people on the ground, which is ultimately where it effectively makes a tangible difference.”