Economic growth is crucial to SMEs

While local small and medium enterprises (SMEs) have many wishes for the upcoming Medium-Term Budget Policy Statement (MTBPS) that will improve the ease of doing business, none of these will be significant unless the ultimate outcome of the speech is improved economic prospects.

Emphasis on the creation of a supportive business ecosystem – through an increased budget allocation to the SME sector – will send a strong signal recognising and supporting the role of SMEs in generating the type of inclusive growth that South Africa so desperately needs, but it will ultimately become a moot issue if the broader policy uncertainty and impasse around a growth imperative is not addressed.

Although the local economy has received some good news over the past couple of months in the form of an interest rate cut, lowered inflation and a better-than-expected trade surplus, the country’s economic growth potential continues to be hampered by political noise and policy uncertainty.

Figures recently released by the International Monetary Fund reveal a projected cut in economic growth for the year from 1% to 0.7%.

In the upcoming MTBPS, we hope that finance minister Malusi Gigaba provides a clear and positive direction not only on government plans to grow the economy, but also on creating an investor friendly environment, which is first and foremost about instilling trust and confidence in South Africa.

Considering the widely spread media coverage suggesting the capture of National Treasury, it is critical for Gigaba to chart the agenda and direction that Treasury will take in terms of the current macroeconomic challenges faced by the country. These challenges include the need for fiscal discipline and fiscal prudence, managing the country’s increasing debt levels and specifically how Treasury will deal with the expected revenue shortfall to maintain the budget deficit at the planned 3.4% of the GDP as forecast in February.

If these challenges aren’t adequately addressed and managed effectively, South Africa runs the risk of being downgraded again later this year.

Given that revenue collection has been undermined by low economic growth and weakening tax compliance, the current budget deficit presents a particularly difficult decision for the finance minister. Although government is under pressure to bolster revenue, further taxation on businesses would not support an investor-friendly business environment and increasing personal tax rates will have a dampening effect on consumer spending and indirectly on economic growth.

While an increased tax relief and tax breaks are often on the budget speech wish list for many SMEs, it is not realistic to expect any tax relief this MTBPS in the context of government revenues being under pressure.

Like the aphorism – a rising tide lifts all boats – our fundamental wish is that the outcome of the MTBPS bolsters the economy, which will in turn create a more conducive environment in which SMEs can operate. This will be a major step forward in unlocking the potential of our economy and addressing the three major challenges that have hampered SME growth the past 18 to 24 months, namely weak consumer spending, low private sector growth expansion and low growth from government due to revenues being under pressure.

Ben Bierman is managing director at Business Partners Limited.

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