The Budget Speech must outline clear plans on how to support SMEs

Small and medium enterprises (SMEs) contribute significantly to the South African economy. However, the sector faces challenges that prevent it from thriving to its fullest potential.

Some of these challenges need the government to find and implement solutions. Thus, the sector will eagerly listen to Minister of Finance Enoch Godongwana deliver the Budget Speech next Wednesday, 19 February.

Garth Rossiter, chief risk officer at Lula, says according to their data, SMEs are under immense pressure.

Pressure facing SMEs

“Our data shows that SMEs face immense pressure, with a 50% drop in turnover year-on-year.

“The highest interest rates in more than 15 years have restricted consumers’ ability to spend, which has had a massive impact on turnover across all industries,” he adds.

Rossiter says the pressure has resulted in the sector not being able to contribute to the country’s economy to its fullest potential, leading to almost no growth in 2024 and shrinking in the third quarter.

“The decline is not just a statistic; it’s a stark reality pushing many business owners to their limits, forcing them to make tough decisions daily just to keep the lights on.”

Sona lacked detail in supporting SMEs

Rossiter says despite positive changes in the macroeconomic environment in 2024, like increased governmental stability and a more reliable electricity supply, SMEs are still experiencing reduced cash flow.

“When President Ramaphosa delivered his State of the Nation Address (Sona) a few days ago, he offered some encouraging commitments on SME funding, venture capital, and easing business barriers in the informal sector.

“These are key drivers of real economic growth, but the Sona lacked detail.”

Rossiter says it would be appreciated if Minister Godongwana would clarify how the government will support the sector.

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Clear plan on how to make life easier for SMEs

He says they have heard the same story year after year.

“It is not a secret that SMEs are the lifeblood of the country, employing between 50% to 60% of the country’s workforce and contributing around 34% to the GDP.”

He believes if the government was serious about unemployment, it would present a clear plan in the budget on how it intends to make life easier for SMEs.

He says the budget must also include how the government will remove red tape and regulatory burdens to allow businesses to operate more effectively.

“Instead of trying to create public sector employment (using taxpayer money) and adding to inefficiency, the government should leverage the enormous potential of our small businesses and entrepreneurs.”

What government needs to focus on

Rossiter adds that the government does not need to create jobs directly; instead, it should focus on simple initiatives which will lead to job creation.

The simple things include providing reliable electricity and water, good infrastructure and efficient ports.

“South African ports are ranked among the worst in the world, which is disastrous for any importer or exporter.

“It is not complex, but if they get the basics right, the jobs will follow (and, as an added benefit, successful businesses will add to government coffers through paying corporate tax).”

Giving reassurance

He says the Budget Speech can play a major part in assuring SMEs that the government is committed to getting the basics right.

The private sector can create jobs and drive growth if the government provides reliable energy, transport, security, and water.

“Small businesses depend on efficient transport networks — ports, roads, and rail — for trade. Hopefully, the Budget Speech will clarify how SMEs will be empowered in the year ahead.”

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GDP in third quarter

Statistics South Africa said real South African gross domestic product (GDP) weakened by 0.3% in the third quarter (July–September) of 2024.

The negative contributors were the agriculture industry on the production (supply) side of the economy, including transport, trade and government services.

On the expenditure (demand) side, imports, exports, and government consumption declined.

Direct contribution by small business

According to the 2023 data on the Department of Small Business Development website, Small, Micro, and Medium Enterprises (SMMEs) contributed 40% to the GDP.

84% of those businesses operate in the personal services and wholesale/ retail trade sectors.

Personal services include hairdressing, landscaping, and auto repair.

“The SMMEs in South Africa are largely micro enterprises (54%) and operate on an informal basis. Only 37% of South African SMMEs are formally registered with the Companies and Intellectual Property Commission (CIPC) and/or other government registration channels such as the local municipalities, and only 30% are registered for tax.

“However, those SMMEs that are formally registered are a significant driver of the economy, contributing over R2.9 trillion to GDP.”

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