The good and bad news for SMES from Budget 2019

2019-02-21 21:59 - Carin Smith
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Finance Minister Tito Mboweni on Wednesday referenced the private sector as the key engine for job creation in his national Budget speech.

Fin24 spoke to the experts, who highlighted several key positives – and negatives – for small and medium enterprises from this year's Budget.

 On the plus side:

1. Falling data costs

Mboweni was adamant that the cost of data must fall, and committed to work with the necessary parties to ensure this occurs, says Ben Bierman, MD of Business Partners.

As data becomes cheaper, there will be more opportunities for SMEs and entrepreneurs to build their businesses – and for new technology businesses to emerge. This means affordable, accessible data can help drive economic growth, Bierman believes.

2. R30bn to build new schools and maintain school infrastructure

National infrastructure spend will likely be a big contributor to SME growth, creating positive knock-on effects for job creation in the sector. Not only will SMEs be included in the supply stream, but as infrastructure projects are rolled out, economic growth will be positively impacted, having a downstream effect on small business, Bierman says.

3. Relaxed visa requirements

Relaxed visa requirements provide an enhanced opportunity for SMEs in the tourism industry, driving growth and job creation.

4.R3.2bn to operationalise the small business and innovation fund over the medium term

The R3.2bn budget allocation for the small business and innovation fund is a positive development for the country's entrepreneurial eco-system, anticipated to contribute to the creation of more innovative businesses that can respond to opportunities presented by the 4th Industrial Revolution.

Also noteworthy is the R481.6m allocated to the Small Enterprise Development Agency's incubation programme, expected to bolster both the creation of new businesses and the survival rate of existing businesses, says Bierman.  

5. Industrial business incentives

The R19.8bn allocated to industrial business incentives will yield opportunities for local industrial SMEs, create job opportunities and benefit the economy overall, Bierman told Fin24.   

The R600m assigned to the clothing and textile competitiveness programme is also a much-needed boost to revitalise this struggling sector, which was historically a driver of economic growth.

… And three areas that still show room for improvement:

1. Investing in existing SMEs

Karl Westvig, CEO of Retail Capital, welcomed the money allocated to the Small Enterprise Development Agency, saying it would help incubate new businesses. "But if we want to develop new jobs in South Africa, government should also be investing heavily in the growth of those SMEs that already have a proven track record," said Westvig.

"What they lack most is access to funding to support increased stock levels, new locations and new channels to customers. This leads to growing turnover and more staff to handle this growth."

2. A high tax burden

Steven Nathan, CEO of 10X Investments, said although the economy isn't growing much, revenues are still growing at a high rate. This means businesses and consumers are being taxed very highly in a low growth environment.

With entrepreneurial activity a leading component of wealth creation, corporate taxes and dividend withholding taxes are important considerations, added Kuhle Kunene, head of wealth advisory at Standard Bank Wealth and Investment.

"Fortunately, there were no direct tax increases with the rate applicable for corporate income for both resident and non-resident companies a flat 28%. The rate of dividends tax increased from 15% to 20% for any dividend paid on or after 22 February 2017, but was not increased this year," said Kunene.

3. More information, please

Pieter Bensch, executive vice president of Sage Africa & Middle East, says the mentions made of SMEs were short on detail, at a time SA desperately needs to supercharge the segment's growth. Bensch also emphasised the need to free small businesses from "stifling regulations and complicated taxes" in order to boost employment and drive competition.

He commended the Minister's acknowledgement of these issues, saying this aligned with the president's pledge to improve ease of doing business in his State of the Nation Address.

Budget 2019 will not solve any of South Africa's pressing economic problems or bring the country closer to solutions, according to the Cape Chamber of Commerce and Industry.

The chamber's impression is that it is a holding or "treading water" budget designed to keep SA afloat until after the election.

"We have urgent problems like dealing with Eskom and the other state-owned entities which are on the verge of bankruptcy. Drastic measures are required but if we expected them in the budget we have every reason to be disappointed," Janine Myburgh, president of the Cape Chamber, said in a statement.

"The minister did not shy away from the seriousness of our problems and warned that that we would have to deal with bitter fruit but he offered us little we will have to wait until after the election."

In Myburgh's view, it was clear from the Mboweni's remarks that he knows what kind of decisions will have to be made in the near future, but the question is whether there will be the political will to make those decisions.

"At present the indications are that there is such a diversity of opinions in the ruling alliance that those decisions will be difficult to say the least," said Myburgh.

"Clearly the Minister is counting on the private sector to produce the growth that will begin to turn the economic tide but we need more help in reducing over regulation and even interference in the private sector."

Musa Makhunga, president of the Durban Chamber of Commerce and Industry, applauded Mboweni on working to develop and implement a turnaround plan for state-owned enterprises.

"We need to reform the governance of state-owned entities. These institutions represent critical state infrastructure and cannot be left to operate in disarray and fall into mismanagement under our watch," said Makhunga.

"SOEs need to create added value to the nation and not be a drain on its finances."

The Durban Chamber also acknowledges government's commitment to combatting crime.

The allocation of R481.6m towards the Small Enterprise Development Agency (SEDA) to expand its small business incubation programme in Budget 2019 was welcomed by Gary Epstein, managing director of EasyBiz Technologies.

"With a report by the Small Business Institute revealing that some 70% of our emerging small businesses fail within their first two years of operation, they need all the help they can get and SEDA's offerings can give them a better chance of survival," says Epstein.

"The small business incubation programme in particular is crucial for not only surviving the fourth industrial revolution, but thriving within it. Consequently, South Africa's small and medium-sized enterprises will be able to employ more people and enter new markets with cutting-edge products and services, growing the country's economy, in turn."