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Growing small businesses won't blow the budget

Feb 21 2019 19:11
Adam Craker

For the past several years, the Budget speech has been a careful balancing act between supporting growth and stabilising government debt. This year, we have faced possibly our toughest Budget yet.

Another year of anaemic growth and lower government revenues, coupled with the rapidly unfolding financial crises at Eskom and other SOEs, meant that there was almost no room to manoeuvre.

But despite the gloomy circumstances, there are still ways to support and promote economic growth without blowing the budget.

Almost a decade ago the National Planning Commission identified unemployment, income inequality, poor-quality education, and poorly located and insufficient infrastructure as significant challenges facing the economy. Since then the government has made only limited headway in addressing these challenges.

Sadly, this has little to do with how much budget we had and everything to do with leadership, governance, and accountability.

If the last month has shown us anything, it is the scale and impunity with which many elected officials and politically connected individuals have over the past several years used their positions as licenses to loot, rather than platforms to uplift.

Although the revelations made at the Zondo commission of inquiry into state capture, and the recent sentencing of former CEO of the Land Bank Philemon Mahlahlane to seven years in jail for fraud are encouraging, they are largely symbolic gestures rather than concrete solutions to problems faced by average South Africans. 

Plenty of revenue, not enough will

The truth is that there has been more than sufficient revenue allocated in the national Budget over the years to provide adequate education, build sufficient infrastructure, and address long-standing inequality, but a lack of accountability has meant that we have squandered this opportunity.

We now need to work harder, smarter, and together if we are to achieve the same levels of growth. More importantly, we now have no other option but to focus on inclusive growth that creates a virtuous circle that does not require vast capital injections that we simply do not have.

In this respect the greatest driver of inclusive growth is entrepreneurship, and we need to do everything we can to promote and encourage entrepreneurship in every sector of the economy.

Enter entrepreneurs

Entrepreneurship has frequently been identified as the greatest lever of job creation and economic growth in South Africa, yet our rate of entrepreneurial activity remains comparatively low for a developing nation. One way to assist entrepreneurs and young South Africans in general is to improve their levels of financial inclusion and financial literacy. 

According to the 2018 Real State of Entrepreneurship Survey, accessing funding remains the biggest concern and challenge for entrepreneurs. They found that entrepreneurs are largely self-funded but do not apply for funding because they don’t know who to approach or how to go about it. 

In his first four months in the job, Ketso Gordan, the CEO of the SA SME Fund, has committed R600m to strengthen the SME ecosystem. This collaboration between government, labour and business under the Presidential CEO Initiative, expects to allocate a further R800m by the end of 2019.

Initiatives to stimulate our non-existent venture capital sector, help businesses in the informal sector to scale and augment existing growth capital are receiving attention. More investment is urgently required to ensure this campaign escalates growth, rather than resembling a spending spree after a Powerball win.

A separate recent report by youth employment accelerator Harambee found that young people access financial services at roughly half the rate of adults. The result of this is that young people are less able to save and invest for the future, raise capital to start or grow a business. This, in turn, makes them more vulnerable to financial shocks and decreases their likelihood of long-term inclusion into the economy.

Harambee’s research shows that having access to affordable financial products and services that meet the needs of young people can provide longer term financial security and increase their chances of sustained economic participation. 

Incentive to thrive

Considering that more than half of South Africans who run their own businesses are youth and that small businesses create approximately half of all employment opportunities in SA, there is more than sufficient reason to provide every incentive for them to thrive.

As a business owner, I know that with every employee there is an opportunity to improve financial literacy and create a foundation for inclusive growth.

Another way to boost growth and reduce unemployment is to increase labour market absorption. Harambee’s Breaking Barriers report found that the high cost of job-seeking is a significant hindrance to labour market absorption. 

It is well-known that transport infrastructure is a powerful lever for economic growth, but even with adequate infrastructure the costs associated with talking a train, bus or taxi to deliver a CV or attend a job interview are beyond what they can afford. For this reason, it would be hugely beneficial to create incentives for job-seekers and to encourage businesses to consider transport allowances for employees in instances where a significant portion of entry-level salary is used up. 

These and other small and simple changes to the way in which business and government approach the process of growth can make all the difference without impacting the bottom line. 

By creating an environment that makes it easier for young people to join the labour market and for entrepreneurs to grow their businesses we can break out of this low growth cycle and start to develop an economy that is dynamic and equitable.

Adam Craker is the CEO of IQbusiness.

budget2019  |  budget 2019  |  budget  |  sme  |  entrepreneurship
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