As the domestic economy continues to contract, Finance Minister, Pravin Gordhan has tough decisions to make while curbing spending, accommodating the drought-stricken agricultural sector and ensuring that small businesses continue to grow.
“The National Budget Speech has a direct impact on the bottom line of SMEs and influences long-term business decisions,” says Yudhvir Seetharam, Head of Analytics for FNB Business, as he unpacks reasons why small businesses should make time for the budget speech.
- Tax – this should be watched closely as high unemployment, decreasing disposable income of consumers and the slowdown in economic growth are currently leading to lower tax revenues for the government. Meanwhile, tax relief for small businesses would have a major impact on their profit margins.
- High youth unemployment – the current youth subsidy may be cancelled due to complaints that it is not effective enough. However, scrapping this subsidy, while saving on costs, might also decrease business and consumer confidence as we are effectively doing less to assist in youth unemployment.
- Red tape – in a weak economic environment the government should aim to reduce red tape since it increases costs for SMEs and hinders their growth and ability to create jobs.
- National Development Plan (NDP) – updates provided on the implementation of the programme directly affect SMEs since the government is relying on this sector to meet one of its NDP goals to create 11 million jobs by 2030.
- Infrastructure investment – spending on infrastructure, roads, power plants and water supply initiatives, amongst other projects, creates vast opportunities for SMEs.
- Weak Rand – despite the weak Rand, South African businesses are still failing to take advantage of the export market due to low global demand and a number of economic factors. As a result, the government may consider introducing incentives to boost export growth.
In contrast, because we are a net importer, the weak Rand will have a negative impact on the cost of imports due to factors such as the drought.
- Procurement – the decision by government to simplify the tender and procurement processes has given SMEs that do business with the government piece of mind as it saves them time and money. Further developments in this area will be important for SMEs that want to secure government contracts.
- Electricity tariffs – increases coming into effect this year will have a negative impact on the struggling manufacturing sector. Efforts to support energy-intensive sectors will also assist SMEs that are involved in the subsectors of these industries.
- Economic growth – fears of an economic recession have risen following the South African Reserve Bank’s (SARB) decision to cut its growth forecast to 0.9% from 1.5% for this year. Measures that the government puts in place to promote economic growth this year will be of interest to SMEs.
- Small Business Development – efforts to boost growth and employment through Enterprise Development and the Small Business Ministry will go a long way to address some of the challenges faced by many SMEs.
“In light of the highly uncertain business environment, it has never been more important for SMEs to pay special attention to the National Budget Speech, as key decisions made by the Minister will impact on their growth and survival,” concludes Seetharam.