The South African government is well aware that the small, medium and micro enterprise (SMME) sector is the key to unlocking job creation and economic growth over the next decade and a half. The National Development Plan envisions 90% of new employment by 2030 will be generated by SMMEs.
Yet SMMEs often seem to be forgotten by policymakers as they try to juggle the demands of stakeholders such as big business and labour. In that context, it was refreshing to hear Finance Minister Gordhan use the 2016 Budget Speech to mention some small business-friendly steps the government plans to take in the next year or so.
His promise to ease regulatory burdens for businesses is encouraging. Though he didn’t give much detail about what this will entail, we welcome any moves to make it easier to do business. Red tape ultimately benefits big businesses who have the resources to manage complex compliance requirements.
Less administrative overheads will help smaller businesses to focus on growing rather than on ticking regulatory boxes. We look forward to seeing more specifics here – we believe that there is scope to make labour relations, registering a company, and dealing with the South African Revenue Service much easier for SMMEs.
Minister Gordhan also announced that government has earmarked R475 million for the Department of Small Business to help small and medium businesses. Again, this is a positive development, but we’d love to see more detail about how the Department will be spending this money. In countries such as the United Kingdom, governments support start-up companies and entrepreneurs through access to mentoring programmes and funding; we would welcome a similar approach in South Africa.
We are also pleased that Minister Gordhan has managed to balance the books without needing to hike company tax, personal income tax, or VAT. Many market observers had expected tax increases, but these would have been counterproductive in our current economic climate. Our SMMEs are already deeply challenged by the collapse in the value of the rand, electricity price hikes, high interest rates and slow economic growth. Tax hikes would simply have hurt consumer and business confidence further and dampened economic growth.
On the tax front, turnover tax already simplifies tax administration for the smallest businesses, but we would have liked to have seen the concept extended to companies with more than R1 million in turnover. Perhaps R5 million would be a more appropriate level. As a micro-business owner, you should be encouraged to grow rather than face more onerous tax and regulatory burdens once your turnover exceeds R1 million.
In an economy where big businesses are automating their processes and downsizing, it is small businesses who will lead the country’s fight against poverty, inequality and unemployment. Yet South Africa has low rates of entrepreneurial activity and high rates of business failure compared to developed and developing world peers. We hope that government is truly committed to removing the barriers to SMME success. The promises Minister Gordhan made in his speech are a step in the right direction.
At Sage, we believe that entrepreneurs are the drivers of prosperity. We know it takes hard work and human sacrifice to turn a dream business idea into a way of life. It’s the entrepreneurial spirit that makes the difference all over the world. In a world where only the voices of the biggest are heard, we will always fight to hear the voice of the entrepreneur. We would be happy, in that context, to share our expertise and experience in the SMME market with the government, and are excited by the growing focus government is placing on entrepreneurship.
By Anton van Heerden, Executive Vice-President and Managing Director, Sage South & Southern Africa