We like them. The small business that succeeds against the odds. Minister Gordhan even saluted a couple of success stories on the budget. In the build up to the budget, I choose to read The White Tiger by Indian author Aravind Adiga . The White Tiger provides a devastating description of the poverty traps, and that rare success stories translate to private gain without a wider social impact. The central premise of the book is that successful entrepreneurs are as rare as white tigers. In fact, in South Africa the data provided by the Global Entrepreneurship Monitor indicates that job creating, opportunity based businesses are a rarity in South Africa. The book though not set in South Africa provides a useful refrain from the rah-rah usually associated with entrepreneurship. What then does the budget propose for the small business entrepreneur?
In some respects the rah-rah resembles a Kung-Fu movie where a downtrodden person faces formidable obstacles, finds a trainer (mentor), develops a unique fighting style (unique value proposition), and fights the forces that be and succeeds establishing a new order (creative destruction). It is just too tempting to ask then is this the budget that we can nickname “Enter the Entrepreneur”. In other words, are we moving beyond praising individual attempt to creating the environment for more and a multitude of successful small businesses, that makes the economy more democratic and contribute to job creation.
Over the years, there have been various calls for the reform for small business in the budget. Minister Gordhan makes a useful start on small business providing targeted financial and enterprise development programmes, and tax relief measures. The sector is important, as businesses that employ fewer than 50 workers account for 68 per cent of private sector employment according to the Budget Speech.
Expenditure Proposals
The key expenditure proposals include:
- R600 million for enterprise investment incentives;
- R735 million for the Competition Commission and other economic regulatory agencies, which are critical to ensuring a fairer market place;
- R250 million to the Industrial Development Corporation to support agro-processing businesses, which potentially supports small farmers;
- R120 million for the national tooling initiative, which could offer research and development support to smaller manufacturing and programmes for entry into work;
- R282 million for the Micro-finance Apex Fund, to support smaller businesses; and
- R55 million for Khula Enterprises to pilot a new approach to small business lending, which potentially means access to cheaper credit with less onerous conditions.
Tax Proposals
On the tax side,
- Capital gains exclusion amounts will be increased from 1 March2011 on disposal of a small business when a person is 55 years or older, from R750 000 to R900 000;
- Refining the approach to a venture capital company in the Income Tax Act of 2009, focussing on small and medium business and junior miners;
- From March 2011, the turnover tax for micro businesses with annual turnover up to R1 million will be adjusted so that tax will be payable only if turnover exceeds R150 000 a year. The rate structure will also be reviewed;
- From 1 March 2012, micro businesses that register for VAT will no longer be barred from registering for turnover tax.
Can more be done?
Budget 2011 marks an important ascendency of small business and entrepreneurship in the public policy agenda. The proposals developed by government could be considered small steps towards creating a structural change in the economy, that supports people’s dreams and in so doing create jobs. There is much more that needs to be done to support small business in South Africa, so that successful small businesses are not as rare as White Tigers. Budget 2011 may yet be defined as “Enter the Entrepreneur”. The crucial point is that a long-term and sequenced reform programme from government’s side needs to be undertaken. Small business is however not a panacea to our employment challenges, but has a significant contribution to make.
Our predictions of possible changes in this area were mostly spot on.