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Budgeting on a positive outlook for small businesses in South Africa

Article by Alan Shannon (Business Bank Executive – Professional and Small Business Banking Client Engagement – Nedbank)

Small business has the potential to tackle unemployment and help grow the economy, but a long-term view is required to harness the benefits of this sector. 

According to a baseline study of small business in South Africa by the Small Business Institute, SMEs contribute approximately 98.5% of all businesses in South Africa, yet, only account for 28% of jobs. With the unemployment rate at a staggering 29%, it is positive to have a consistent theme of support for SMEs.

This call for support also seems to have found favour in the Budget Speech by Minister Tito Mboweni on 26 February when he announced that R6.5 billion will be allocated for small business incentive programmes of which R2.2 billion will be transferred to the Small Enterprise Development Agency. In a further recognition of its importance to addressing unemployment and growing the economy, the Minister was also clear that: “Start-ups will ignite the economy”.

Indicating that he was clearly speaking from the same hymn sheet as the President, Mboweni added that steps are being taken to address South Africa’s lagging productivity growth and reducing the cost of doing business.

During his fourth State of the Nation Address two weeks earlier, President Cyril Ramaphosa emphasised the fact that small and medium enterprises (SMEs) are the lifeblood of our economy.

It is a long-term vision

While the President’s pledge to reignite investor interests in SMEs must be applauded, we should take a longer-term view, as we cannot expect too many short-term gains or results at the macro level.

The National Youth Development Agency and Department of Small Business are initially looking to fund 1,000 young entrepreneurs in the next 100 days. This will most probably be a test case, but if they get it right, it has potential to make a significant impact.

Importantly, while the President mentioned several initiatives specifically related to promoting the growth of the small business sector, the content of his address holistically will indeed impact the small business sector as they are all inextricably linked.

Load-shedding, for instance, has a massive impact on small businesses, as many can’t afford alternative power in order to keep their doors open during power cuts. The government is also planning to spend R64 billion over the next few years in student accommodation, and SMEs will undoubtedly be part of that value chain. Various other masterplans for the infrastructure, textile, agriculture, auto, and the hemp industry will also create opportunities for entrepreneurs and small businesses to thrive.

A real opportunity for the youth

It is also known that SMEs and entrepreneurs are currently struggling to find skilled resources in South Africa, and the president’s plans to build nine new technical and vocational education and training (TVET) college campuses as well as the establishment of a new University of Science and Innovation in Ekurhuleni in Gauteng is therefore a step in the right direction. So is the Youth Employment Service (YES) that with the help of more than 550 companies aim to create over 32,000 quality work experiences. Nedbank is very proud to be part of this initiative that is on track to inject more than R1.3 billion back into local economies through youth salaries.

R10 billion earmarked for women-owned businesses

We are encouraged that there is deliberate effort to focus on women, evidenced by the announcement that the Industrial Development Corporation will spend R10 billion of its own and partner funding on women empowered businesses. If the SheTradesZA initiative offers an opportunity for female entrepreneurs and visionaries to connect, build business networks, build skills, and trade with one another, it could be a game changer. At Nedbank, women empowerment has always been a core focus, supported by our procurement processes and commitment to transformation.

The state will be forced to buy from local companies

One of the more intriguing initiatives during SONA was the proposal to identify 1,000 locally manufactured products that government must procure from SMEs.

The Procurement Bill will soon be presented to Parliament as part of the state’s efforts to empower black and emerging businesses and advance radical economic transformation. I am hoping the procurement policies will somehow decree which products need to be sourced and from which small local producers. I also hope it will be with the aim to replace products that are currently imported into South Africa, and not simply a move to procure locally produced goods from one domestic player to another. If we fail to do that, I fear we will simply be growing jobs on one side and losing them on another.

Conclusion

South Africa’s growth needs to be fuelled by the small business sector, and the opportunity needs to be created for this sector to thrive. At Nedbank, small businesses are a focal point, and entrepreneurs are the basis of that. We need to see more investment in all the initiatives announced in SONA and the Budget Speech, and if we can achieve that, we will create many opportunities for entrepreneurs and small businesses to stimulate economic growth. It certainly is an exciting time.

Nedbank is a proud Partner of the NSBC