Tito Mboweni’s pro-SMME budget bodes well for economy
While this budget is to be welcomed, SMMEs face problems ranging from accessing loans to entering new markets or just surviving
There was a strong expectation that finance minister Tito Mboweni would deliver an early Christmas gift to thousands of small business owners when he tabled his annual budget yesterday.
As expected, Mboweni turned out to be a generous Santa Claus, loosening up his purse strings that will provide relief to small businesses, which are operating in a stagnant, jobs-shedding economy, expected to grow at less than a percent this year.
The finance minister announced a small business-friendly budget, allocating R6.5bn for small business incentives, of which R2.2bn will be transferred to the Small Enterprise Development Agency (Seda). In addition, R107m has been allocated to refurbishment of 27 industrial parks in townships and rural areas, which hosts small, medium, and micro enterprises (SMMEs).
The amount of cash that Mboweni has allocated to support SMME development should be applauded, given the woefully inadequate allocations he made in 2019, which did not go down well with the small business community given its neglect over the years. Then he allocated a paltry R481.6m to Seda to expand small business incubation programmes, but announced no significant SMME-boosting incentives.
Mboweni did not provide a breakdown of how the non-Seda allocations would be spent, and those details will be left to small business development minister Khumbudzo Ntshavheni.
Mboweni also hinted at the introduction of tax reforms that will provide preferential treatment to SMMEs. These reforms, which will be unveiled in due course, will include overhauling the VAT registration threshold and turnover tax to favour small businesses taking strain from tough trading conditions and an economy that Mboweni predicts will expand 0.9% in 2020. However, the tax reforms will be done in a manner that does not encourage fraud and abuse.
While this budget is to be welcomed, SMMEs are faced with a number of challenges, ranging from accessing loans to entering new markets or surviving in the markets they already operate in.
For years, politicians in charge of our country’s economic affairs have waxed lyrical about the potential contribution SMMEs can make to economic growth and employment generation, but not enough has been done to support SA’s SMME sector to realise its full potential.
For a country estimated by the department of trade and industry (DTI) to be home to about 2.8-million SMMEs, there has been a dearth of funding channelled towards supporting greenfield start-ups and brownfield expansions in the SMME sector. This is despite that there is a plethora of national and provincial development financial institutions (DFIs), commercial banks, and venture capitalists that are supposed to be funding small businesses.
A growing number of small business development experts are arguing that there is no shortage of funds to finance the SMME sector, but what stifles the flow of funds into the sector are restrictive funding models of credit-granting institutions.
The government has traditionally used a wholesale approach to disburse funds to SMMEs, where it partnered with commercial banks to distribute funds as it has no distribution muscle to reach out to SMMEs spread across the country. The problem with this approach is that traditional lenders rely on asset-backed lending models to disburse loans and so if SMME owners do not have collateral to back loans, their applications are turned down.
An argument has been made for the government to change its approach by forging partnerships with alternative lenders that understand venture capital and private equity. It has been argued that alternative lenders are capable of disbursing funds to small businesses because they use credit-assessment tools that are different from the ones used by the risk-averse, traditional banks.
Other reforms in the pipeline that Mboweni is working on include the Public Procurement Bill, which will result in amendments to the preferential procurement policy to pave the way for the introduction of set-asides, whereby a significant portion of government procurement will be ring-fenced for small suppliers and black-owned businesses. If implemented properly, this policy could go a long way towards helping thousands of small suppliers’ access government business opportunities, and thereby help reduce the high business mortality rate in the SMME sector.
The measures that the government is taking to support SMMEs could stimulate the sector, enabling it to increase its contribution to the economy and employment creation.
The DTI estimates that SMMEs contribute between 52% and 57% to SA’s GDP and 60% to employment. However, government harbours an ambition to significantly raise the contribution of SMMEs to employment generation over the next decade.
The government’s National Development Plan (NDP) document — a blueprint for developing our country — projects that 90% of new jobs could come from SMMEs by 2030, if a concerted effort to grow the sector is made.
If that effort is to succeed, it will require the removal of myriad obstacles that hinder entrepreneurial risk-taking and SMME expansion — something the politicians have talked about, but never implemented. These obstacles range from government institutions and private-sector corporates paying SMMEs within 30 days of invoice submission, eliminating regulations that suffocate small businesses, and clamping down on anticompetitive practices that entrench the market power of cartels, oligopolies, and monopolies.
Mboweni has set the ball rolling, and I hope his colleagues in the cabinet will play their part in supporting SMME development and job creation in our country.
• Ntingi is founder of GetBiz.