Finance Minister, Tito Mboweni deliver​s his Medium-Term Budget Speech in parliament in Cape Town on October 28 2020. Picture: ESA ALEXANDER/SUNDAY TIMES
Finance Minister, Tito Mboweni deliver​s his Medium-Term Budget Speech in parliament in Cape Town on October 28 2020. Picture: ESA ALEXANDER/SUNDAY TIMES

He may or may not be a cordon bleu chef. He is certainly one of the few SA politicians courageous enough to speak his mind. But it would be hard to accuse finance minister Tito Mboweni of oozing subtlety.

The best example of this — and the one which will do the most damage to small firms — came in his last budget, when he decided to come down hard on investment incentives.

Of course, there has been fraud, abuse, waste, inefficiency. This is SA, and these problems deeply infest our public spending. However, if the patient comes to you with a cough, even a Covid cough, you do not chop off his head and smirk at your own wondrous ability to resolve a challenging medical problem.

If your car is sent to a mechanic to trace and fix an annoying rattle, you do not expect to see it  sent to the scrap yard. No more rattle, but no more car either.

So why does the finance minister choose such an unsubtle, damaging and crude approach to incentive policy? You should cure rather than kill, repair rather than scrap, dispose of the bathwater but preserve the precious baby.

There are dozens of SA investment incentive schemes designed to encourage and reward companies that take the risk of building a new factory, of launching a new project, of adding another building block to the economy, of investing in research and development or going green.

Some of those support programmes that have escaped death row are underpinned by a strong political motive, such as the Black Industrialists Programme or the S12L energy efficiency incentive. These seem to be safe, for now. No problem there.

Then there are the sector-focused support schemes such as the auto masterplan, the one for poultry, and another for clothing, textiles and footwear.

The carmakers, chicken farmers and shoe producers are not being given the boot, even though a strong case could be made that these incentives are protectionist,  extremely expensive ways of creating and preserving jobs, and support just a few industrial sectors at the expense of all the others.

What has been stated in the latest budget is that while these favoured schemes will continue, others will be scrapped when they reach their expiry dates — and the overall spending cake will be shrunk.

Mboweni the master chef is opting for incentives lite. In some cases, the baby will now be sucked kicking and screaming down the plughole along with the bathwater.

Most of the backlash coming from the investment community against the new butcher’s budget is focused on a venture capital incentive called Section 12J (S12J).

This is used to support start-ups, recapitalisations and rescues of SMEs. Firms are able to stay in business, boost or retain employment, grow, be given a future. For a few more months, that is, as it is soon due to end.

If reform is needed then let us rather reform, not wreck. Already, projects involving alcohol and tobacco do not qualify for S12J support. Add others to this list, if appropriate. But spare the deserving infants, the ones that have the potential to grow up to be fine companies.

Surely it is unfair and illogical for the Treasury to opine about how an incentive scheme has not fully fulfilled their vision when that vision has not been fully articulated? It would have been more helpful if the actual vision was expressed at the launch rather than reflected on in hindsight.

SMEs are notoriously starved of capital and yet they are the engine of effective job creation. Section 12J has allowed entrepreneurs to raise capital where there aren’t the normal barriers to access — such as the need for collateral, a credit record and track record. This makes S12J a unique asset class that transcends race and class for budding entrepreneurs.

S12J has potentially been most effective in mobilising private sector capital to fund broad-based BEE entrepreneurs and has been well established as an alternative asset class and an alternate channel to place an investment.

The hatchet option is of no help to anyone. There are zero credible economic textbooks that recommend scorched earth. There is not much time for it to happen, but our finance minister needs to listen to the growing chorus of investment professionals who are telling him that he has been too harsh, too hasty. To think again. This is one post-budget tip for Tito that Tito would be ill-advised to ignore.

• Hart is executive chair of Impact Investment Management.


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