When Finance Minister Tito Mboweni gives his Budget Speech for the 2019/20 tax year (20 February), I hope to hear examples of how the government will work towards boosting South Africa’s ranking in The World Bank’s annual ‘Doing Business Report’.
Given that India climbed 23 positions in this year’s ranking and that South Africa ranked 32nd just a decade ago, this goal is highly achievable.
Making it easier to do business will ignite the growth of our Small & Medium Businesses and nurture the entrepreneurial flame of South African business builders. As the President and government recognise, Small & Medium Businesses have a vital role to play in job and wealth creation. Against the backdrop of a tight economy, the government should be looking at ways to reduce red tape and to enable them to focus on growth rather than compliance.
Here are a few of the issues keeping Small & Medium Business owners awake at night, and some ways government could address their pain points:
- Making it easier to start a business
South Africa ranks 134th out of 190 countries in the World Bank’s report for 2018. It takes up to 40 days to complete the processes and procedures necessary to start a business in South Africa, compared to an average of 23,3 days in sub-Saharan Africa and 9,3 days in rich OECD countries.
We can take inspiration from New Zealand, the easiest place in the world to start a business. It takes just one day to complete registration with the Companies Office online.
- Reducing tax red-tape
Although South Africa ranked within the top 50 (46th) for paying taxes, the report shows that South African companies spend some 210 hours a year on filing returns and paying taxes.
The average in OECD countries is around 159 hours, showing that there is some room for the South African Revenue Service (SARS) to improve. This burden is particularly heavy for small businesses, many of whom are owner-operated and run on tight margins.
- Trading across borders
The State of the Nation Address (SONA) shows that the President has a vision of South Africa as an export powerhouse, so this area needs urgent intervention.
South Africa is ranked 143rd in the report for the ease of cross-border trading, scoring poorly compared to most OECD countries for the time and costs involved in documentary and border compliance for imports and exports.
The red-tape and the complexity of the regulations—and delays in customs clearance—are onerous for smaller importers and exporters. Much more could be done to streamline export and import paperwork and checks, in turn, allowing businesses to focus on adding value to global customers rather than getting certificates and filing papers.
- Addressing the power crisis
‘Getting electricity’ is one of the World Bank’s metrics and one where South Africa already fares poorly compared to rich OECD countries for cost and reliability of supply.
We ranked 109th in the report on this measure; with Eskom implementing Stage 3 load-shedding as I write this, we are likely to fall rather than rise in the next edition.
We may learn more in the Budget Speech about how the government will address the power crisis in the years to come. It is a challenge that demands difficult (and potentially unpopular) decisions to be made for a long-term turnaround.
In the shorter term, perhaps tax relief should be on the agenda for businesses that will face existential challenges as a result of the power crisis. Or, could government look at zero-rating the VAT generators, solar lighting and other solutions that could help small businesses to cope when the lights go out?
Supporting small business heroes
In the 2018/9 Budget Speech and other government addresses last year, a number of measures were announced to support Small & Medium Businesses:
- A R2.1 billion fund Departments of Small Businesses and Science & Technology and the National Treasury are developing to benefit small and medium enterprises during the early start-up phase.
- A pledge to use public procurement to support black economic empowerment, industrialisation and development of small businesses.
- A government promise to pay small business suppliers within 30 days of invoicing.
Hopefully, we’ll hear some progress updates about those initiatives in the Budget Speech. The Finance Minister has an opportunity this year to support our small business heroes and, in so doing, catalyse the level of inclusive growth we need to create a just and prosperous society.