Budget 2021: creating an economic environment to support SMEs


Alan Shannon | Executive | Professional and Small-business Banking Client Engagement | Nedbank Group Ltd | mail me

Most small and medium businesses in South Africa had a very difficult 2020 financial year, with many, particularly in the retail and hospitality sectors, having to close their doors.

Those that survived the pandemic now find themselves having to rebuild – a task made more difficult by a stunted economic environment, with low levels of consumer discretionary income.

Some hope for the future

Fortunately, the 2021 Budget Speech by Finance Minister Tito Mboweni offered small and medium enterprises (SMEs) some hope for the future, as well as a small measure of financial relief.

The minister expressed the commitment of national government to implement various measures to support SMEs, raise productivity and lower the cost of doing business.

One of the ways that National Treasury is delivering on this commitment was the announcement of a 1% reduction in corporate income tax. While not specifically directed at SMEs, the resultant broad-based reduction in the cost of doing business should have a positive ripple effect on supply chains, many of which include several small and medium businesses.

Perhaps more directly significant is the allocation of R4 billion of the national medium-term budget to township and rural small enterprises, where much of the job creation power of SMEs lies.

While details of the ways in which this investment will be applied are still forthcoming, the budget allowance is, at the very least, a clear indicator that government is putting its money where its mouth is when it comes to supporting vital small-business development.

The Department of Tourism’s allocation of R540 million over the medium term to establish the Tourism Equity Fund (TEF) is also a valuable step forward in terms of tangible support of the country’s beleaguered tourism sector, which is an absolutely vital contributor to jobs and national economic growth.

Procurement programmes

Of course, budget allocations and promises of support initiatives are not all that’s required to revitalise South Africa’s small-business sector.

That is why it’s good that government has other ways of providing much-needed support to SMEs – most significantly through its procurement programmes.

Given that government is the single biggest buyer of goods and services in the country, an SME-friendly procurement policy could, and should, be a significant driver of the small-business economy. And if that example is followed by large corporates in the private sector, SMEs will have the foundations they need for sustainable growth.

Unfortunately, most corporate procurement strategies typically view small businesses as being secondary services providers.

A key component of SME-growing procurement policies is therefore a shift in this paradigm to allow smaller SMEs the opportunity to provide core products and services.

However, this also requires a commitment from small businesses to live up to the trust placed in them, consistently delivering on their promises.

An entrepreneur-friendly economy

If the many SME support programmes hinted at by government materialise in the coming months and years, South Africa should enjoy a business environment that is more conducive to entrepreneurship.

This can only be positive for the country, which desperately needs more innovative, enabled and well-supported entrepreneurs who will fuel economic and employment growth in the future.

An entrepreneur-friendly economy is also a solution, in itself, to the country’s growing youth unemployment challenge, and the hope is that both the public and private sectors will use the challenges of COVID-19 as a springboard to deliver significant skills development opportunities to our young people so that they can be less reliant on scarce jobs, and more focused on being active participants in the economy, generating their own income.

While the recent Budget Speech may not have been as punitive as most South Africans expected, it did highlight the fact that we have a long and relatively steep hill to climb.

Government appears to be committed to doing its part to drive the process, but the responsibility for raising employment levels and generating gross domestic product growth cannot be placed solely on its shoulders.

So, while this year’s Budget, the President’s State of The Nation Address, and the recent move to lockdown level 1 all suggest that the momentum is gradually starting to turn in the right direction, what’s needed now is for all South Africans to get out of the proverbial car and help push it up the hill.



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