Budget speech needs to address critical issues affecting SME industry
According to recent Adcorp data, employment in South Africa fell drastically during January by an annualised rate of 3,2%. It was also reported last year that 440 000 small business closures occurred between 2006 and 2011. According to Nazeem Martin, MD of Business Partners Limited, these business closures and unemployment statistics need to be urgently addressed by Finance Minister Pravin Gordhan in his 2013 budget speech, as the only way to promote long-term economic growth and jobs in the current economic climate is to support South Africa’s business owners.
“If there is only one thing Minister Gordhan does for South Africa’s owner-managed businesses, it must be to get the promised government infrastructure spend going,” says Martin.
He says that last year, no less than R3.2 trillion was earmarked to be spent on 40 major infrastructure projects over the next three years – a remarkable stimulus that can truly get the economy going again. He says that the problem, though, is the capacity of the state to spend the money, and spend it effectively.
“What the business community needs to hear now is not promises of more money set aside, but how much the rate of real spending has improved over the last year, and what will be done to improve it even more in the coming year.”
He explains that although some business owners doubt the benefits of infrastructure spend, new infrastructure will benefit the entire economy, and nothing supports business owners as much as a strong economy. “For example, how does the building of a 5 000MW solar park in the Northern Cape help a shop-owner in the Eastern Cape?
“Firstly, spending those billions at a time when everyone else is holding onto their pennies kick-starts the economy out of its slump. Even though only a few companies benefit directly from the project, the effects trickle down through the rest of the economy. For example, a construction company working on the project may employ several workers from the Eastern Cape. They send money home, and their families spend the money at a shop, which in turn employs more locals.
“Secondly, once the economy starts to recover, South Africa has an extra 5 000MW to power growth, and our shop owner in the Eastern Cape runs less risk of losing refrigerated stock in an electricity blackout, for example.”
Martin says that another key issue he hopes Minister Gordhan will address is the Youth Wage Subsidy. The scheme, announced by the government in 2011 and budgeted to the tune of R5 billion, would pay up to R12 000 of the annual wages of young first-time workers. It was supposed to be implemented last year, but opposition by the trade union federation has delayed it.
“The subsidy will assist business owners to hire trainees at approximately half the salary that they are currently paying and will go some way to offset the cost of time and energy that goes into training young workers on the job. Although not the single solution to youth unemployment, if Minister Gordon announces the start of the subsidy, many business owners will suddenly find it affordable to take in trainees, a prospect which opens up all sorts of possibilities for expansion for business owners.”
Martin says that the one direct “thank you” that the South African government gives to business owners for taking the risk of running a business and employing others is in the form of Small Business Corporation Tax. “Instead of paying the usual 28% tax on profits, a business with a turnover of less than R14m only pays 7% tax on its first R350 000 profit per year.
“It would however be very valuable if government would consider extending this exception to businesses with turnovers of below R20m, and up to the first R500 000 profit. Not only will SMEs and entrepreneurs benefit immensely, the country will also get back much more than that in the form of sustainable job creation and growth,” concludes Martin.