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What the SONA and Budget Speech mean for South African SMEs in 2017 - Uzenzele blog

This year’s SONA was marked by the President’s announcement of plans for “radical socioeconomic transformation”.

 

The budget speech, delivered by the Minister of Finance on Wednesday, gave us a more tangible idea of what this will mean for businesses. Both stressed the continued challenge posed by the divide between the previously advantaged and disadvantaged, and the policies they announced continue the push of the National Development Plan to narrow that gap.

 

The new top personal income tax rate of 45% for those with taxable incomes above R1.5 million may have a negative effect on investment. However, the rising prices of both food and fuel are likely to have a larger impact on SMEs, as the increased pressure on low- to medium-income households may drastically erode their purchasing power.

 

 

This may leave South Africa vulnerable to international political and economic crises if we do not shift our economy to be more inclusive, since we are traditionally reliant on exports. Inclusive growth requires productive employment rather than direct income redistribution as a means of increasing income for excluded groups, and there are concerns that this issue continues to be widespread despite efforts from government to attempt stimulating industry in South Africa through incentives and support programs. R4.2 billion has been allocated to industrial development in special economic zones and a further R3.9 billion for scientific and industrial research.

 

 

Food security continues to be a concern as food prices have risen by 16.5% in the past twelve months. The devastating drought, continued farm attacks, and aging farmer-population have all contributed to the result that half of the farms in the country are on the market. However, there is good news for the industry as Minister Gordhan announced that R1.7 billion will be allocated for specific food production initiatives through government grants.

 

 

The agro-processing industry has long been a focus area for growth with little uptake, similar to mineral benefician, South Africa is simply not adding value to its primary production base. Agro-processing provides the opportunity for both local and export markets and is a contributor to the needed job creation.  

 

 

Fortunately, the services sector saw impressive growth and has been critical in curbing unemployment levels. Within the service sector, the Business Process Outsourcing (BPO) Incentives continue to have an uptake from foreign entities bringing their call centers to South Africa.

 

 

South Africa clearly faces many economic challenges, but government’s commitment to nurturing SMEs – as set out in the NDP – is ongoing, with the 2017 budget allocating R3.9 billion over the MTEF period to encourage SME growth.  Whilst specifics were not highlighted, it is expected that barriers of equity and suretyship will still hinder access to these funds which provides a market for those who are formally employed to partner with entrepreneurs, who may not have access to these critical elements required, to catalyse investment.

 

 

Tax incentives are in place to encourage mutually beneficial partnerships. The Employment Tax Incentive has been extended, though there is disappointment that the same was not done for the 12I Tax incentive which ends in December. The Manufacturing Competitiveness Enhancement Program – which helped the struggling manufacturing sector – also remains suspended due to a lack of funding.

 

 

True empowerment and transformation can only happen through the transfer of both equity capital and skills to operational partners of colour. With dwindling incentives, it is more important than ever that these partners be willing to work for their piece of the pie and be able to attract developmental capital.

 

 

As Moeletsi Mbeki, stated on a WITS Business School panel discussing the SONA: “South Africa has for the past 150 years…been in an Afrikaner- and African-nationalist mode. Both these nationalisms have reached the end of their road, and they have nothing to contribute to the future of South Africa.”