What Mboweni's growth plan could do for small businesses

The economic policy paper released by Finance Minister Tito Mboweni last week shows that Treasury is taking new business growth seriously, potentially growing the tax base and increasing tax revenue, according to a tax expert.

Tertius Troost, tax manager at Mazars, says it has long been recognised that SMEs have the potential to contribute significantly to economic growth, but that there has been "a conspicuous lack of actual incentives or plans to stimulate further development of this sector".

The small and medium enterprise sector in South Africa has not seen much meaningful progress since 2016, he argues.

The economic policy paper, titled Transformation, Inclusive Growth and Competitiveness: Towards an Economic Strategy for South Africa, was released last week. It aims to spark economic growth of up to three percentage points and create a million jobs.

Among other things, it includes several proposals to promote the growth of small, micro and medium enterprises: 

Reducing red tape by 25% over five years. Treasury says the Red Tape Impact Assessment Bill, which was rejected by Parliament on procedural grounds, should be revisited.

Government must pay interest on late payments to small businesses.  A relatively simple solution here would be to allow for automatic addition of interest on outstanding balances after a certain period. Companies who abuse the system – with the late of incomplete submission of invoices – will be blacklisted.

Recently, Minister of Small Business Development Khumbudzo Ntshavheni told Members of Parliament that national government departments owed service providers over R600m, and were 30 days or more behind in their payments.

SMEs doing business in the public sector are also frequently subjected to late payments that have a "crippling effect" on their ventures, he adds. "SMEs that do business with the public sector are routinely subjected to late payments that have a crippling effect on their ventures," says Troost.

One government fund for small businesses. Treasury proposes consolidating existing funds for SMME support into a single fund with a clearly defined mandate.

Troost notes that just 30% of registered small businesses have access to finance.

The creation of a subcontracting ombud. Acting as a sub-contractor to a large firm is one way for a small business to get ahead, Treasury says. But many small businesses have complained that the subcontracting relationship is often exploitative.

Treasury wants to set up a dispute resolution mechanism in the Chief Procurement Office or a separate ombudsman that can improve oversight and monitoring of subcontracting relationships.

"The minister's call to reduce red tape, adding interest to late payments on government contracts, and increasing opportunities to access development financing, is definitely a step in the right direction," says Troost.

But he notes that the proposal – which questions the extension of collective bargaining wage agreements and the National Minimum Wage to SMMEs – has already been rejected by certain labour unions.

"However, if these labour unions cannot provide an alternative solution, their objections are pointless," he believes.

"Furthermore, unlike previous documents, this paper proposes certain adjustments and is open to public comment. Treasury is not declaring it has the perfect answer, and is open to public and labour union consultation."  

Troost believes that in addition to government incentives, boosting South Africa's SME sector also depends on the provision of funding and expertise.

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