Small and Medium Enterprises (SME’s) have been identified as productive drivers of economic growth and development in South Africa. This is because, aside from contributing to the economy, they encourage diversification and innovation by bringing light to new, unsaturated sectors of the economy on a local, regional and international scale. So, because SME’s are considered such an important economic contributor, we asked the question, “What is the future of SME’s in South Africa?”

In February this year, Finance Minister, Tito Mboweni, made the national Budget speech and referenced the private sector as the key engine for job creation. Based on this, some key positives for SME’s were highlighted;

  1. Falling Data Costs
    Mboweni said he was committed to work with necessary parties to ensure the decrease of data costs. Should this be the case, it means more opportunity for SME’s and entrepreneurs to build their businesses as well as seeing a rise in new technology businesses. Affordable data aids the positive economic growth.
  2. R30 billion towards building schools and maintaining school infrastructure
    The increase in national infrastructure has a positive knock-off effect for SME’s in that it creates opportunities for SME’s to be involved in the supply chain and create jobs. An increase in infrastructure projects also boosts economy which ultimately has a downstream effect.
  3. R3.2 billion to operationalise the small business and innovation fund
    This budget is aimed at uplifting small businesses and developing the country’s entrepreneurial eco-system and is believed to create more innovative businesses that have the capacity to respond to opportunities they are faced with in the current economic climate.
  4. Industrial Business Incentives
    R19.8 billion has been allocated to industrial business incentives which means an increased yield in opportunities for local, industrial SME’s, job creation and a positive impact on the economy overall. R600m has been assigned to the clothing and textile competitiveness programme, which is a much-needed boost for this struggling sector and a potential driver of economic growth.

However, despite the positive aspects listed above, small businesses continue to be economically fragile with over 70% of emerging SME’s failing within their first 2 years of operation. Some contributing factors include:

  1. A lack of Definition of SME
    According to surveys, there is a general lack of baseline facts needed to underpin policy interventions and strategic planning for SME development in South Africa. SME’s are ‘flying in the dark’ when it comes to knowledge and networking, relying on guesswork. The government has failed to apply a common definition of small, very small or medium business across its laws, regulations and key strategies.
  2. Investing in existing SME’s
    Existing SME’s currently lack access to funding to support increased stock levels, new locations and new channels to customers. Government should still be focusing on and investing in the growth of SME’s with an already-proven track record and not only on the promotion of new SME’s through funding initiatives.
  3. High Tax Burden
    A big problem is that the economy is not growing much but revenues are still growing at a high rate which means businesses and consumers are being taxed very highly in a low growth economy. Entrepreneurial activity is a leading component of wealth creation which is also why keeping corporate taxes and dividend withholding taxes from increasing is important.

Other challenges faced by SME’s in South Africa include crime and corruption, regulatory compliance, appropriate technology and low production capacity and access to markets and developing relationships with customers.

SME’s play a huge role in the private sector when it comes to generating economic growth through innovation and job opportunity. It remains to be seen if the prospective SME-focused improvements listed in the Budget speech this year will come into effect and assist in supporting this vital sector.
Contact us at info@diga.co.za should you need further insights into the future of your business.