In effect, Minister Nene halved the taxation on micro enterprises with effect from the 2015/16 tax year. The two budgets that have followed the 2015 budget have maintained the taxation of micro enterprises at these rates.
Initiatives of the Department of Small Business Development
According to the website of the Department of Small Business Development (DSBD), its mandate is to “support the radical transformation of the economy through the promotion and development of sustainable and competitive entrepreneurs, small businesses and co-operatives, that contribute to job creation and economic growth”.
The DSBD’s key service offerings are:
- The Black Business Supplier Development Programme
This programme offers a cost-sharing grant to black-owned small enterprises to help them improve their competitiveness and sustainability so they can become part of the mainstream economy and create employment.
It provides grant funding of up to R1 million for majority black-owned businesses, with 20% being allocated to training and development and 80% allocated to the acquisition of tools and machinery.
- The Co-operative Incentive Scheme
The Co-operative Incentive Scheme (CIS) is a 100% grant for registered primary cooperatives with five or more members to improve their viability and competitiveness by lowering their cost of doing business. The incentive also supports broad-based economic empowerment, as it favours historically disadvantaged individuals (women, youth and people with disabilities).
- The Shared Economic Infrastructure Facility
The Shared Economic Infrastructure Facility, managed by the Department of Trade and Industry, is offered on a 50/50 basis. This facility aims to leverage public sector investment to provide infrastructure for businesses, mostly in townships, rural areas and inner cities where economic activity is taking place. The Department of Trade and Industry funding is limited to R5 million and applicants are municipalities, municipal entities and provincial government entities. Although the direct beneficiaries of this programme are not small businesses themselves, the programme aims to create an environment in which small businesses can operate, trade and grow.
- National Informal Business Upliftment Strategy
The National Informal Business Upliftment Strategy (NIBUS) is driven by the DSBD to address the development of SMMEs, particularly at the lower end. The DSBD has identified five priorities in its strategy:
- retail
- manufacturing
- services
- agriculture
- construction and maintenance
Five strategic pillars govern the kind of support given to entrepreneurs:
- Strategic Pillar One: Creating an enabling legal and regulatory environment
- Strategic Pillar Two: Upliftment through enterprise development
- Strategic Pillar Three: Facilitate intergovernmental relations for delivery
- Strategic Pillar Four: Partnership and stakeholder management, for example through business and civil society associations
- Strategic Pillar Five: Empowerment through information (knowledge) management The DSBD reported that it trained 1 037 informal traders during the 2015/16 financial year. It also established five centres for entrepreneurship at technical and vocational educational training colleges with the aim of developing entrepreneurs and small business owners.
In addition to its key programmes, the DSBD is supported by its two agencies, the Small Enterprise Finance Agency and the Small Enterprise Development Agency.
The role of SARS
The role of the South African Revenue Service (SARS) in the life of a small business cannot be over-emphasised, particularly as the business grows or attempts to grow. In conjunction with reducing taxation on micro enterprises, SARS introduced a number of guides on its website to assist owners of businesses to understand taxation for businesses. More importantly, the SARS eFiling system was made available to business owners so they can file their own tax returns. The benefits to small businesses include be a reduction in accounting costs and valuable operating time. One area in which government has not stood out in assisting small businesses is in paying its creditors. Then-Minister of Finance Pravin Gordhan bemoaned the slow rate of payment by state departments in his budget speech of 2017, insisting that creditors be paid within 30 days of invoice.
An enabling environment, what more?
It would seem that government has made significant advances in improving the environment in which small businesses operate since 2014:
- Tax has been reduced significantly.
- Training has been provided in some areas.
- Infrastructure is being developed.
- Financing is made available from various sources.
- SARS has reduced the administrative burden.
In her 2014 speech to the Industrial Development Corporation (IDC), Minister Zulu said, “Our country has yet to see the true value and benefits of SMMEs.” After three years of improving the environment in which SMMEs operate, one wonders whether some of the value and benefits have started to emerge. More importantly, whether the vision of the National Development Plan – that 90% of new employment will be created by SMMEs by 2030 – is realistic.
According to Statistics South Africa, the South African economy grew by approximately 8% in real terms between March 2014 and December 2016 (or 2.8% a year). Unemployment in the first quarter of 2017 stood at 27.7% compared to 25.2% in the first quarter of 2014. The key indicators suggest that despite efforts to create an environment in which SMMEs would create jobs and contribute to economic growth, this has not happened. In fact, research conducted by Professor Christian Friedrich of the University of the Western Cape (UWC) and his team revealed that 70% to 80% of small businesses fail within five years1.
Friedrich also noted that only 1% of small businesses that started with fewer than five employees grew beyond 10 employees. This means not only that these businesses never meaningfully contribute to the tax base but also, more importantly, that the National Development Plan’s (NDP’s) goal of job creation by SMMEs is not being realised.
What can be done to help entrepreneurs?
Skills development
The DSBD has done and is doing extensive work to development entrepreneurial skills at Technical and Vocational Education and Training (TVET) colleges. These programmes are in their infancy and their results are yet to be seen. Are they enough and should they be extended to other institutions of higher learning, such as universities? Otherwise we run the risk of demoting entrepreneurship and small business ownership to second-rate status.
The research done by Friedrich and his colleagues found that one of the largest factors which contribute to the success of a small business is the business owner themself. Traits such as being a self-starter, being proactive and being persistent were indicators of success. Friedrich writes that “other factors found in our research strongly influencing success of smallscale entrepreneurs were innovativeness, learning orientation, achievement orientation. Furthermore, planning strategies, including goal setting, have a high and positive correlation to success”. In response, Friedrich and his colleagues developed a three-day training programme for entrepreneurs. This programme focuses on the different skill sets they believe are necessary for entrepreneurs to succeed in South Africa:
- personal initiative
- how to be proactive
- how to actively set and implement goals for one’s business and plan with a longterm focus
- being innovative
- generating and implementing new ideas
According to research conducted by UWC, participants in the programme saw an increase in turnover and profitability while being able to employ more staff than a control group that did not attend the programme.
Skills acquisition
The development stage of an SMME may also be a guide for the help offered to the entrepreneur. As businesses grow there is a need to attract and retain skills and staff. Small businesses will compete with large businesses for talent and will need more than just the skills of the owner. According to Old Mutual’s SME Employee Benefits Monitor 2017, 65% of small business owners and 70% of staff employed by SMMEs believe that the employee benefits offered by a company affect employees’ decisions to work for the company or not. More importantly, 71% of small business owners believe they are unable to offer the same benefits that large companies offer.
With advances in financial solutions such as umbrella funds and medical aids, it’s not clear whether this is only a perception or if a gap really does exist in the employee benefits market. However, when one considers that in an SMME the decision on what benefits to offer is most often left to the owner, financial manager and HR manager (if these are employed), it’s understandable that they may not have full knowledge of what is required for their employees. The financial services sector needs to assist with transparent and easy-to-understand products that are friendlier to SMMEs.
