Op-Ed: Medium Term Budget -- Gigaba must support Radical Economic Growth and SMEs

A snapshot of South Africa shows yet another Cabinet reshuffle further undermining trust between government and the rest of us. Levels of poverty, unemployment and inequality have reached an all-time high as have our national debt and its cost, contributing to the 30-year low in consumer and business confidence. Drought and downgrade are words that make us shudder. Both the Treasury and the PIC are under threat of capture. If all that isn’t enough, a parallel advisory team rather than professional public servants may be drafting the budget.

We can only hope that common sense prevails and spending priorities will be directed at programmes to deliver Radical Economic Growth. Without prioritising growth, the minister will never be able to make his budget balance, or deliver services to those who need it most.

Pravin Gordhan’s last budget tabled in February anticipated a 1.3% growth rate, targeting R1.56-trillion of spending on the back of R1.4-billion to be collected from taxes. Sadly, most growth projections are now barely half that and even if the R28-billion added on by Gordhan in new taxes has materialised, economists are expecting a R50-billion (or higher) shortfall. At the same time, SOEs are clamouring for eye-watering sized bailouts, fees still haven’t fallen and municipalities are flat broke.

One of the most injured parties in the South African economy today is our small and medium enterprise sector. SMEs in most economies are a significant driver of GDP and the primary job creator; most importantly SMEs are the main source of new employment.

More than 95% of registered businesses in the world are small in size, employing fewer than 250 people and account for 60%-70% of the working population. This is sadly not true of South Africa.

The SBi small business chamber organisation (formerly AHi) calls on the finance minister to ‘think small first’, as government is mandated to do by the Small Business Act, and be wary of imposing new taxes or suggesting cuts to programmes that will disproportionately affect SMEs.

Eskom’s proposed tariff hikes will already close the shutters on many SMEs. Government asking individuals and businesses to refinance our sole, taxpayer-funded utility company looted by Gupta Monopoly Capital is a perversion. It will undermine whatever growth we are anticipating, increase barriers to entry for new competitors (and black industrialists), and limit both foreign and domestic investment.

In the contestation over resources, the SBI encourages the finance minister to resist further bloating of the civil service wage bill and to consider selling off part of Eskom or SAA to cover revenue shortfall rather than adding new taxes to an already over-burdened base. He might also encourage Parliament to confer the Auditor General with more power to penalise the state’s repeat offenders of financial crimes to protect the revenue we have.

In respect of the division of revenue, the minister should consider that provincial allocations, many of which ultimately fund local development in municipalities, are currently based on more on population than unemployment (need) and take no account for rural-to-urban migration. For instance, according to research by SBP, the Northern Cape and Northwest provinces have two of the highest proportion of unemployed people (expanded definition). And yet their budget allocations represent only 3% and 7% of the provincial budget allocation, respectively. This flies in the face of the Department of Small Business Development's stated commitment to rural and township economies. It curtails programmes that could enable SME and job creation in those locations where it is desperately needed at local and provincial level.

Both Harvard economist Ricardo Hausmann and Business Leadership SA’s CEO Bonang Mohale have lamented government’s focus on redistributing wealth from existing businesses rather than creating a supportive environment for new enterprises. “In South Africa we compensate the poor for their exclusion instead of focusing on more effective methods of inclusion,” said Hausmann and Mohale suggested that government is redistributing poverty rather than creating wealth.

This year’s Global Entrepreneurship Monitor study confirmed that the number of South Africans intending to start a business has dropped more than a third since 2013 and halved from 2010.

The minister needs to focus on inspiring confidence and enabling investment and growth. Without both, small and medium job-creating enterprises will struggle to get traction and the millions of South Africans without work will be turned away yet again from opportunity’s door. DM

Bernard Swanepoel is Chairman of SBI.

Photo: Finance Minister Malusi Gigaba attends the second day of the World Economic Forum on Africa 2017 meeting in Durban, South Africa, 04 May 2017. Photo: EPA.