What did the 2016 budget mean for small business?
08 April 2016
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Hello and welcome to another edition of Old Mutual Live Business, my name is Chris Gibbons. In this edition we take a look at the impact of Budget 2016 on a most critical component of our economy, small business. Joining us now on Old Mutual Live Business is Yogavelli Nambiar, Director of the Enterprise Development Academy at the Gordon Institute of Business Science, which is of course one of South Africa’s top business schools. Yogavelli, thank you for being with us on Old Mutual Live Business. What did this budget mean for small business?
Yogavelli Nambiar: I think that there was a general recognition that small business is important, or a re-affirmation of the fact that small business is important for the economy and for inclusive growth. That was generally a theme, it stood out in being mentioned by the Minister a couple of times.
There was a specific mention on promoting inclusive growth through small business and youth employment. Obviously this links to the National Development Plan which states that 90% of new jobs must come from small and growing firms by 2030.
I think that there’s a recognition for small business and the importance of it. I think small businesses can be encouraged by the extra 475 million for the support and stimulation of growth of that sector. However, that could have been more.
But I think that there’s some positivity in the fact that there’s that fund as well as a Small Business Innovation Fund that was mentioned. Which is being created to support the growth of small and medium business. There wasn’t too much detail, but I do believe that that’s encouraging.
CG: You certainly saw encouragement?
YN: Yes, absolutely and I think that small businesses can see a strong recognition from government that they’re an important sector.
Will constrains to small business be eased?
CG: What about something small business complains about regularly, red tape?
YN: You know, it wasn’t specifically mentioned as an area to be tackled, although the Department of Small Business Development and SARS have worked on a few initiatives. This is separate to and not mentioned in the budget speech. But they have worked on a few initiatives to provide information to small businesses, to minimise red tape.
For example, the Department of Small Business Development works very closely with municipalities to reduce red tape. So, it wasn’t mentioned specifically towards small businesses. I think that there were tax breaks and incentives mentioned, well, not tax breaks, but incentives mentioned for the manufacturing sector.
There was the promise to address regulatory constraints and burdens for investors. I think that, as well as the provision of business incentives for that sector bears some positivity and impact on the small business development sector.
CG: You’re not seeing any tax breaks or any direct incentives for small business in this one?
CG: Not even in the area of education?
YN: No, again it just, it came down specifically to the capital infrastructure projects. As I said, manufacturing is seen as a space for large levels of employment growth. It would be interesting to see the cost per job of a manufacturing job versus services. But manufacturing is a space of large employment potential. So through the incentives in that space, there is relief and there’s support for small business, but not directly.
Was there anything to discouraged small business?
CG: So, the other way, did you detect anything that actively discouraged small business?
YN: No, not actively discouraged small business. But I think that small businesses face a reality on the ground that goes beyond the strategic intent communicated in the budget speech. There’s a lot of words, there’s great initiatives, etc, as was mentioned in last year’s budget speech.
But I think it’s really about, we need to see the action on the ground. That when speaking to our small business entrepreneurs that we work with at the Enterprise Development Academy as well as others; is that there’s just the sense of, let’s see the action now beyond the words.
CG: Actions always speak louder than words.
YN: Absolutely and the Minister mentioned it in his quote saying we need agility and urgency in implementation and I think that’s going to be key.
How important is small business to the ecomony?
CG: Just how important Yogavelli is small business to our economy? Is it the real engine of job creation? I ask that because the big corporates are all about job cutting, about getting efficiency.
YN: Absolutely. If you look at, whether it’s efficiency in operational systems or it’s innovation, big corporates are looking at the ways that are most cost effective for them. It’s about getting the job done with the least amount of resources and so absolutely.
The small business sectors, where the jobs really come from, I mean statistics defer but according to the World Bank, the SME sector represents 98% of the firms in the country. Contributes 37% of its GDP and provides 68% of the countries jobs.
If I link that up with the National Development Plan, as I said, we’re moving towards this sector providing 90% of the jobs. But if they are not supported, then we face one of the highest levels of business failure rates in the world in terms of this sector.
70-80% of new businesses fail in the first two years. So, it doesn’t add up. If we don’t give them the right kind of support and create an enabling environment, we’re going to find that they’re not able to make that 90% of the jobs required. Besides the jobs, there’s also the increased market activity.
There’s the contribution to innovation capital of a country that comes from small businesses and it adds to the vibrancy of a community. If you think about townships, for example, to not just be sources of labour, but to be sources of robust vibrant economic activity. That can be created only through the small business sector.
CG: And there we’ll leave it Yogavelli Nambiar, Direct of Enterprise Development Academy, Gordon Institute of Business Science. Thank you for being with me on Old Mutual Live Business.
YN: Thank you.