By: Amy Musgrave
The slow growth experienced by South Africa’s SMMEs has once again been highlighted in the budget as one of the key reasons for the country’s sustained sluggish economic performance. While delivering the 2022 Medium Term Budget Policy Statement on Wednesday, Finance Minister Enoch Godongwana painted a dismal picture of the economic outlook for the next three years, warning that the country will not reach its developmental goals at the current rate of economic growth.
“South Africa’s economy has underperformed for many years. Several long-standing structural impediments continue to hamper growth,” Godongwana told Parliament. These impediments include the unreliable electricity supply, a costly and inefficient port and rail network, crime and corruption, weak state capacity, and high levels of market concentration and barriers to entry that suppress the emergence and growth of small businesses. “These challenges undermine our efforts to create jobs, contributing to high levels of poverty and inequality,” the minister said.
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SMMEs have long been identified as crucial to helping build a prosperous and inclusive economy and creating the majority of jobs, as they do in most other successful economies. However, this has not materialised in South Africa as support for their growth has been impeded by the country’s structural challenges, as well as a lack of a coherent approach to driving and supporting the growth of small businesses.
Godongwana said there were several reasons why South Africa’s robust pace of economic recovery in early 2022 had been derailed. These included severe flooding and more intensified load-shedding, which both continue to impact small and large enterprises. Industrial action in key sectors also had a negative impact. The country now expects real GDP growth of 1.9% in 2022, compared with an estimate of 2.1% during February’s budget speech. Over the next three years, the economy is expected to grow at an even more reduced average of 1.6%.
“This level of growth is too low to support our developmental goals. Accordingly, we must take action to put our economy on a higher growth trajectory,” he said. The budget document supports the minister’s view and says that the state’s structural reforms are centred on increasing electricity production and removing associated regulatory constraints, building confidence to support increased private investment in infrastructure, and creating the conditions in which small and large businesses can flourish and create many more jobs.
On economic development, the budget says that over the three-year spending period ahead, about 8.8% of the allocation to economic development will provide transfers and subsidies to departmental agencies, public corporations and private enterprises. On SMMEs, the Department of Small Business Development will work with municipalities to reduce administrative and regulatory burdens for small, medium and micro enterprises and co-operatives. The state will deepen collaboration with Proudly South African to support over 1000 informal businesses in 2023/24 and just under 4000 informal businesses over the Medium-Term Expenditure Framework period.
It will also provide support to small enterprises in the burgeoning cannabis industry over the same period. And the Department of Tourism has reprioritised funds towards the pilot phase of the Tourism Equity Fund which was introduced in 2021 and supports majority black-owned and black management-controlled tourism enterprises. The aim of the Medium-Term Budget Policy Statement is to assess spending in the medium term rather than annually, to track the impact of fiscal allocations in addressing the country’s growth and development goals.
