Opportunities abound for SMEs following Mid-Term Budget Statement, but caution is still key, writes Miguel da Silva, group executive of business banking at TymeBank.
While South Africa is not out of the woods yet, there are hints of green shoots of opportunity happening across the country, from (re) building our electricity supply – we have not experienced load-shedding since 24 March and that is worth applauding – to increased infrastructure investment that will underpin South Africa’s growth mandate through policy reform, to a pro-growth agenda that aims to increase jobs while improving our fiscal position.
Challenges remain an economic burden
Of course, one cannot look at the country’s positive initiatives through rose-tinted glasses. We continue to experience major challenges, high on the list being water scarcity, incessant unemployment, a relatively high cost of doing business, unreliable logistics and losing out to neighbouring countries when it comes to securing FDI – and this is just for starters. The economy is also forecast to grow by just 1.3% this year, which does not cause for celebration make. It is within this context that the SME sector has been silently propping up the economy. And is subsequently in need of greater support – financially and otherwise. Unsurprisingly however, the sector did not get a mention in the recent Medium-Term Budget Policy Statement (MTBPS), not even once. This raises a red flag as SMEs continue to receive little in the form of policy reform that is to their benefit.
Luckily, the nature of SMEs is one of resilience. They make a plan.
As we head towards 2025, focus on growth is a must. And the most viable way in which to do that is to invest in SMEs (from mom & pop shops to high-growth entrepreneurs). Looking at the ‘24/25 financial year: SA is expected to have spent R266,21 billion on social grants – up from R250,97 billion in the ‘23/24 period. If funds were directed to SME, these could fuel job creation and help reduce the huge reliance on grants.
“SMEs remain our country’s backbone, yet so little is directed their way from the powers that be. It is a travesty because it is clear how much impact SMEs can have on our economy, society and livelihoods. They continue carrying on the good fight, when others would have given up, create opportunities for more people to have jobs and the more business they do, the more they pay towards the tax base. It seems simplistic but investing more in our SMEs – either through policy changes, rebates or funding efforts- could change this country’s GDP forecast, which at the moment is projected to be 1.3% by the end of 2024 and 1.6% by the end of 2025 due to the recovery of certain sectors,” says da Silva.
Reforms ahead of the silly season?
SMEs, which account for 64% of all jobs in South Africa, will greatly benefit from the visa reforms, enabling them to attract offshore skills, while those in the hospitality and tourism sectors can take advantage of this year’s industry boom: projections on arrivals by the end of 2024 are estimated to reach 10,7 million, while international foreigner growth is expected to increase to 15,1-million by 2030. There is also a specific bid to attract Indian and Chinese tourists with the introduction of South Africa’s new Trusted Tour Operator Scheme (TTOS) – which aims to address issues like visa inefficiency and red tape, which have hindered South Africa’s ability to attract tourists from these countries.
However, leading into the festive period, tension remains regarding the impact and regulation of Airbnb. While the platform’s proliferation has boosted the tourism industry, the prices for the short-term rental market, particularly in the Western Cape, continue to soar and put pressure on local residents struggling to find affordable accommodation. This is not a problem unique to South Africa — just last month Barcelona saw communities protesting and accusing Airbnb of raising living costs and displacing local businesses — but with Cape Town having one of the most Airbnb listings in the world, it is an issue that cannot be ignored. Since the memorandum of understanding that Airbnb signed with the Department of Tourism last year, regulations for the sector have been in the works. It’s now a waiting game on how appropriate and proportionate the expected regulations will be.
Turned off taps takes its toll on Joburg-based SMEs
Over and above the many other utility issues in South Africa, one is headlining in Gauteng and is having a major impact on SMEs who are involved in manufacturing and production, managing food security and agriculture to name but a few. The issue? Water – or the lack thereof.
This is not a new problem: it’s 10 years in the making and can be traced back to the years of state capture, dysfunctional municipalities and a complete neglect of infrastructure maintenance. While a dam project that is aimed at assisting Gauteng is underway, as Rand Water cannot meet demand, it is many years away from completion. In the meantime, every person and business in the province will have to make do on their own until then.
Among the reasons for this catastrophic water crisis is the increase in the general population in Gauteng. Driven by an influx of people to the province who were attracted by economic opportunities, its current 15,83 million people (as of July 2024) are too many for the existing water availability to accommodate. While a second phase of the Lesotho Highlands Water Project (LHWP) is underway, with a view to bringing more water to Gauteng, it will only be finished in 2028.
How does this impact SMEs?
When there is a lack of water or uncertainty of supply it can be highly damaging to SMEs. Businesses that rely on the use of water bear a direct brunt, and this is passed on to their supply chain. Those in tourism or manufacturing for example are affected too. Water security is at the centre of energy generation, economic growth, development and food security. It is not only an input to production, but essential for sustaining life. Socio-economic impacts that aim to fulfil basic human needs as well as health and hygiene are impacted just as badly and have a direct impact on SMEs.
How to respond to this issue that is not going away any time soon requires a rethink and the development of risk mitigation strategies to reduce their exposure to water-related risks is a must for SMEs. Firstly, they must review their exposure to water scarcity in the form of changing availability, quality and prices, as well as through their supply chain. Those whose customers are consumers must also consider the cost implications of food and energy that may be a direct result of water issues.
Of course, every business is different and an SME that is affected should assess where their water stress points lie throughout the supply chain. Risks also differ according to where the SME is located and its water scarcity level. Once established, risk strategies can be developed. This includes asking questions such as what kind of water resources are used in the operation, what is the existing pricing regime and how much does a lack of water, or the high cost of water, impact the SME’s financial performance.
SMEs need to protect themselves from the issues that a lack of water has on their operations, and, given no immediate solutions exist for the time being, they must create a mitigation strategy and adapt to the ‘new normal’ – or else risk going out of business.
Global Entrepreneurship Week removes Barriers and Welcomes All
Rounding off the month, the Global Entrepreneurship Week initiative takes place between the 18 – 24 November. Launched in 2008, it aims to inspire citizens to start and grow businesses through the hosting of events across the world, encouraging collaboration and turning innovative ideas into viable businesses.
South Africa plays its part in this important week, which this year will be celebrated under the theme of “Removing Barriers and Welcoming All”, in essence placing emphasis on the importance of building inclusive entrepreneurial ecosystems.
Joburg’s 22 on Sloane has combined with its hub in Cape Town to offer activities to SMEs. The outcome of the week is to showcase local SMEs, launch new programmes and funds to support SME development, drive dialogue and collaboration between public and private sector incubators, enable access to markets and improve existing policies that hinder SMEs’ growth.
Events that will be taking place between the 16 – 22 November in Jo-burg and Cape Town include a GEW Hackathon, the official launch of GEW in Cape Town as officiated by the GEN President, Mr Jonathan Ortmans and Minister of the Department of Small Business Development Stella Ndabeni-Abrahams., a Game Fest and The National Presidential MSME and Cooperatives Summit and Awards (21 – 22 November).
The new 22 on Sloane Cape Town Hub is a key player in the entrepreneurship ecosystem and offers Startups and SMEs access to mentoring programs and funding opportunities, as well as community events and workshops to foster growth and collaboration.