The Budget speech delivered by the Minister of Finance, Enoch Godongwana, contained some good news for SMEs hard hit by two years of economic turmoil and persistent low growth. Jason Mellow, Head of Business Insurance at MiWay, says that entrepreneurs are the true engines of the economy, and it is vital that they seize the opportunities offered in the speech.
“In his State of the Nation address, President Ramaphosa laid huge emphasis on the importance of job creation and the private sector’s key role in solving our massive unemployment problem,” says Mellow. “The Budget speech takes that a little further by providing some concrete help for SMEs, and offers significant help to this vital part of the economy.”
In 2020, some analysts estimated that up to 60% of South Africa’s SMEs would be at risk of closing in the wake of the COVID-19 pandemic and its associated economic disruptions. That would be disastrous because SMEs employ 50-60% of the workforce and account for 25% of the private sector’s job growth.
In his speech, Minister Godongwana announced a bounce-back scheme to assist SMEs battered by two years of economic turmoil and scant growth as a result of the COVID-19 lockdowns, exacerbated by load shedding and the political riots of July 2021. The bounce-back scheme will use two mechanisms to deliver R20 billion of support to SMEs.
The first of these is loan guarantees of R15 billion facilitated through banks and development finance institutions. Government will underwrite the first 20% of losses, and collateral requirements have been relaxed.
Second, the government will introduce support for loans linked to business equity by April.
In addition, the Budget increased the employment tax incentive by 50% to a maximum monthly value of R1 500, while corporate tax has been reduced from 28% to 27%. The Minister specifically encouraged SMEs to take advantage of this opportunity.
“SME owners need to devote time to studying the proposals when the details are released, and ensure they take full advantage of what seem like significant opportunities to raise finance on favourable terms to fund growth or recovery strategies. A reduced tax liability is also big news because it protects cash flow,” Mellow says. “But, as always, it pays to do your homework to ensure you meet the criteria to qualify for the benefits.”
At the same time, he advises SMEs to take the opportunity to reassess the risks they face, and ensure that they have the correct insurance in place to cover them. As the past two years have shown, the risk landscape has become much more threatening and harder to read. “Opportunity and risk are two sides of the same coin, and an integrated approach is needed. My best advice: work closely with your insurer to understand your risks and protect your company from them by taking the right preventative measures and getting adequate cover,” concludes Mellow.
MiWay is a licensed non-life insurer and Financial Services Provider (FSP 33970).