Off 50% YoY turnover drop, Budget offers little hope for SMEs
While the macroeconomic outlook remains uncertain, there are some positive signals for the SME sector in South Africa. These insights were released by SME services provider Lula, during a media briefing on Thursday morning.
“It is important to understand the pressures that SMEs face as they try to survive in a harsh economic climate. This sector is a key driver of the South African economy, and they were particularly interested to see what the Finance Minister would be announcing in his Budget Speech,” says Lula’s chief risk officer, Garth Rossiter.
“SMEs were hoping to hear how their tax contributions would be pumped back into infrastructure investments that are sorely needed. The Speech provided an opportunity for Treasury to show how it will fund reliable energy, transport, security and water,” he adds.
Rossiter highlighted three aspects of the Budget Speech:
- “It was disappointing to note that there was not one single mention of small business or SMEs in the Minister’s speech. The plan to increase the VAT rate will also hurt small businesses albeit it is positive to see that the planned rate of increase was lower than earlier planned,” he says.
- Rossiter says it was disturbing to note that the VAT increase was partially necessitated by a three-year government wage agreement. “It is a smack in the face for small business owners who make up the biggest employer segment in the country. They are forced to make job cuts to keep the doors open while public sector wages are increased. This is hard to stomach and particularly tone-deaf,” says Rossiter.
- Tax brackets have also not been adjusted for inflation, which Rossiter says means that individuals will end up paying more despite there being no formal tax increases announced.
“We welcome the announcement of increased spending on infrastructure. This is something the SME sector has been pleading for as it contributes to its ability to create jobs and create employment opportunities for more people,” says Rossiter.
South Africa’s economic environment continues to pose significant challenges for small and medium enterprises. Rossiter shared insights from a white paper published by Lula which illustrated the current environment in which SMEs operate.
“Despite some early signs of recovery, the past year has been marked by stagnant growth, high interest rates, and mounting financial pressures. Our data reveals that business turnover has fallen by more than 50% in the past 12 months. This is clear evidence that the struggles are not isolated to any one industry, but are reflective of a broader, systemic downturn,” says Rossiter.
“The past year has been one of survival for many South African SMEs. Economic stagnation, high interest rates, and declining consumer spending have created an unforgiving business landscape. Yet with resilience and strategic financial management, SMEs can position themselves for recovery and future success,” says Rossiter.
