Generally Positive Budget Sees SMEs Relegated to the ‘Missing Middle’

Published: 25 February 2021

In the wake of a broadly positive and confidence-boosting budget that saw the government recommit to fiscal consolidation, the small and medium sized enterprise (SME) sector was once more not invited to the table and relegated to languishing in the missing middle, says Retail Capital CEO Karl Westvig.

“Finance Minister Tito Mboweni delivered a budget that is likely to instil broad-based confidence because it focused on fiscal consolidation, reducing the public wage burden, reform and infrastructure investment. There were also welcome moves on the corporate and personal tax fronts. These are positive developments that many have been calling for, however SMEs were overlooked yet again,” says Westvig.

“It is not unreasonable to expect Mboweni to commit up to 5% of the budget to a sector that drives 30% of the economy,” says Westvig. “SMEs deserve to be allocated R100bn so that they can get the support they need if they are to live up to anywhere near the promise of helping grow the economy and delivering 90% of jobs by 2030.”

Westvig, who recently hosted a roundtable with a group of fellow leaders in the SME sector, penned 10 suggestions for Mboweni to consider, that would make a meaningful impact in turning around the fortunes of the sector.

These included increasing access to non-bank funders, bringing SMEs with on-the-ground insight to the planning table, focusing on streamlining systems and digitisation, taxi regulation to shore up the tax base, a drive to bring cashless payment technology to all parts of the economy which would also increase revenue collection, new ways of dispensing aid so that SMEs can benefit and not be excluded, and others.

“Disappointingly for SMEs in the formal sector,” says Westvig, “a meaningful financial injection that could speak to these ingredients for turning around SMEs didn’t materialise.”

Government allocated R4bn to grassroot businesses, which is to be commended, says Westvig, as the country needs township and rural enterprises to flourish. “However, this, when read against the reality that large enterprises are well supported with access to bank loans and capital markets, you are left with a stark picture of the SME missing middle,” says Westvig.

To compound matters, he says, there is very little immediate relief for SMEs. “Some may have accessed the TERS benefit, but this won’t cover lost revenue. Instead, it may cover salaries and other expenses, and only for a limited time. This means we will likely find small business owners doing what they had to do during the entire pandemic, and that is take salary cuts or dig into their personal savings in order to keep paying their employees and keep their businesses afloat,” he says.

Westvig adds that until government starts putting meaningful money behind the rhetoric of supporting SMEs in the formal sector – businesses that pay tax, hire people and make up a third of the country’s GDP – a true entrepreneurial mindset is their best bet to turn their prospects around in the short term.

“Keep an eye open for opportunities. We all know that it has been very difficult, and without downplaying any of the hardship that businesses have endured, there are still opportunities out there,” he says. As a small business funder, Retail Capital has disbursed funds across sectors since the start of the pandemic to businesses that spotted opportunities and needed to scale to take advantage of them, he says.

“Our advice during the entire pandemic was to ensure that every cent was accounted for, that businesses were as efficient as possible and that they fully digitised in order to catapult them into the future”.

“Once this is in place, my advice to SMEs now is to analyse their customers, and then look at targeting sections of consumers that have not been hurt by Covid-19. There are consumers with a lot of buying power in formal employment that have not lost their jobs or taken salary cuts,” he says.

Many of these people are better off now than before the pandemic because they have saved money from working remotely. Beyond this, either through regulations or fear of social gathering, they have not spent as much on entertainment. “These people have disposable income, and so ask yourself: ‘how can I take advantage of this opportunity?’ Certainly, we have noticed a rebound and spike in various industries that target these consumers, such as outdoor adventure and wellness,” says Westvig.

His parting words for Mboweni are: “Thank you for a positive budget. Next time around, I’d look at finding R100bn for our vital sector and seriously contemplate our 10 suggestions, because the rewards in the form of economic growth and job creation will far outpace the cost.”