/ 24 February 2022

Treasury needs to be braver, but Godongwana’s neutral budget is a good start

South African Finance Minister Enoch Godongwana Delivers Mid Term Budget Speech
Finance minister Enoch Godongwana.(Brenton Geach/Gallo Images via Getty Images)

Finance Minister Enoch Godongwana, juggling many balls to appease numerous stakeholders, not least the credit ratings agencies, delivered a neutral budget. It was business-friendly and positive, but it was not enough to kickstart our stuttering economy.

It would be remiss not to acknowledge how far we have come. There have been budgets delivered over the past decade in which small businesses were barely acknowledged. The 2022 budget was different: the R15-billion business bounce-back scheme is a case in point. For the first time in years we heard: businesses matter; small businesses matter.

Speaking about the bounce-back scheme, Godongwana said: “This allows access for qualifying non-bank small- and medium-loan providers. Government will partner with loan providers by underwriting the first 20% of losses for banks and other eligible small- and medium-loan providers.” 

That’s a tacit admission that the previous Covid-19 schemes were an outright failure at providing any relief for micro enterprises: something people in the private sector with a special interest in small, micro and medium enterprises (SMMEs) have said for almost two years. Formal banks and lending institutions are by their very nature — and obligations — incapable of supporting SMMEs. The red tape is too complex; the hoops too high. 

And so, this is a positive step. One that seemed almost unachievable in previous budgets. It wasn’t a surprise as President Cyril Ramaphosa set the tone in his State of the Nation address earlier this month. The government has come to terms that it won’t achieve its goals despite the private sector: it will achieve meaningful economic growth only by working with the private sector. 

However, the devil is in the detail — keeping a sober mind one simply must acknowledge that our government does not have a solid recent track record of on-point delivery. Godongwana told us: “The eligibility criteria, including the requirement for collateral, has been loosened. This mechanism will be launched and operational next month”, as well as announcing a business equity-linked loan-guarantee support mechanism to go live in April.

We sincerely hope that the treasury gets this right, because it will be a vital boost for micro-enterprises that have been hammered over the past two years. It would be encouraging to see funds go to the businesses that need it most.

The positives in the budget were clear to see. The line on Eskom is being held and there’s a renewed intent to accelerate infrastructure investment. There were no increases in tax or VAT, with the fuel levy left unchanged with an undertaking to relook its makeup, which will provide some relief for consumers, who underpin the economy. 

These moves are good, but it’s honestly not enough. If we are to reach our potential and see the kind of sustained economic growth we need to start eating into our unsustainable unemployment and poverty rates, the government needs to be brave and start taking calculated risks. It must use this moment — this business-friendly posture — as a launch pad for a new era of growth. How would this look?

There must be tax breaks for small businesses or a real incentive for them to employ more people. The government has, one could argue, put its eggs into the relief schemes basket, but that won’t reach all affected businesses. It would be more prudent, going forward, to commit to legislation that affects all businesses, and promotes growth in businesses across the board — not just those that go and apply for funding packages. 

A brave government will take the opportunity to implement targeted tax breaks designed to stimulate growth in addition to meaningful employment incentives across the length and breadth of the economy. We need a broad-based approach to uplifting small businesses in this country. Beyond this, and as unpopular as it is, labour laws and the red tape around hiring people must be faced head on, and reworked to favour small businesses. Make it easy to hire or forget about micro enterprises hiring.

One may ask: How do we get there? How do we find ourselves in a situation where the president and finance minister announce economy-wide initiatives that are designed to meaningfully kickstart the economy to enjoy aggressive growth? Sometimes one must look back to go forward.

Over the years, we — engaged members of the private sector — have raised red flags and concerns. A deaf government would have continued ignoring us, but it hasn’t and that’s positive. Small businesses weren’t even on the radar in years gone by and today we’re talking about a bounce-back scheme that will lower the eligibility criteria in favour of micro enterprises and a super-presidency that’s been mandated to come up with solutions to make doing business easier. Imagine reading that five years ago.

Read like this, the neutral budget was not the brave, growth-inspired budget we needed, but it wasn’t a bad budget or, at the very least, not completely out of touch with the reality on the ground. We support all efforts for the private sector and government to work more closely than ever before, and if the new pro-business stance is an olive branch, we’ll accept it as a stepping stone to meaningful partnerships for the benefit of the economy at large and SMMEs in particular.