THE Budget speech was a fine balancing act between stabilising the country’s debt burden with fiscal discipline and social investments.
The good news was that no major tax increases were announced, VAT was not raised and there were no fuel levy increases.
Catherine Wijnberg, THE CEO of Fetola, said yesterday, “We urgently need to encourage a culture of buying and contracting from local SMEs (small medium enterprises) and make it easier for these businesses to access finance so that they can scale up.
“What the 2024 Budget clearly revealed is that the government has limited fiscal space to change the country’s economic trajectory, so it will be up to the private sector to find a way to pave a more sustainable future for the country.”
Fetola is a company that nurtures growth and sustainability of businesses and entrepreneurs in Africa.
Finance Minister Enoch Godongwana was cognisant that raising taxes in a constrained economic environment comes with risks.
He did, however, warn of future tax hikes unless government expenditure was reduced.
Wijnberg said: “While taxes were not raised, the minister did not make any allowance for inflationary adjustments to tax brackets and rebates.
“Medical tax credits, for example, have not been raised for inflation. This failure to account for inflation puts an increased tax burden on taxpayers over time, threatening consumer spending and negatively impacting SMEs that rely on consumer activity.”
South Africa’s debt problem is highlighted with 21 cents in every rand going to debt repayments.
Wijnberg added that in recent years, the small business sector had learned to roll with the punches delivered by the pandemic, an economic downturn, supply chain challenges, load shedding, higher interest rates, and inflation.
“It has been forced to learn to be resilient and agile and to pivot when necessary. However, constrained consumer spending and high interest rates are having a negative impact. This is a sector which typically struggles to attract investment,” she added.
A recently published report by British International Investment said the SME financing gap reflected mismatches between what lenders were willing to provide and what borrowers were willing to accept.
Lenders wanted to easily assess credit risk, protect themselves with collateral, and preferred short tenors. Borrowers were often risk averse and wanted flexible repayment terms, lacked well-documented track records, and wanted longer tenor loans for growth investments.
South Africa is ranked as one of the most risk-averse lending countries globally.
Wijnberg said: “Local banks have tightened their lending standards in recent years as higher interest rates and inflation start to bite both businesses and consumers. The slowdown in credit growth is expected to continue in 2024, according to S&P Ratings. The exception to this slowdown will be in high-growth sectors including those in the renewable and alternative energy space.
“The funding gap – typically including funding for short-term working capital requirements to longer-term production infrastructure investments - for growth-oriented SMEs in Fetola’s portfolio is between R250 000 - R5 million.
“Those entrepreneurs who are successful at obtaining finance in this range are usually charged exorbitant interest rates. Fetola, a business growth development agency, is working with our partners to address this funding gap through catalytic development funds including Nedbank’s Green Economy Fund, SAB Foundation’s Financing for Impact Fund, and our own home-grown SME fund, all of which are aimed at helping SMEs grow.”
Wijnberg said that growing the SME sector had the potential to alleviate unemployment and grow the economy.
“Many of the small businesses that Fetola has incubated have gone on to achieve significant success. We urgently need to encourage a culture of buying and contracting from local SMEs and make it easier for these businesses to access finance so that they can scale up.
“What the 2024 Budget clearly revealed is that government has limited fiscal space to change the country’s economic trajectory so it will be up to the private sector to find a way to pave a more sustainable future for the country,” she said.
BUSINESS REPORT