Finance Minister Tito Mboweni delivered his Medium-term Budget Policy Speech (MTBPS) yesterday on the back of skyrocketing debt that is expected to reach 60% of GDP if no intervention is made.
Meanwhile, unemployment figures earlier in the week showed an 11-year high of 29,1%, with joblessness among the youth well over 50%.
“While we welcome many of the measures that Minister Mboweni announced today he seems to once again have ignored the productive part of the economy being the SME business owners who together account for over 50% of employment and over 50% of GDP in South Africa,” says Karl Westvig, CEO of Retail Capital.
“We believe more should be done & more funding should be directed towards them to support the economy and job creation.”
The staggering figures released yesterday estimate the number of insolvencies have increased by 43,3% in the three months ended August 2019 compared to the same period last year.
“There isn’t enough being done by the government to stimulate the SME sector and in turn create jobs,” says Westvig. “Our unemployment crisis coupled with the total number of liquidations increasing by 10,5% in the first nine months of 2019 compared to last year, is a clear sign that it’s time for Government to be bold and deliver.
“Much fanfare has surrounded the CEO SME Fund Initiative, but the total value is a paltry R1,24-billion in a R5-trillion economy, and where government has a budget of R1,4-trillion. That represents 0,1% of the annual budget,” he adds.
The private sector, through banks and non-bank financial services companies, lends an estimated R500-billion to SMEs. Most of this is skewed to existing businesses that already have a strong balance sheet and assets that can be used as security.
According to the recent Finfind study, the SME funding gap is between R86-billion and R346-billion.
Non-bank financial-services businesses that lend to smaller, unsecured businesses or start-ups have an exposure more like R5-billion.
“From experience, for every R170 000 lent to an SME, a job is created. Simple maths, if the R1,5-billion is advanced, then 9 000 jobs can be created. A drop in the ocean, when we have a jobless rate closer to 6,65-million people,” Westvig says.
“According to The Southern Africa Labour and Development Research Unit (SALDRU), the median salary in South Africa is R3 300 and each job supports around 3,5 people in a household.
“If we could target 1-million new jobs, a fund of R170-billon should be established. If our government was serious, they could make 25% of that available as guarantees or grant funding. The private sector could fund the 75%, using the 25% from government as first-loss security, allowing it to raise cheaper funding from asset managers.
“With this as an incentive, the private sector would innovate to deliver funding at reasonable rates, through new channels and support the growth in the SME sector,” he says.
Westvig believes there are other ways for government to stimulate SME growth: reducing the tax burden and red-tape, and providing a small business grant.