Home » SME resilience required after tough budget

SME resilience required after tough budget

by Tia

In delivering the 2024 National Budget, Finance Minister Enoch Godongwana reminded South Africans that it would be easy to indulge in extremes of either blind optimism or crippling pessimism, when it’s best to resist both. He urged South Africans to heed the words of former President Nelson Mandela “who more than most saw that the pursuit of socioeconomic justice and shared prosperity is a journey rather than a destination.”

This is true in business as Small to Medium-Sized Enterprises (SMEs) so often have stumbling blocks to contend with while operating in the idiosyncratic economy of South Africa, with its electricity-supply woes, climate-related issues and logistical headaches along the way.

But there are some glimmers of hope set out in the Budget, and particularly for SMEs who by their very nature are resilient and experienced in facing hardships and challenges when trying to run a local business.

“Each new challenge is met with innovation, hard work and creative thinking and SMEs always try to find a way to make ends meet,” says Brent Geddes, CEO and Co-Founder of Geddes, specialising in secured business lending.

“That’s why we can without a doubt say that South African businesses are a resilient bunch and why we as Geddes are prepared to assist and work with fellow South African entrepreneurs, to back them to sustain their businesses and reach success, despite a tough economy.”

Geddes attended the business breakfast with Gondongwana hosted by RMB. “Government is acutely aware of the problems SMEs face in South Africa and wants to tackle three key areas without blindly bailing out State Owned Enterprises. These are Eskom’s electricity supply, the logistics issues facing Transnet, and crime and corruption. Even a moderate improvement in these areas will have a massive impact on the ability for SMEs to grow their businesses.”

The National Budget confirmed National Treasury’s intentions to stay the course on its fiscal strategy outlined in the 2023 Medium Term Budget Policy Statement (MTBPS). While the country’s debt remains high, tax measures will raise R15 billion in 2024/25 to alleviate immediate fiscal pressure and support faster debt stabilisation.

This decisive action to see progress will take time to bear fruit, but SMEs can weather the storm, particularly if aided by business funding and an improved business landscape.

Getting around

For the third Budget in a row, no increase is planned for the Road Accident Fund levy, bringing tax relief of around R4 billion. Even so, SMEs will need to be creative in how they keep delivery costs down, to ensure operational costs are managed.

The Freight Logistics Roadmap, approved by cabinet late last year focuses on immediate improvements to port equipment, locomotive availability, and network security. It outlines steps for enhancing efficiency, introducing competition, and leveraging private sector support.

“These measures will help SMEs to do business more efficiently,” Geddes adds.

Keeping operations going

To promote further investments in renewable energy, Godongwana’s Budget proposes an increase to the limit for renewable energy projects that can qualify for the carbon offsets regime, from 15 megawatts to 30 megawatts. “This is good news for SMEs in this space.”

Gondongwana added that it is through the combination of private investment in new energy projects, rooftop solar installations and improvements in Eskom’s generation fleet that load shedding will reduce, and reliability and security of supply will improve.

While load shedding is still among the biggest issues facing SMEs to operate successfully, there is light at the end of the tunnel. “Each day that goes by, South Africa is more and more solarised and this inherently reduces the need for loadshedding. However, we are moving into winter soon where solar is less effective and power usage is higher, so this is important to plan for.”

“SMEs in South Africa will likely have to rely on debt to get them through the next 12 to 24 months to when the issues of load shedding should be mainly behind us and interest rates have come down enough to make a difference to cash flow,” Geddes adds.

The finance minister also announced a new R2 billion conditional grant to fund the rollout of smart prepaid meters over the medium-term, starting with the municipalities who have been approved for debt relief. Godongwana further addressed the unacceptable number of municipalities who are experiencing weakness in service delivery, financial management and governance.

He said that to transform municipalities into engines of growth, National Treasury has adopted a multi-pronged approach that focuses on tightening budget processes, ramping up oversight, increasing the skills and capacity of municipal employees, and driving investment in maintaining and building infrastructure.

“These improvements will go a long way to improving the outlook for SMEs who rely on functioning municipalities within their businesses,” says Geddes.

In terms of infrastructure, Godongwana relayed the intention to optimise the infrastructure value chain to attract private sector participation. This may present an opportunity for SMEs down the line, and a need for funding.

“SMEs looking to grow show their resilience each day, which is why we remain steadfast in backing them. As long as government does its part to stamp out corruption and continues supporting SA Inc, we’re golden,” Geddes concludes.

For more information on Geddes, visit www.geddescapital.co.za

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