KIZITO OKECHUKWU | FEB 24, 2020
As the Finance Minister prepares to deliver the 2020 National Budget speech, all eyes will be on government’s plan to collect its revenues and spend its budget. The budget is a platform where the nation gets clarity on how taxes have been allocated to various national priorities, such as infrastructure, education, health, social services, among others. The budget also helps in determining how citizens should tighten their belts in cases where there are increases in tax, etc.
Last week, I took some time to chat to a few startups and small businesses at the 22 on Sloane campus about what they expect to be addressed in the budget speech and these were their comments:
- Cost of compliance: The burden of tax compliance affects the performance of small businesses. Tax compliance costs are incurred by small business owners to meet the requirements of the tax law, which are over and above the actual payment of tax. Becoming tax compliant reduces production time as the process is laborious and time-consuming. This often includes paying external service providers to help them with inspections and audits. The process needs to be streamlined, more efficient and affordable for small businesses. I know quite well that there are a few products from various financial institutions that are helping small businesses with these.
- Late payments by the public sector: This is a big bug bear for SME’s. Most times, their invoices are held for over 30 days or even as much as 60/90 days. This hinders cash flow and, even before invoices are paid, many have lodged inquiries on an average of three times. Perhaps enforcing 10% penalties for all invoices over 30 days will help ensure speedy payments. Incentives could also be put in place to ensure these institutions pay timeously.
- 30% set-aside for procurement from SMEs and red tape: This they believe has not been implemented effectively and will need clarity on the products and services that will be procured as per the State of the Nation Address (SONA) 2020. Regarding red tape, it costs small businesses more to hurdle through it than it costs them to actually run their businesses, also causing missed opportunities.
- The 10bn Fund for Women Entrepreneurs through IDC: More clarity is required on qualifying criteria and if the process and criteria will be different from already existing funds that have been set aside, such as sector agnostics, entry criteria, etc.
- 1% tax to solve youth unemployment: The President during the State of the Nation Address (SONA) mentioned that 1% will be set aside from the National budget to deal with high youth unemployment. More detail on this is expected from the Finance Minister.
- Funding of the 1000 entrepreneurs: During SONA, the President highlighted that 1000 entrepreneurs will be funded by the National Youth Development Agency and the Department of Small Business Development. Clarity and more detail will be needed on the selection process, timelines and the administration of the fund.
- Consolidation and strengthening of institutions mandated to support small businesses: SME’s often complain that feedback on their applications for funding and mentorship takes an enormous amount of time. What’s more, many have to apply for funding from one institution and do mentorship in another one. The entire supportive process could see them engaging with as many as five different institutions, which is a frustrating and time-consuming process. They need this process to be more consolidated and efficient.
- Infrastructure Investments: SME’s are curious as to how infrastructure investments (in technology, roads, water supply initiatives, electricity, etc.) will be spent and if there are opportunities for them to participate in such opportunities. They also express great concern about load-shedding which severely hampers their survival and impacts job creation. They would like tax incentives to be considered as an opportunity to off-set the cost and lack of electricity.
- The Innovation fund: Innovation remains a powerful catalyst to build a knowledge economy and help South Africa to become more competitive globally. The current Innovation Index by the World Economic Forum (WEF) scores South Africa 60th out of 141 countries in Global Competitiveness. Much more support is needed to ensure various innovations from startups/SME’s see the light of the day. To this end, startups recommend establishing an innovation fund that will be administered at scale and help in testing, launching and quick commercialisation of their ideas.
- The establishment of the State Bank: SME’s ask how this bank will differ from various commercial banks, development financial institutions (DFIs) and how it can support their growth in various industries. The requirements to access capital, profiling and all associated costs, including interest rates, should be lower than that of commercial banks and various DFIs.
Kizito Okechukwu is the co-Chairperson of the Global Entrepreneurship Network (GEN) Africa; 22 on Sloane is Africa’s largest startup campus.
