At the end of February, South Africa’s Finance Minister Nhlanhla Nene announced the country’s tax plans for the next three years. His budget will have a direct effect on small and medium-sized enterprises (SMEs), but there are also indirect implications for these small business owners. We have a look at two of these: the weakening Rand and power shortages.
South Africa’s growth rate for 2015 has been revised by the National Treasury to 2%, while the deficit must be kept under 3% of the GDP. This explains the government spending, tax and borrowing plans outlined in Nene’s budget speech.
To reach these targets it’s essential for government spending to be controlled – and this is a huge undertaking. One urgent task for the government, is to convince the unions to keep public servant salaries in the lowest bracket that they’ve been in for the past five years. This is not going to be easy but if they don’t succeed, South Africa will be downgraded to a junk status by the rating agencies.
It’s important to highlight the volatility of the South African Rand, and a further downgrade will have a huge impact on the whole economy, including SMEs. South Africa, as an emerging economy, will also be put under severe pressure if the interest rate in the US increases – an outcome that looks likely to happen by the middle of 2015. This will have a significant bearing on the Rand, with the eventual consequence being increased interest rates from the Reserve Bank.
Everyone living in South Africa has felt the effects of power outages in their personal lives, but the pressure on businesses is immense. The country needs guaranteed electricity for the economy to grow and to help solve our unemployment issues, which is why the state has committed R669 billion to critical projects in transport, energy and logistics. However, even with this three-year plan, electricity shortages will still be a challenge for at least the next five years. This is also due to the considerable delays in the Independent Power Producer (IPP) programmes.
Power shortages prevent many businesses from operating efficiently and cost-effectively, and for any owner thinking of expanding their operation – they now have to include the cost of buying generators and the petrol needed to run them. This will limit the growth of many companies in South Africa.
This might all seem a little gloomy, but what’s important to realise is that if a business is prepared for eventualities and has a workable action plan, it will give them a competitive edge against other businesses. Critical to this plan is a sensible budget, and small business owners need to make this a priority. Weakening Rand implications and power shortages need to be taken into account when owners plan their financial year, and this preparation is the key for their future growth.
All SME owners who want business advice and support should contact LEAP on 011 449 7074 or visit www.leapco.co.za. LEAP has an experienced team of innovative thinkers who will also provide tailor-made solutions for all your enterprise and supplier development initiatives.