SA Franchise Warehouse

The indirect effect of Budget 2015 on SMEs

Petra Rees

South Africa’s tax plans for the next three years have just been announced by Nhlanhla Nene, the country’s finance minister. The Budget 2015 will directly impact small and medium-sized enterprises (SMEs), but there are also indirect effects – such as the weakening Rand and power shortages – that are just as significant.

The growth rate in South Africa is expected to be around 2,5% this year, although the National Treasury has just revised this figure to 2%. The deficit must be kept under 3% of the GDP, which explains the government spending, tax and borrowing plans announced in the Budget 2015. 

“Government spending is very high on the agenda and must be tightly controlled in order to reach those targets. If the government doesn’t succeed, South Africa will be downgraded to a junk status by the rating agencies. A further downgrade would put the Rand under severe pressure which would have a ripple effect on the whole economy, including any small business,” says Petra Rees from Lean Enterprise Acceleration Programmes (LEAP), a subsidiary of PLP Group which provides business support to small businesses.

Unpredictable currency

China’s growth is slowing down, while the US economy has a positive outlook for 2015, with a strong chance that US interest rates will increase towards the middle of the year. This will put emerging economies – including South Africa - under pressure and it will have repercussions for the volatile Rand. The Reserve Bank is not likely to hike interest rates during this time, but this will eventually occur. Rees explains, “Businesses that import goods should definitely gear themselves and make plans for further weakening of the Rand in the second half of the year.”

Electricity concerns 

South Africa needs guaranteed power in order for the economy to grow, and while the government has committed R669 billion to critical projects in transport, energy and logistics over the next three years, the electricity shortage is going to be a challenge for at least the next five years. On top of that are the major delays with Independent Power Producer (IPP) programmes. 

Limited access to power has a significant impact on small businesses that are considering expanding their operations, as they will need to carry the additional costs of generators and the petrol to run them. However, according to Rees, it’s not all doom and gloom. She elaborates, “What’s important to take out of this, is that if a business is prepared and has a plan of action covering eventualities, it will have a competitive edge against other businesses out there.” 

Small business owners often don’t make budgeting a priority, as they believe it’s just for big business. But considering weak Rand implications and power shortages, small businesses will this year have to very carefully plan for growth. “Business owners must ensure that their pipelines and order books are revisited every day and expenditure is carefully aligned. Being prepared is the key for future growth,” concludes Rees.