South Africa’s small business community is an important contributor to the national economy. It already accounts for 52% of the country’s GDP and helps create much-needed employment. The government is showing some support through various initiatives, most notably the launch of the Department of Small Business Development in 2014.
While a definite step in the right direction, these initiatives are not doing enough to help entrepreneurs weather ongoing economic uncertainty. In fact, Xero’s 2017 State of Small Business report highlights this critical issue: 89% of small businesses are dissatisfied with the level of support they receive from government and only 3.7% say that the Department of Small Business Development has helped their company.
Small business survival depends on a specific set of requirements, which is undermined by the current economic climate. To help these companies achieve their ambitions and thus, continue contributing to the country’s long-term economic success, the South African government needs to step-in more.
Small business owners have identified the following five priorities, giving government clear direction in terms of where and how it can make a difference.
1. Provide More Funding (48%)
Some 85% of South African start-ups are self-funded. This trend is driven primarily by necessity rather than actual means: many entrepreneurs have had to borrow from friends and family, sell their car or re-mortgage their home to turn their dreams into a reality. However, this capital is rarely sufficient to support the business long enough for it to reach its full potential. Other individuals, full of great ideas and ambition, don’t have any savings or collateral, which means they can’t launch a business without external funding.
A lack of funding limits the country’s pool of entrepreneurs to those with enough money to get a business off the ground. Not only does this perpetuate the inequalities of the current economic status quo, it prevents true talent from realising its potential – diluting South Africa’s ability to compete on the global stage.
If the government can increase its number of small business funds and subsidies, more entrepreneurs will be able to access the money they need to launch their businesses successfully. All of which is far better for the country and the economy, now and in the long-term.
2. Reduce Red-Tape (44.3%)
South Africa’s strict regulatory environment gives many small business owners sleepless nights. Many determined would-be entrepreneurs persevere as best as they can through complex legislation and compliance requirements only to lose heart. It’s not so much the rules themselves, but the lack of official assistance, clarity and coordination between government agencies and departments that wears them down.
These frustrating bureaucratic processes and penalties only serve to discourage new business growth. The current legal environment is not designed to support entrepreneurs fairly and help them grow – all unnecessarily obstructive regulations should be eliminated as soon as possible.
3. Offer Tax Breaks (42.8%)
Small business owners need as much of a break as they can get – and that goes for tax too. South Africa’s entrepreneurs are under enormous pressure and 16% say that the country’s high tax rates keep them up at night. While sleep-deprivation may come with the territory of running your own company, with no tax in respite in sight, many small business owners will move their operations overseas or shut down.
The government should be doing its utmost to protect the economy, create jobs and keep revenue in the country. Offering tax incentives to would-be entrepreneurs is a great way to encourage new business development. As the number of start-ups increase, so too will the amount of tax revenue – an easy win-win for both the small business community and the government.
4. Improve Access To Finance (35.8%)
Banks are often reluctant to lend money to small businesses. Compounded by the absence of subsidies and grants, entrepreneurs are struggling to access the finance they need to grow. In desperation, many turn to the government for help.
Fortunately, the Department of Trade and Industry does offer various forms of financial support with flexible repayment terms and lower interest rates. That said, it’s not enough and government needs to expand its offer of available financial solutions – and clearly communicate all the options to the small business community.
See also: South Africa Slips 14 Places In WEF Global Competitiveness Index
5. Invest In Education (22.3%)
Without the right talent on board, small businesses will battle to reach their growth objectives. This is made doubly hard when the necessary skills are in short supply and entrepreneurs can’t find the people they need.
The South African government needs to work harder to improve the country’s overall skills base. With greater investment in education, schools, Technikons and universities will produce more competent workers – improving the quality of employees and CEOs.
Of course, education takes a generation at least to get right. In the short-term, small businesses simply need more attention and assistance from government. The Department of Small Business Development is a start but much more needs to be done to prioritise entrepreneurship – and support its growth through good and bad economic times.
About the author: Colin Timmis is the SA Head of Accounting, Xero.Â
