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Growth Ambitions Of Middle Market Companies In South Africa Rebound On A Wave Of Political Optimism

Middle-market companies across the globe are significantly more optimistic about business conditions and opportunities than last year, according to the findings of the annual EY Growth Barometer 2018.




  • EY survey shows a resurgence of confidence among South African middle market companies with almost one in three predicting growth above 10%
  • A further 30% are targeting growth in excess of 10%, a marginal increase from 2017, when 24% of companies were in this high growth band
  • 75% of South Africa middle market CEOs say they are already adopting or planning to adopt artificial intelligence (AI) within two years (last year only 8% had this view)
  • South Africa continues to be placed as a diversity leader among the global cohort, with 15% of respondent CEOs being female.

Middle-market companies across the globe are significantly more optimistic about business conditions and opportunities than last year, according to the findings of the annual EY Growth Barometer 2018. This is no different for South African middle market companies, with one in one in three predicting growth above 10% for the coming year. This is the finding in EY’s Growth Barometer report for South Africa released today, which is well above the International Monetary Fund’s GDP forecast that South Africa’s economy will expand by 1.5% this year.

The global annual survey of 2,766 middle-market executives across 21 countries and nine key middle-market sectors reveals that global confidence in business growth has strengthened in the last 12 months, particularly in South Africa as indicated in the local report.

“Business confidence has soared since Cyril Ramaphosa was elected in February as the country’s president, says Azim Omar, Africa Growth Markets Leader at EY. “Economic growth forecasts are stronger this year, where last year there was a risk that we were heading for a recession.”

In South Africa, the data shows that 58% of middle market companies are targeting growth between 6-10%, which compares favourably with only 32% of companies having the same growth ambitions a year ago. A further 30% are targeting growth in excess of 10%, a marginal increase from 2017, when 24% of companies were in this high growth band. What’s more, only 12% of respondents in 2018 expect a decline in growth, compared with 44% in 2017.

Related: 10 Ways To Grow Your Business For Entrepreneurial Success

Twenty seven percent (compared to 23% for the rest of the world) of South African middle market leaders have overseas expansion as the top strategic growth priority. South Africa’s survey respondents are also among the most bullish of the Brazil, Russia, India, China and South Africa (BRICS) group, on export growth, trailing only China. South Africa’s C-suite is also keen to move into adjacent activities or sectors, a priority cited by 21%; this reflects the rise in industry convergence, which is considered the second-most disruptive megatrend by the country’s cohort. A further 18% prioritise internal growth, in line with their BRICS peers.

The race to AI adoption

Intelligent automation and machine learning have moved centre stage as vital enablers to ambitious middle-market growth. Attitudes toward new technology have evolved rapidly since last year. In 2017, 64% of South Africa middle market CEOs said they would never adopt robotic process automation (RPA), yet just 12 months later 75% of respondents say they are already adopting or planning to adopt artificial intelligence (AI) within two years.

The survey shows that South African middle market companies are evolving fast. In fact, South Africa is joint third with Singapore in the early adoption of AI, above leading economies such as the US, Russia and Germany.

Omar says: “Successful and profitable responses to convergence favour the fast. Agile companies who can adjust their offering or business model to align with a shifting consumer environment are the ones who will thrive.”

Technology is seen as a great enabler in South Africa, with 27% of respondents naming it as a key factor in improving productivity. A sign of South Africa’s IT maturity is that business leaders regard improving the customer experience as the number one purpose of technology investment, ahead of more routine uses such as improving process efficiencies and financial data. However, IT is not a universal panacea: 17% consider technological disruption as the greatest operational challenge to growth, after insufficient cash flow.

Regulation driving, not stifling, innovation

This year regulation has emerged as a new force in stimulating innovation, not obstructing it. In contrast to most of their global peers, South African middle market leaders put more regulation (26%, 17% elsewhere) above lower taxes (24%) as the best thing the Government could to boost growth.

“One of the largest media companies in South Africa says it’s lost hundreds of thousands of subscribers because of competition from unregulated streaming services,” says Omar.

Contrary to the broadly held assumption that red tape stifles growth, regulation is also cited as the third-greatest innovation driver (19%), behind profitability (23%) and competition (22%). Customer demand trails in fourth place but elsewhere the customer is paramount; when it comes to ways of increasing innovation, the preferred approach for three out of 10 (30%) is using customer data.

Related: How to Grow a Small Business into a Big Business

Concerns over cash flow and funding remain

Slow or flat global growth is a major a concern for South African middle market companies, with 27% of leaders naming it as the biggest external risk to growth, up 15 percentage points on last year. This is directly linked to their burgeoning expansionist agenda.

While access to credit continues to be an issue, this year company leaders cite insufficient cash flow as a more significant challenge, cited by around one-third (32%) of the South African C-suite, in line with elsewhere (34%). This may reflect the changing nature of sales patterns worldwide, as industry convergence, unpredictable online buying patterns, and the need to invest quickly to satisfy changing consumer demands increase the need for ready money.

The right skill set key to growth ambitions

South African executives in middle market companies are convinced that their growth ambitions are inextricably tied to the right skill set. A lack of skilled talent is named as the third-greatest challenge to growth, cited by 15% — above the rest of BRICS (8%) and elsewhere (14%). And 35% say an ideal organisational culture is one that attracts younger, digitally native talent.

More than four out of 10 (43%) South African respondents plan to increase their full-time staff numbers — in line with the rest of the BRICS (43%) but above elsewhere (38%). However, three out of 10 (30%) are more cautious and are looking to maintain current levels, versus 22% in the rest of BRICS. As globally, gig hiring is down, with only 8% planning to hire contractors or freelancers.

“The reality in South Africa of our youthful population — with 47% of the country’s 56.5 million people under 25 — may exacerbate the country’s skills challenge and explain why demographic shifts are cited as the most disruptive force facing businesses,” explains Omar.

“However, we continue, in South Africa to be placed as a diversity leader among the global cohort. With 15% of respondents’ CEOs being female, versus 3% for the rest of the world, this proportion looks set to rise even further, with almost half (46%) putting diversity at the top of their hiring priorities, compared with 41% for the rest of the world,” says Omar. “As we mark Women’s Day in South Africa this year, this is a notable achievement for the South African middle market, with many more opportunities for women business owners in the future.”

Meanwhile around the world, EY’s global data in this survey confirms that women-led companies are significantly affected by a lack of funding, with 18% citing access to capital as a major barrier to growth, compared to 11% of their male-led peers. However, 30% of female-led companies are targeting growth rates of more than 15% in the next 12 months, compared with just 5% of male-led firms, even though more than half the women-led companies (52%) say they have no access to external funding.

Omar says: “The funding gap matters because companies with high-growth potential that do not secure early investment can have a harder time scaling-up, and much of the time, these companies are led by women. Financial support for women-led businesses represents a major challenge and only a handful of organisations around the world are focused on supporting the growth of women-led businesses. In South Africa, this narrative is different, and we look forward to seeing the acceleration of more women owned businesses in this country.”

View the report online at

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Entrepreneur Today

3 Stealthy Tax Hikes Payroll Managers And Employees Need To Take Note Of

By Rob Cooper, tax expert at Sage, and chairman of the Payroll Authors Group of South Africa





“Dammed if you do and dammed if you don’t.” 

The adage summarises the difficult decisions government and the Finance Minister faced when balancing the country’s books, rescuing state-owned enterprises, and reviving the growth of our economy. Given the economic pressure that most taxpayers are facing, government ideally needed to achieve all of that without direct increases to personal income tax in the most recent Budget Speech.

Personal income tax has comprised at least a third of South Africa’s total tax revenue in recent tax years, despite growing unemployment. The 2019 Budget, presented in February, forecasts that personal income tax will account for nearly 39% of tax collected during the upcoming (2019/20) tax year. Given that we are in an election year and that the tax base is fragile, it’s not surprising that the Finance Minister and the National Treasury avoided direct increases to the statutory tax tables used to calculate PAYE for employees in the budget.

Nonetheless, government has made inflation work in its favour to impose some tax increases by stealth. Here are three ways government is raising more revenue without direct tax increases:

1. Bracket creep

The statutory tax tables used by payrolls and employers have not been changed for 2019/20, nor have the brackets been adjusted for inflation. This effectively amounts to an indirect tax increase that will yield a revenue saving of approximately R12.8 billion for government’s coffers.

It is not unusual for government to use ‘bracket creep’ to effectively raise more revenue. But unlike previous tax years, even low- and middle-income earners are not getting much relief. Rebates and the tax threshold are being increased by small amounts to allow some relief, but many people this year will feel the pain as inflationary salary increases push them into a higher tax bracket.

2. Medical aid credit not adjusted for inflation 

As proposed in the 2018 Budget, the Finance Minister did not apply an inflationary increase to the Medical Tax Credit, which allowed him to raise an extra R1 billion in revenue for the year. Surprisingly, these funds will be allocated to general tax revenue rather than ring-fenced for healthcare. In previous tax years, revenue generated from below-inflation increases on medical scheme credits was used to fund National Health Insurance (NHI) pilot projects.

There is still no clarity on how the NHI is going to be funded except for a general statement that the funding model is a problem for the National Treasury to solve, and that the principles of cross-subsidisation will apply. One wonders if any real progress will be made soon, given the fiscal constraints government faces.

3. Business travel deduction left untouched

The Budget leaves the per-kilometre cost rates used to determine tax deductions for business travel untouched. By not increasing travel rates to account for inflation, government effectively increases income tax collection at the cost of the taxpayer. This will be a blow for people who need to claim from their employers for business travel in their personal vehicles. This change has slipped through largely unnoticed and the budget does not provide numbers for the expected increase in tax revenue.

Closing words

Amid political turmoil and uncertainty, the Finance Minister presented a balanced budget for 2019/20 that offers hope for the future along with some tough love. With government taking steps to accelerate economic growth and improve revenue collection, we should hopefully see a steady improvement in government finances, which will translate into less pressure on the taxpayer in future years.

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Entrepreneur Today

SMEs: Staying On The Right Side Of The Taxman

Remaining SARS compliant can be a constant challenge for small- to medium-enterprises (SMEs), especially when they are trying to focus on growing their businesses and streamlining their operations.





EasyBiz Managing Director, Gary Epstein, says submitting taxes can be a seamless process that does not have to take up more time than is necessary. “If business owners understand what is required of them and they put a few processes into place to deal with their tax submissions properly, their lives will be so much easier.”

What are the top three considerations for SMEs when submitting tax returns?

“Firstly,” says Epstein, “SARS returns must be accurate and submitted in terms of the relevant Act. Secondly, returns should be submitted and paid on time to avoid unnecessary penalties and interest, and thirdly, business owners must follow up on queries issued by SARS. “Do not ignore these queries, act on them as soon as possible”.

What are the major SARS submission deadlines for SMEs?

Epstein points out that small business owners need to adhere to various tax deadlines, each with their own particular dates for submission. “It is important that business owners diarise the dates (and set advance reminders for themselves) and/or enlist the services of an accountant or financial adviser to help them keep abreast of requirements.”

Value-added tax (VAT)

VAT payments need to be submitted in the VAT period allocated to the business, according to various categories and ending on the last day of a calendar month. This may mean making payments once a month, once every two months, once every six months or annually, depending on the category.

Provisional taxes

Provisional tax should be submitted at the end of August (first provisional) and at the end of February (second provisional) – for February year-end companies.

Employee taxes

In addition to submitting an annual reconciliation (EMP501) for the period 1 March to end of February for Pay-As-You-Earn (PAYE), Skills Development Levy (SDL) and Unemployment Insurance Fund (UIF), employee tax, in the form of an EMP201 return, needs to be submitted by the seventh of every month.

When can SMEs get extensions and is it worth it?

Epstein says SMEs can apply for various extensions, but these are subject to the Income Tax Act and Tax Administration Act.

“It is best for SMEs to consult their tax professionals to get advice regarding extensions for their businesses.”

What is SARS not flexible about?

SARS is not flexible when it comes to late returns and late payments.

“I cannot stress enough how important it is for SME owners to ensure their tax returns are submitted on time. In this way, they will avoid the inconvenience and expense of additional fines and interest,” notes Epstein.

What skills do SMEs need in their organisations to be able to submit to SARS efficiently?

Business owners often don’t have the time or expertise to deal with tax submissions throughout the year. If the business cannot afford to employ a full-time accountant or financial services expert, it would do well to outsource its tax requirements to a registered tax practitioner.

“I would recommend that even if they are not submitting the tax returns themselves, business owners should have a broad understanding of the tax regulations and what is expected of them. There is a lot of helpful information on the various Acts and tax requirements on SARS’ website,” says Epstein.

How does the right software help SMEs remain SARS compliant?

SME’s (and their accountants’) jobs can be made easier by using reliable accounting software to calculate accurate VAT reports. These reports are only as accurate as the data entered into them, which means care needs to be taken when inputting data into the accounting programme. Epstein says a good accounting software package must be reliable, easy to use and functional.

“SMEs need to check that the software has thorough reporting capabilities and can interface with other software solutions. Of course, it is also important to find out whether the software is locally supported by the vendor or not.”

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Entrepreneur Today

4 Dangers Of Business Under-insurance

A common short-term insurance peril that many SMEs face when submitting a claim following an insured event is the risk of being underinsured.





Malesela Maupa, Head of Products and Insurer Relationships at FNB Insurance Brokers says, many small business owners mistakenly believe that by merely having a short-term insurance policy in place they are adequately protected against unforeseen events.

“This is technically correct provided that the business is covered for the full replacement value of the items insured. However, in circumstances where the sum insured does not cover the full replacement value or material loss of the item insured, the business is underinsured,” explains Maupa, as he unpacks the dangers of business underinsurance:

1. Financial loss

The most common risk is financial loss on the part of the business. If the business is underinsured or the indemnity period understated, the short-term insurance policy will only pay out the sum insured for the stated indemnity period as stated in the schedule, with the business owner having to provide for the shortfall. This often leads to cash flow challenges, impacting profit margins or rendering it difficult for the business to recover following the financial loss.

2. Reputational damage

Should an underinsured business not have sufficient funds to replace a key business activity or critical component following a loss, this may impact its ability to fulfil its contractual obligations, leading to a loss of business or market share, and irreparable reputational damage in the worst-case scenario.

3. Legal action

A small business also faces the risk of customers or clients taking legal action against it, should it fail to deliver on goods and services following a loss or be unable to honour its financial commitments that they committed to prior to the loss.

4. Survival of the business

A catastrophic event such as fire, which could result in the loss of stock or company equipment and documentation, could threaten the survival of a small business that is not yet fully established, if the business assets are not adequately insured.

Working with an experienced short-term insurance broker or insurer is essential when taking up short-term insurance to ensure that business contents are covered for their full replacement value.

Furthermore, depending on the nature of the business or item insured, the policy should be reviewed on a regular basis to avoid underinsurance as the value of items often change overtime due to fluctuations in economic activity. Where it’s necessary, evaluation certificates need to be kept up to date.

“Lastly, SMEs should ensure that the sum insured does not exceed the replacement value, which would lead to over insurance. Should a business submit a claim following a loss, the insurer would only pay out the replacement value, regardless of the higher sum insured,” concludes Maupa.

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