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Making Government Business More Attractive To SMEs

73% of the companies that responded to SAICA’s annual SME Insight Survey do no business at all with government, at any level. There are a number of reasons for this; some of which government can be commended for addressing, but others that could still benefit from action by policymakers.

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The South African Institute of Chartered Accountants’ (SAICA) annual SME Insight Survey, which is part of SAICA’s continued commitment to government’s National Development Plan (NDP) objective of using SME growth as a driver of employment, enables the institute to present evidence for dialogue with policymakers to suggest ways to facilitate such SME growth.

The 2015 survey attracted more than 1 300 responses from business owners. The increase in this figure, from 800 respondents in 2014, indicates that many SMEs are eager to engage government on policy decisions that will affect their chances of long-term sustainability and individual company growth – which, the research also indicates, is the only way to turn SMEs into mass job creators.

The 2016 survey is currently calling for SMEs to participate, and thereby to voice their wishes regarding the policy conditions that government could change. Changes to government policies over the past two years indicate that this type of pressure helps to give the minister more power to influence change. SMEs wishing to participate should find the survey here: 2016 SMME Insight Survey

Of the companies who participated in the last survey, those employing the highest staff complement are invariably those SMEs with the highest turnover. Clearly if these companies could increase turnover they would employ many more people.

Related: How SMEs Can Defeat The Red-Tape Bugbear

What many SMEs are not eager to do, the research makes clear, is to grow their businesses by doing business with government, at national, provincial or municipal level. 73% of respondents do no business with any government agency whatsoever, and a further 15% rely on government contracts for less than 10% of their turnover.

Only 8% derive more than 25% of their turnover from government business.

This is even more anomalous when considered alongside the fact that 38% of the SMEs surveyed have BBBEE ratings of 4 or better (under the previous regulations), which qualify them to compete for government tenders at a time in which the state is spending enormous amounts on development, and is ostensibly building a procurement engine that favours transformed SMEs.

The 73% who do no government business at all were asked to rate their reasons for this, and the general consensus identified a number of key perceived barriers:

  • That the tender process is too onerous, and is not transparent
  • That government institutions are too slow to make decisions
  • That government takes too long to pay invoices, especially to SMEs, which have the most sensitive cash-flow
  • That they cannot meet BBBEE requirements, or that the BBBEE certification process is too onerous.

SME government business contracts

Changing perceptions: Government is listening

This is not the first time these issues have been raised, and it appears that government is responding proactively in a number of areas. In his 2015 Budget speech, former Minister of Finance Nhlanhla Nene announced his intention to create one portal for doing business with government; a central tender registry that will allow SMEs to register with all the requisite paperwork once, and henceforth apply for tenders without having to repeat the red tape each time.

This should make the process of applying for government contracts less daunting, while at the same time affording the transparency which will help to curb nepotism and/or corruption. It should also speed up the process of awarding tenders; hopefully, the establishment of this registry will encourage more SMEs to compete for government business.

It is understandable that late payment is a thorny issue for SMEs, most of which rate other SMEs, as a sector, most likely to settle invoices on time. With restricted capital and high overheads, many SMEs cannot survive, let alone prosper and grow, without reliable cash-flow.

Government’s undertaking to institute a KPI for all government financial officers to make payments within 30 days will be a strong incentive for SMEs to bid for more government business – as long as it is monitored and enforced effectively at all levels by the Treasury.

At the same time, as successful SME owners who do plenty of government work have pointed out, government’s financial officers are also bound by stringent regulations set in place to contain fraud, so by law they cannot make payments for which the paperwork is not in order.

SMEs need to ensure they understand whatever tax certificates, legal compliances or other information are required, and submit them in full along with their invoices, if they want to enable and receive prompt payment.

Government have also halved the tax rate on smaller SMEs, from 6% to 3%. This will make it easier for these businesses to compete with bigger operations for business in both the private and public sector, and with government being by far the country’s biggest spender on procurement, it should also encourage more SMEs to do business with government.

The turnover threshold regarding complex BBBEE compliance process has also been doubled, to R10 million. 75% of the SAICA SME Survey respondents have turnovers of less than R10 million per year, so under the new regulations they are automatically rated at least at BBBEE Level 4, which qualifies them to bid on government tenders. Far from being an onerous battle with red tape, the new BBBEE codes actually make it easier for many smaller SMEs to tender for government business.

Related: Government Funding and Grants for Small Businesses

An area that requires action

There is another concern raised by SMEs that suggest government could, through fairly minor tweaks in policy, make it easier for entrepreneurs to establish SMEs and grow them to the point where they become job creators. 49.9% of those surveyed cited government red tape as a disincentive to starting new companies – these include a wait of three weeks or more to process VAT registration, and similar hurdles involving company registration, tax clearance certificates and other required permits. Some have suggested that government might find the example of Rwanda a useful model in streamlining these processes.

The 2014/15 Global Competitiveness Report by the World Economic Forum (WEF) ranked Rwanda 6th out of 144 countries in terms of ‘burden of government regulation’. The country has achieved this status by attending to areas like the ease of starting a business, obtaining construction permits, registering a property, paying taxes, trading across borders and enforcing payments. It takes six-and-a-half days to register a company in Rwanda, and a day to register for VAT; South African start-up businesses can expect a wait of 46 days and 21 days, respectively, to obtain these essential clearances.

It is hoped that the concerns expressed by SME owners in the research will be considered by government policymakers in their on-going efforts to support and encourage SME growth, and that the information will be valuable in shaping future policy. SAICA has launched the 2016 version of the annual SME Insight Survey as its contribution to the health of the SME sector and thereby to job creation. As Terence Nombembe, CEO of SAICA, said when releasing the 2015 Insight Survey’s findings, “By collecting these insights and investigating the findings, our aim is to influence policymakers in creating a more enabling SME environment – and to demonstrate the ways in which SAICA’s Small and Medium Practices (SMPs) can better assist their SME clients.”

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5 Businesses You Should Start in 2019

Here’s the lowdown on consumer and technology opportunities in 2019 and beyond.

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Savvy entrepreneurs should keep a close watch on consumer and technology trends in 2019. This, according to Silvertree Internet Holdings Co-founder and MD, Manuel Koser. Having invested in and grown a number of highly successful South African brands (among them Faithful-to-Nature.co.za, UCOOK.co.za, Pricecheck.co.za, CompareGuru.co.za, Petheaven.co.za, Cybercellar.com, and CarZar.co.za). Silvertree’s management team sees several business opportunities set to grow exponentially over the coming decade.

Here’s the lowdown on consumer and technology opportunities in 2019 and beyond.

1. Indigenous and ethical: Personal and home care products

2019 Sees growing potential for personal care products – ‘Those with local and indigenous ingredients, ethical sourcing which is kind to nature and the body,’ Koser explains. ‘There is a lot of room to play in the African haircare market particularly, as it’s often overlooked by the major FMCG companies.’

The Silvertree MD also sees increasing room for innovative natural home cleaners as consumers become increasingly environmentally conscious. ‘Until now, it was all about the well-known cleaning products the major chemical manufacturers put on the shelves. Now, there’s increasing space for new, exciting entrants.’

2. New beverages

‘Locally-sourced ingredients and an earth-first mindset will also play an increasing role in the consumer beverage market. Add to this the fact that major soft drink manufacturers will struggle to produce drinks for increasingly health-conscious consumers. They’re often just not quick enough to adjust to changing consumer tastes – particularly the tastes of millennials. Think less about a standard fizzy drink, but rather one that’s kind to the body, with natural ingredients. Non-alcoholic: water plus, say, cucumber, or another indigenous ingredient. The market for this will grow.’

3. Ethical snacking

Plant-based, vegan, ancient grains, ethical, protein-rich snacks – these are just some of the trends Koser sees dominating in the snack segment in 2019 and beyond. It’s about unique, tasty, functional foods that cater to the modern, time-starved consumer, Koser explains.

4. Buy, sell and compare online

In the technology space, marketplaces, e-commerce sites and classifieds will all gain momentum in 2019 and beyond. This encompasses aggregators as well as more unusual online businesses, which are increasingly able to find and reach consumers interested in niche products and services.

‘Consider an online ice-cream business. Once, something like that would have been unthinkable,’ Koser explains. ‘But as consumers demand greater choice, room for niche products like this grows.’

Yet, dabble online and seamless execution and delivery become make-or-break factors. ‘Many South African consumers use services such as Google, Amazon, Uber and Spotify daily – world-class products that function on a global scale. You can call an Uber and wait for just two minutes before getting a ride,’ Koser explains. ‘It’s quick and totally seamless. Consumers have come to expect that level of service across the board. Aligned to this is the fact that the millennial wave is currently hitting Cape Town right now, and Joburg secondarily, meaning a number of opportunities are opening up. Go after products and services in the right space and consumers will follow.’

5. Reinvent the wheel – and make it better

The final type of business entrepreneurs should keep an eye on is those that currently have low Net Promoter Scores. ‘This means that very few people like them, or the services they provide are of very poor quality,’ Koser explains. ‘Think of postal service providers or telecoms companies. With any monopolistic or oligopolistic structures, the service is often terrible because the heavyweights hold so much power. There’s a huge gap here.’

An allied approach for entrepreneurs is to assess opportunities for automation, or cutting out the middleman with technology. ‘Once, many markets – such as real estate were opaque, meaning you needed a middleman to help you transact. However, as the capabilities of technology have grown, markets have become far more transparent – making it easier for buyers to match with sellers safely. Today, a lot of this is easy to automate services – think about connecting a homeowner to a prospective renter through a digital solution where renters can be qualified, for example, in terms of their finances, personal information and criminal records. Quick and simple. And no middleman.’

The biggest opportunities here centre around where consumers spend the greatest amounts of time and money, Koser notes. ‘Housing and rent are always major costs. In terms of where consumers spend their time, on the other hand, much of it is, on a mobile phone, or PC.’

However, entrepreneurial success is never down to any one magic formula, Koser emphasises. Nor does Silvertree invest in prospective entrepreneurs solely on the basis of the product or service they offer. ‘It’s about passion, perseverance and tenacity as much as it is about the quality of the product.’

Silvertree Internet Holdings is an investment growth partner who aims to understand, grow and scale business, consumer and digital brands to unlock the brands’ exponential growth.

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What To Watch For In Tito Mboweni’s First Budget Speech

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

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Finance Minister, Tito Mboweni, delivers his first Budget Speech on 20 February at a difficult time for the South African economy. Even though President Cyril Ramaphosa has done much to restore business confidence in his first year in office, GDP growth remains weak, government finances are in relatively poor shape, and renewed load shedding is hurting business confidence.

Judging from his Medium-Term Budget Policy Statement in October last year, I expect Minister Mboweni — backed by the team in the National Treasury—to deliver a relatively cautious budget. Much of the focus will be on refinancing the state-owned enterprises and putting them back on to a sustainable footing.

We probably won’t see much in the way of radical thinking since the room for manoeuvre is so limited. Click each header below for an indepth video on the upcoming topics.

National Health Insurance (NHI)

Renewal of the country’s public healthcare system with a mandatory health insurance fund and free healthcare at the point of need has been the ANC government’s policy for years, but progress has been slow to date. There isn’t much money in the country’s coffers to fund something as ambitious as NHI, yet the government will want to show that it is advancing the concept ahead of the elections.

With an NHI bill to be tabled in Parliament soon, we could learn more about how NHI will be funded in this year’s Budget Speech — it’s still not clear whether we will pay for it through payroll taxes, VAT increases or other fundraising measures. As an initial step, we could see medical aid tax credits reduced (or at least not adjusted for inflation) to free up some funding for the NHI.

The Employment Tax Incentive (ETI)

The ETI Act came into effect on 1 January 2014; as a fan of this incentive, I was delighted that President Ramaphosa announced that it will be extended for 10 years another decade in his state of the nation address. However, I have also long argued that the scheme is not performing to its true potential because it is so complex for payroll managers to administer.

The introduction of the national minimum wage adds even more complexity— until and unless the ETI Act is amended, SARS is of the opinion that the National Minimum Wage will not qualify as a “wage regulating measure”. I hope the Budget Speech will announce steps to align the ETI with the national minimum wage and take other measures to simplify administration.

Tax hikes

I don’t expect any major increases to corporate or personal income tax this year since the taxpayer doesn’t have much more to give. I think the top 45% rate will remain unchanged, while tax bracket creep relief (to compensate for inflation) will be limited to lower income earners. It seems unlikely that the Minister will increase VAT again this year, given last year’s increase.

That means the Minister is likely to look at ‘moral’ taxes (sin and sugar taxes) to raise more money; we can expect another steep increase in the fuel levy. Perhaps we’ll also hear about efforts to improve SARS’ revenue collection after several years of under-performance. The agency seems ripe for a turnaround strategy, with high-powered team looking for a permanent chief to take the reins at SARS.

Follow us on @SageGroupZA on 20 February 2019 for LIVE expert insights from the annual Budget Speech.

For more information about Sage’s annual tax seminars, please visit: https://get.sage.com/PRL_19Q1_C4L_ZA_EVCU_NPS_AnnualPayrollTaxSeminar2019

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Top SA Entrepreneurial Competition Praises Sector Optimism And Calls For 2019 Entries

Entrepreneurs interested in entering the competition can enter online here.

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Even in the face of ongoing sluggish growth, exacerbated by widespread allegations of corruption and muted domestic economic activity, South African entrepreneurs remain overwhelmingly optimistic. This was revealed in the Real State of Entrepreneurship Survey 2018, which found that the vast majority of over 1000 business owners surveyed feel very positive about the business climate and outlook for the 12 months ahead.

It is these resilient individuals who will have their deserved time to shine in the 2019 Entrepreneur of the Year® competition sponsored by Sanlam and BUSINESS/PARTNERS, says Kobus Engelbrecht, spokesperson for the competition, who says entries for the renowned competition – now in its 31st year – are officially open.

Entrepreneurial competitions of this nature, however, serve a greater purpose than just celebrating South Africa’s spirited self-starters, notes Engelbrecht.

“Credible platforms such as the Entrepreneur of the Year® competition also act to inspire the next generation of budding entrepreneurs, who have the potential to drive real economic growth at a time where the country needs it most.”

Engelbrecht refers to the World Bank’s recent downward revision of South Africa’s projections for economic growth in 2019 to just 1.3% – 0.6% lower than the South African Reserve Bank’s earlier prediction of 1.9% in November.

“Despite these challenging economic conditions, year on year we still find exceptional entrepreneurs who continue to identify gaps in the market and transform these into viable businesses.

“It is our aim, through this long-standing competition platform, to continually recognise, encourage and support the hard-working entrepreneurs who continue to do well despite the challenges they are faced with. We use the competition to convey our appreciation for the role they play in inspiring others to venture into the world of business,” he says.

In addition to offering valuable mentorship support, networking opportunities and national media exposure, Engelbrecht says that the2019 Entrepreneur of the Year® competition, sponsored by Sanlam and BUSINESS/PARTNERS, offers prizes valued at over R 2 million, which includes cash prizes of R 70 000 for each main category winner, and R200 000 for the overall winner.

“All South African businesses are eligible to enter this competition, and prizes will be awarded across six categories, namely: Overall Entrepreneur of the Year®; Emerging Business Entrepreneur of the Year®; Small Business Entrepreneur of the Year®; Medium Business Entrepreneur of the Year®; Job Creator of the Year; and Innovator of the Year.”

Entrepreneurs interested in entering the competition can download entry forms online at www.eoy.co.za as well as interact with fellow entrepreneurs and entrants on the competition’s social media platforms www.twitter.com/@EOY_SA and www.facebook.com/EOY.SA. The closing date for the competition is 31 May 2019.

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