In his 2016 National Budget Speech, Finance Minister Pravin Gordhan maintained an optimistic view, though warning that there will be tough times ahead.
He emphasised that the resilience and creativity of South Africans will be enough to overcome the current economic challenges.
The support and development of businesses was discussed in his speech, specifically around its contribution to the growth and development of the economy. Here are some of the top highlights.
South Africa’s economic outlook
SA’s economic growth has been lacklustre in 2015, falling short of government’s expected growth rate of 1%.
In his speech Finance Minister Pravin Gordhan admitted that growth rates of below 1% fall short of improving employment and reducing poverty and inequality.
The Treasury has had to adjust its expectation to 0.9% growth in the economy in 2016, this is a result of both depressed global conditions and the impact of the drought.
Possible economic turnaround
Finance Minister Pravin Gordhan urges: “We are resilient, we are committed, we are resourceful. We know how to turn adversity into opportunity.”
If South Africa can build confidence and make the right choices an economic turnaround is possible.
Here are emphasised sectors and areas of potential growth within the economy:
- Business services, tourism and communications services continued to thrive over the past year. These industries are contributing positively to job creation.
- Agricultural output has declined due to the severe drought. But there is still a strong growth in several export products such as nuts, berries, grapes and both deciduous and citrus fruits.
- Export growth by volume was over 9% last year. This will continue to benefit the competitiveness of the rand. South African exports to the rest of Africa now measure more than R300 billion a year.
- Retail trade in the last quarter of 2015 indicated 4% growth. This signals that consumers remain resilient despite waning confidence.
- New investments of over R20 billion to take place in the automotive sector.
Continued growth and development
There is a need to address institutional and regulatory barriers to business investment and growth. Sectors and industries where South Africa has competitive advantage need greater emphasis. Businesses must be bold where there is a need for structural change and innovation.
Finance Minister Pravin Gordhan believes: “We are resolved to restore the momentum of growth, to ensure that it is inclusive and sustainable, and to preserve our economy’s investment-grade status.”
Listening to business leaders
Government has recognised the importance of engaging with business leaders and have actively been engaging with them to understand their views and concerns, reinforcing confidence and understanding.
Minister Gordhan recognises these engagements as critical to boosting the SA economy. He believes that these engagements will need to include regional forums and stakeholders.
“By removing constraints, supporting innovation, protecting jobs, diversifying our economy and exploring new opportunities, we can expand growth prospects,” Finance Minister Pravin Gordhan explains.
Several practical proposals come out of these engagements. These include a new fund to accelerate small and medium enterprise development and measures to build up investor confidence and aid social cohesion.
Business support for investors and SMEs
Steps are being taken to reduce the regulatory burden for business investors. This includes the establishment of Invest South Africa as a partner of the private sector. Additionally, there will be an intensive effort by cities to reduce administrative costs of starting a business.
A review of business incentives is also in progress. This will strengthen the incentives impact on growth, productivity, trade and competitiveness.
The Department of Small Business Development will receive R475 million and, with this prioritisation of funds, small and medium enterprises should expect greater assistance from government.
Top Sectors For SMEs In 2019
“As such, SMEs in the construction, communications and electrical fields are all likely to benefit from supply and sub-contracting agreements over the coming years.”
While the South African economy has been underperforming for a number of years, the first positive signs of turnaround started to become visible by the second quarter of 2018, and by the end of the third quarter, data supplied by Statistics South Africa showed that the economy had indeed grown by 2.2 percent, compared to the previous quarter. This uptick is expected to have a positive effect on business confidence in 2019.
This is according to Jeremy Lang, regional general manager at Business Partners Limited (BUSINESS/PARTNERS), who says that certain business sectors have already seen an increase in opportunities for small businesses and start-ups.
“While these sectors will not be without challenges, the following four industries are likely to offer the best opportunities for small and medium enterprise (SME) owners to grow their enterprises in the coming year.”
The World Travel and Tourism report 2018, revealed that the direct contribution of the travel and tourism sector to South Africa’s GDP has been projected to rise from R136bn in 2016 to R197.9bn by 2028 – set to make up a total of 3.3 percent of the country’s total GDP, says Lang.
“Although this sector experienced some setbacks in 2018, such as the drought in the Western Cape and stricter visa regulations for children entering the country, both the water restrictions and visa regulations have been relaxed and the sector is once again poised for growth,” he says.
Statistics South Africa has credited this industry with being the biggest driver of growth in the country’s GDP, having expanded by 7.5 percent in September 2018, says Lang. “To bolster this, Government has made a concerted effort to stimulate small business growth in this area with initiatives such as the Black Industrialist Programme and the SA Automotive Masterplan.”
He adds that businesses in the manufacturing sphere could therefore likely see significant opportunities in the form of outsourcing contracts and new partnerships with large corporates.
“The debate around land expropriation has occupied most of the discussions surrounding the agricultural sector in 2018, with some questioning growth prospects of this sector. However, this industry has a lot of growth ahead of it, as demonstrated by its 6.5 percent growth over the last three months of 2018,” explains Lang.
“Further to this, the industry is also already taking significant advantage of seven climatic regions in South Africa, with the export of a wide variety of high quality fruit and vegetables increasing substantially,” he points out. The recent outbreak of foot and mouth disease that has resulted in the suspension of the country’s FMD-free status will however significantly impact meat exporters.
In terms of opportunities for SMEs, he says that these may most likely be found in the rural and underdeveloped regions, where the need for resources like efficient transport, state-of-the-art cold storage, better irrigation and private power generation will be key to making agriculture projects more productive and competitive in the export market.
Data and information technology
Connectivity and information technology infrastructure are both crucial to business and employment growth in South Africa, says Lang.
“With many municipalities and the Western Cape government committing to providing all of its residents with free data as part of a plan to expand public Wi-Fi network access, it is clear that this is also becoming a high priority on a state level.”
It has also been reported that South Africa is awaiting the arrival of three international data centres, and large players in the communications sphere, including Vodacom, Telkom and Vumatel, are making huge strides in drastically growing the country’s fibre optic backbone, he adds. “As such, SMEs in the construction, communications and electrical fields are all likely to benefit from supply and sub-contracting agreements over the coming years.”
In conclusion, Lang says that as South Africa’s economic growth has started to turn around, business owners should keep their ears to the ground as 2019 is highly likely to be a year of opportunity.
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SME Insurance Checklist For New Year
Malesela Maupa, Head of Product and Insurer Relationships at FNB Insurance Brokers, advises SMEs to consider the following factors when reviewing their policies.
Business owners who are planning for the year ahead should not overlook the importance of reviewing their insurance policies to ensure they are adequately covered against insurable risks.
Malesela Maupa, Head of Product and Insurer Relationships at FNB Insurance Brokers says, every year businesses face unique challenges ranging from credit and market risks, technological disruptions, compliance, operational and regulatory risks, amongst others. As a matter of precaution, insurance policies should at least be reviewed or updated once a year.
He advises SMEs to consider the following factors when reviewing their policies:
- Employee movements – if there are any employees who have left or joined the company, ensure that your policy is updated accordingly.
This type of cover normally depends on the role and contribution of the employee to the business. For instance, directors may be covered for Key Person Insurance and Directors & Officers Liability insurance.
- Protest Actions – this year is the national election year and leading up to elections we can expect to see an increase in the frequency and severity of protest actions, riots and strikes. Thus, it is essential to ensure that adequate special risks cover is in place from the South African Special Risks Insurance Association (SASRIA).
SASRIA provides cover to both individuals and businesses against special risks like civil commotion, public disorder, strikes, riots and terrorism at affordable premiums.
- Cyber risks – it is essential to communicate with your insurer or broker and find out if there are any new risks that your business should be protected against. Cyber incidents continue to be a major risk for businesses especially in the SME sector. Over the last couple of years there has been a major increase in the number of reported cyber incidences.
More businesses are now facing increased cyber threats due to their increased dependency on technology, relating to their internal and customer data being compromised by fraudsters. It is therefore essential to have some form of cyber risk insurance cover and/or enhancement of data security protocols.
- Regulatory changes – every year there are a number of regulatory changes that impact businesses directly or indirectly, which may result in fines and penalties for non-compliance.
- Natural catastrophes – the increase in the frequency and severity of extreme weather conditions, coupled with intensifying natural catastrophes will continue to have a significant impact on businesses.
Businesses should ensure they are adequately protected against these risks to avoid incurring sever financial losses.
- Business changes – should a business consider moving to a new location, purchasing new premises or venture into new business activities, these types of changes could have a major impact on its risks profile. As a result, the policy needs to be updated accordingly.
- New and Enhanced products – An innovative culture has taken over the insurance industry and ever so often we see the introduction of new products or the enhancement of existing products. Get in touch with you broker to advise you on any new products that might add value to your existing insurance portfolio.
“Reviewing your policy regularly gives you peace of mind knowing that you can focus on running your business effectively, without worrying about unforeseen risks,” concludes Maupa.
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