Guide to SONA 2023 for Small Businesses

reating economic recovery and growth was the focus of the 2023 State of the Nation address (SONA), delivered by President…

Introduction to SONA 2023

Creating economic recovery and growth was the focus of the 2023 State of the Nation address (SONA), delivered by President Cyril Ramaphosa. He addressed critical challenges facing the economy, such as the need to improve infrastructure spending, strengthen the healthcare system, and the current energy crisis that’s severely impacting the country’s growth.

With respect to the small businesses the president announced measures to assist the sector, often referred to as the lifeline of the economy. Small businesses make up the largest proposition of South Africa’s business landscape. They comprise more than 98% of businesses across the country and contribute 39% towards the country’s GDP. The sector is also an important job creator employing between 50% and 60% of the country’s workforce.

What is the purpose of SONA?

The State of the Nation address (SONA) is delivered every year at the opening of Parliament. It outlines the government’s key policy objectives and deliverables for the year ahead. The address also highlights key challenges and interventions to unlock the nation’s potential.

Each of the plans outlined in the address are supported by the National Budget delivered by the Minister of Finance. The budget provides an overview of the government’s priorities for the next financial year. Additionally, it also provides details of spending and revenue collection proposals for the year.

Small business sector challenges

The small business sector has been battered by the events of the last few years. In 2020 small businesses were severely impacted by the hard lockdowns of 2020, followed by civil unrest in July 2021. Now, SMEs have to grapple with the ongoing energy crisis, rising inflation and interest rates, and sluggish economic growth. Load shedding is, however, the biggest risk to the sustainability of small businesses.

The impact of disrupted power supply for small businesses are wide ranging. The full extent is explored in the article ‘Impact of load shedding on small growing businesses’.

“Unreliable electricity supply causes uncertainty for small businesses [regarding decisions] to invest in growing their businesses at this time. When businesses experience load shedding the majority are forced to close their doors because they cannot function and not all of them have the privilege of alternative power supply.”

In a news release James Noble, Head of Wholesale, Retail & Franchise at Absa and a member of the FASA board, says SMEs are dealing with increased costs on all fronts.

“The biggest costs are rent, staff, increasing cost of sales due to inflation, electricity and the cost impact of load-shedding which not only reduces revenue due to limiting trading hours but it increases the cost to operate the business should you have solar or generators to keep the business open during those periods.”

Additional challenges that are holding small businesses back are burdensome red tape, labour laws, indirect labour expenses, and skills shortages

There have long been issues with the onerous red tape that all companies doing business in South Africa must follow. Some examples of red tape are non-essential procedures, forms, licences, and regulations. The SME South Africa guide, Business Licences in South Africa, expands on regulations that put strain on businesses.

“South Africa’s highly regulated business environment includes extensive red tape surrounding labour laws, tax, annual registration and sector specific regulations, widely regarded as an impediment to small business development.”

Regarding skills shortages, a report by Business Tech, highlights the negative impact of skills shortages on the local economy. According to the report it creates a bottleneck for South African businesses, ultimately impacting business growth. The report identifies information technology and finance sectors as the hardest hit by talent shortages.

Guide to SONA 2023 for the small business sector

In his speech Ramaphosa announced several initiatives to support the recovery of small- and medium-sized enterprises (SMEs). This includes measures such as the further cutting of red tape, better funding, initiatives to ease the burden on small businesses, and reforms to the visa regime to address the country’s skills crisis.

Below the key announcements from SONA 2023 that all small businesses must know.

Bounce-back loan scheme expanded

This year a further R5 billion business equity-linked loan guarantee support mechanism will be launched as part of government-guaranteed bounce-back loan scheme.

The scheme was designed to help small businesses recover from the pandemic and civic unrest in July 2021. The fund was then expanded in 2022 to help businesses affected by the floods in KwaZulu-Natal in 2022. Since April 2022, small businesses have been able to apply to banks and other lenders for bounce-back loans of R15 billion. About R150 million has been approved for 7 000 businesses since May 2022.

The eligibility criteria for the scheme has been expanded to provide additional funding to small businesses.

“The Department of Small Business Development will work with the National Treasury on how the scheme can be strengthened to assist small and medium enterprises and businesses in the informal sector,” Ramaphosa announced.

In his address the president also announced that the national treasury was working on adjustments to the bounce-back loan scheme to help small businesses to invest in solar equipment in an effort to ease the energy crisis.

The Minister of Finance Mr Enoch Godongwana later announced the R9 billion tax relief programme in the 2023 Budget Speech. The incentive works to support South Africa’s clean energy transition, increase electricity supply and limit the impact of consistently high fuel prices.

The government will guarantee solar-related loans for small and medium enterprises and “allow banks and development finance institutions to borrow directly from the scheme to facilitate the leasing of solar panels to their customers” said SAPVIA CEO Dr Rethabile Melamu, in a Engineering News report. The initiative is expected to encourage commercial banks to issue more loans to customers specifically for renewable energy projects.

The Energy Bounce Back Scheme, as it will be known, is to be launched in April 2023.

The renewable energy tax incentive temporarily expanded

To further alleviate the energy crisis, Godongwana announced that the renewable energy tax incentive available for businesses to promote renewable energy has  been temporarily expanded.

The current incentive allows businesses to deduct the costs of qualifying investments over a one- or three-year period. This creates a cash flow benefit in the early years of a project.

“There will be no thresholds on the size of the projects that qualify, and the incentive will be available for two years to stimulate investment in the short-term,” Godongwana said.

Increased support for SMEs

The government, together with the SA SME Fund, will establish a R10 billion fund aimed at supporting SMME (small, medium and micro-sized enterprise) growth. The fund works to support eligible businesses to access financing.  The majority of the funds are expected to come from the private sector however, the government is investigating the feasibility of contributing R2.5 billion to the fund, Ramaphosa said.

To further provide financing for small businesses, Ramaphosa also announced a plan to finance the Small Enterprise Financing Agency (Sefa) with R1.4 billion, which will help 90 000 entrepreneurs.

Red tape to be reduced

Red tape will be reduced to make it easier for entrepreneurs to start businesses. This measure is expected to help grow the business sector and create jobs. Moreover, the government will finalise amendments to the Businesses Act to reduce regulatory burden for SMMEs and co-operatives.

Read: Guide to Business Licences in South Africa 

In his speech Ramaphosa said the initiative, spearheaded by the Red Tape Reduction Team in The Presidency, will work with “departments and agencies in areas such as the mining rights system, tourism transport operator licences, visas and work permits, early childhood development (ECD) and the informal sector”.

Foundations laid for State Bank to assist small businesses

PostBank is to take on the role of State Bank. The state bank will provide financial services to small and medium-sized enterprises, women-owned businesses, the youth, and other underserved communities. Postbank is currently in the process of obtaining a banking licence.

See also: Starting a Business in South Africa 

Employment Tax Incentive to be expanded

To reduce youth unemployment, the government is expanding the Employment Tax Incentive (ETI). The incentive is designed to encourage businesses to hire more young people in large numbers.

The ETI reduces an employer’s cost of hiring young people through a cost-sharing mechanism with the government, while leaving the wage the employee receives unaffected.

The employer can claim the ETI and reduce the amount of Pay-As-You-Earn (PAYE) tax payable by the amount of the total ETI calculated in respect of all qualifying employees.

Read: What You Need to Know About the Presidential Youth Employment Intervention (PYEI) 

Women-owned businesses receive support

Promising female founders will receive support, resources and funding to further unlock their potential.

Ramaphosa announced approximately R9 billion – amount earmarked by the Industrial Development Corporation to invest in women–led businesses. And at least 40% – public procurement to be directed to women–owned businesses.

To date, more than 3 400 – women–owned enterprises trained by the government to prepare them to take up procurement opportunities. The Public Investment Corporation and the National Empowerment Fund to establish special purpose vehicles to support women-owned businesses.

VISA reform to attract much-needed skills

President Ramaphosa emphasised the need for more skilled workers in the country. In 2022 he announced that a comprehensive review of the work visa system to attract skilled immigration and investment was “currently underway”.

The changes proposed for visas include the establishment of a more flexible points- based system to attract skilled immigration, implementing a trusted employer scheme to make the visa process easier for large investors and streamlining application requirements.

This year Ramaphosa said the government plans to quickly implement the recommendations put forward.

“We will also be introducing a remote worker visa and a special dispensation for high-growth start-ups. While the reform programme is underway, we will continue to support public and social employment to provide work to those who need it.”

Support for small-scale farmers

The Presidential Employment Stimulus is now available to support small scale farmers. The purpose of PES is to enable people to earn their own living. This year, the government aims to provide 250 000 more vouchers to small-scale farmers through the programme, Ramaphosa said.

“Around 140 000 small-scale farmers have received input vouchers to buy seeds, fertiliser and equipment, providing a boost for food security and agricultural reform. This initiative has led to the cultivation of some 640 000 hectares of land. An impressive 68% of these farmers are women,” he said.

Skills development to address digital skills gap

The National Skills Fund will provide R800 million to develop skills in the digital and technology sector through a model that links payment for training to employment outcomes.

The initiative addresses South Africa’s workplace skills gap, according to Ramaphosa

“Our aim is to create a more conducive environment for attracting skills, enabling companies to invest in South Africa and supplying the skills that the economy needs.”

In 2022 Ramaphosa stated that 10 000 Technical and Vocational Education and Training (TVET) college graduates would be placed in employment.

“We have surpassed that figure and have now set a target for 2023 of 20 000 TVET to be placed in employment,” he stated. “The number of students entering artisan training in TVET colleges will be increased from 17 000 to 30 000 in the 2023 academic year.”

The number of students entering artisan training in TVET colleges will be increased from 17 000 to 30 000 in the 2023 academic year.