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R6.4B For SME Incentives Announced

Tito Mboweni has promised SMEs a windfall, but it's unclear how the incentives will be structured or who will qualify for them.

R6.4B For SME Incentives Announced

Earlier this year I suggested that government funding for SMEs would languish as parastatal resuscitation dominates political attention. So imagine my surprise when Tito Mboweni announced during his recent budget speech that R6.4 billion has been allocated to small business incentives.

Small business funding and development has become a routine feature of the national budget speech. However, Tito's announcement is notable for two reasons.

#1 It exceeds previous commitments by a considerable margin

In 2015, Nhlanhla Nene announced that the Department of Small Business Development "will spend R3.5 billion on mentoring and training support".

In 2016, Pravin Gordhan announced that "R475 million has been reprioritised to the Department of Small Business Development for assistance to small and medium enterprises and cooperatives".

In 2017, Pravin announced that budget allocations included "R3.9 billion for small, medium and micro enterprises and cooperatives".

In 2018, Malusi Gigaba (remember him?!) announced that "a fund with an allocation of R2.1 billion over the medium term is being developed between the Departments of Small Businesses, Science and Technology and the National Treasury to benefit small and medium enterprises during the early start-up phase".

And last year, Tito announced that "R481.6 million is allocated to the Small Enterprise Development Agency to expand the small business incubation programme".

So, in that context, R6.4b is a pretty big deal, even if it is dwarfed by the R18.5b that has been allocated to industrial incentives ... or the R16.4b that has been allocated to bail out SAA Airways (again) ... or the R100+ billion that has been wasted on parastatal handouts (despite promises to the contrary).

#2 It specifically involves incentives

Many recent SME funding initiatives (like the SME Fund that was launched amidst much fanfare last year) have involved loans or equity investments. Incentives, by comparison, imply non-repayable funding (which, clearly, is of far greater benefit to small businesses since it dramatically reduces their cost of capital).

This is particularly interesting because there has been a deplorable decline in SME incentives ever since the Department of Small Business Development (DSBD) was launched in 2014. Grant funds like the Black Business Supplier Development Programme and Co-operative Incentive Scheme have languished in limbo for years, while new non-SME initiatives (like the Black Industrialist Scheme) have been heavily prioritised.

Hopefully Tito's announcement will mark a revival, but it will likely be several months before the allocation and structure of the incentives gets clarified. That said, Tito specifically mentioned that only a third of the funds will be transferred to the Small Enterprise Development Agency (which subsidises development interventions instead of providing direct investment).

The most logical destination for the remaining R4b+ is the DSBD. Hopefully that will not be the case since the DSBD has been a cesspool of ineptitude. It is embarrassing that they still don't have their own infrastructure and continue to piggyback off the Department of Trade and Industry (DTI), even though they were established half a decade ago and have been allocated billions of rands!

The DSBD also has a history of heavily prioritising startups and informal enterprises (which is one of the reasons why the grant funds that they inherited from the DTI have languished). So if the R4b+ does get allocated to the DSBD, there is a risk that the "missing middle" (i.e. SMEs that are too big for the DSBD's startup initiatives but too small for the DTI's industrial incentives) will continue to be overlooked.