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South Africa Small Business Environment December 2016 - Blog

South Africa Small Business Environment December 2016

South Africa Small Business Environment December 2016

The most significant economic news for small businesses in South Africa in November 2016 is that the government is looking to push through legislation to enforce a national minimum wage. The proposal, put forward by Deputy President Cyril Ramaphosa, looks to set the lower-bound for full-time employment at R3,500 per month. The move has support from many quarters, but some employers will likely come under pressure, especially smaller businesses who are less able to absorb mandatory wage increases.

The most significant economic news for small businesses in South Africa in November 2016 is that the government is looking to push through legislation to enforce a national minimum wage. The proposal, put forward by Deputy President Cyril Ramaphosa, looks to set the lower-bound for full-time employment at R3,500 per month. The move has support from many quarters, but some employers will likely come under pressure, especially smaller businesses who are less able to absorb mandatory wage increases.

No major economic signals indicate that South Africa is moving out of the sustained slump that has characterised the economy for the last several years – GDP growth is expected to remain at 0%. The result of low and flat growth is that consumers remain under financial pressure, which may mean that expenditures over the normally free-spending December holiday period may be smaller than in other years. The effect on goods-focussed South African small businesses may be profound.

A further pressure on small business owners and entrepreneurs is expected in February 2017 when the Treasury is likely to announce tax increases in order to make up for the revenue collection shortfall of R23 billion experienced this year. The personal income tax rate, which has remained stable at 40% for over a decade, crept up this year to 41% - expect another rise in the new year.

Gross loan debt as a share of gross domestic product is an indicator that is used by ratings agencies to assess the ability to repay debts through the sale of goods and services. This indicator rose to 51.3%, above the 50.9% anticipated in the budget, and is expected to rise further in the coming year. While this indicator is not bad in comparison to other countries – the USA’s debt to GDP ratio sits at over 70% – it may go down badly with ratings agencies looking to push South Africa’s credit rating into junk status

A global entrepreneurship index has put the spotlight on South Africa’s small business environment. The Global Entrepreneurship Index for 2017, released in November 2016, ranks South Africa’s entrepreneurial environment as 55th in the world out of 137 surveyed countries, and the 2nd best environment in the sub-Saharan Africa region after Botswana.

The index was compiled and released by the Global Entrepreneurship and Development Institute, a Washington-based research organisation that claims to “advance knowledge on links between entrepreneurship, economic development and prosperity”. The index is divided into three main sub-indexes, covering attitudes, abilities and aspirations, which incorporate 28 variables on which each country is scored.

The top three countries, ranked by entrepreneurial environment, were the USA, Switzerland, and Canada. The three lowest ranked countries were all in Africa – Sierra Leone, Burundi, and Chad. According to the Index, South Africa’s strongest area for entrepreneurship was competition, and its weakest area start-up skills. While indexes are notoriously misleading about the actual state of affairs in the country, it gives a sense that there is much more that can be done to improve the environment for entrepreneurs in South Africa.

The new year may bring a fresh approach to the economy by the government, but as things stand, it seems as if there will be tough times for small South African businesses in 2017.