Phosane Mngqibisa
The 2025 State of the Nation Address (Sona) by President Cyril Ramaphosa, alongside Minister of Finance Enoch Godongwana’s Budget Speech, ideally should reflect a coherent economic strategy.
However, a critical comparison reveals a troubling inconsistency in the government’s small, micro and medium enterprises (SMMEs) strategy.
While the Sona sets a promising tone with targeted support for SMMEs, the Budget Speech fails to back these commitments with adequate fiscal measures, jeopardising inclusive development and economic growth.
In his address, Ramaphosa highlighted the crucial role of SMMEs in job creation and economic transformation. He announced a R20-billion transformation fund to support black-owned and small enterprises over the next five years. The president also stressed reforms in public procurement to ensure equitable access for youth, women, and businesses owned by people with disabilities.
He emphasised support for rural and township enterprises and introduced the Energy Bounceback Loan Guarantee Scheme to protect SMMEs from financial losses due to power disruptions.
If effectively implemented, these commitments could spur entrepreneurial growth, especially in historically marginalised sectors. Unfortunately, such declarations were absent from the finance minister’s budget speech, which focused on fiscal consolidation and infrastructure investment bailouts for state-owned enterprises, neglecting SMMEs.
This omission raises doubts about the government’s true commitment to small businesses. One key pillar of the budget speech was infrastructure investment, with R1-trillion allocated over three years. However, it lacked SMMEs-specific procurement targets, posing a significant policy dilemma.
Traditionally, large corporations dominate public infrastructure projects, excluding small businesses from lucrative state contracts. Many Brics and African economies enforce mandatory SMMEs quotas in public procurement; South Africa’s failure to do so represents a missed opportunity. The government should legislate a procurement threshold of 30% for large infrastructure projects to ensure SMMEs benefit directly from state-funded initiatives.
Godongwana’s announcement of a VAT increase to 16% over the next two years further challenges SMMEs, which already struggle with high operational costs. These small enterprises will bear the brunt of this increase as they lack the financial buffers of larger firms. In contrast, Sona did not mention tax relief for small businesses, nor did the budget speech introduce compensatory incentives such as corporate tax reductions for small enterprises or VAT exemptions.
Tax incentives for SMMEs are crucial for economic diversification in countries like China and Nigeria. Without such measures, South African small businesses remain overburdened.
The 2023 FinScope SMMEs Survey reveals over 60% of South African SMMEs lack access to formal credit, significantly hindering growth. Ramaphosa acknowledged this barrier, promising expanded financial support through the R20-billion transformation fund and strengthening rural and township entrepreneurship programmes. However, the budget speech lacks these interventions.
In contrast, Kenya’s Youth Enterprise Fund and Nigeria’s Bank of Industry SME Fund offer specialised low-interest loans to small businesses, fostering sustainable growth.
South Africa’s government should establish a national SMMEs credit guarantee scheme supported by state and commercial banks to enhance financial inclusion and mitigate lending risks.
Ramaphosa’s Sona highlighted advancements in digital transformation, including a 51% reduction in mobile data costs and the expansion of e-visa services to boost trade and tourism. However, the budget statement failed to translate these initiatives into targeted programmes for MSMEs. Countries like India and Brazil have dedicated innovation funds for small businesses to ensure competitiveness in the digital era. South Africa should establish a digital SMMEs fund to provide small enterprises with subsidised digital tools and training.
The disconnect between Sona’s vision and the budget speech execution underscores poor policy alignment and a lack of fiscal commitment to SMMEs development. The discrepancy between the promises made in the Sona and the omissions in the budget speech implies that although the country has progressive policies in theory, their execution poses a significant obstacle to economic growth.
- Mngqibisa is a doctoral candidate in economics and public policy at the University of Northampton and a SMME activist
