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Budget brings (some) relief to business builders

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Business builders and entrepreneurs can heave a sigh of relief that the Budget Speech for the 2017/8 tax year has not brought with it increases to corporation tax or VAT, but instead brings with it a few measures to boost the growth of the SME Sector.

Under the circumstances, I think the Minister has done a good job of balancing competing priorities, though there are a few measures that government could consider to turbocharge entrepreneurialism and business growth. Here are some of the highlights and what they will mean for the country’s Small & Medium Businesses:

1.     GDP growth – 1.3% for 2017

GDP growth in South Africa has been relatively slow since the financial crisis of 2007/8; Minister Gordhan expects to see it increase from 0.5% last year to 1.3% in 2017. He acknowledged the role of Small & Medium Businesses in driving economic growth, although I think if we were to be truly ambitious we could boost GDP growth even more by nurturing entrepreneurs.

2.    Support for small businesses

Government has earmarked R3.9 billion for small, medium and micro enterprises over the next three years and plans to provide 2,000 companies in this category with support from the Black Business Supplier Development Programme.

Meanwhile, the National Informal Business Upliftment Scheme aims to develop more than 5,000 informal businesses and cooperatives through financial and other support. It is a great idea since it will help these organisations grow from survivalist enterprises to sustainable, growing and competitive companies that could contribute towards employment and tax revenue.

These developments are welcome, though 7,000 companies are a small fraction of the estimated 2,8 million Small & Medium Businesses in South Africa. There are many steps government could take in future years to support this larger community of small companies—for example, an increase in the R1 million threshold for VAT registration is long overdue.

3.    Increased budget for the Small Business Department

It’s also positive to see an above-inflation increase to the Department of Small Business Development’s total Budget allocation up to 2019/20. We think that small businesses are vital and it needs strategic focus from government; this department could play a pivotal role in mentoring small businesses and serving as an interface between small companies and the public sector.

In the meanwhile, it’s interesting to note that the department plans to review the National Small Business Act and develop a National Small Business Amendment Bill. Its aim is to create a more accurate definition of a small, medium and micro-enterprise, which will, in turn, support more appropriate policy and support interventions. This sector is poorly understood in South Africa, so we welcome any effort to come to grips with its needs and its imperative role in the economy.

4.    Streamlining government procurement

Minister Gordhan once again reiterated that suppliers who have met their delivery obligations are entitled to payment within 30 days. Slow payment is a pain-point for small businesses, so this is good news. Government remains committed to using its procurement spend to help small and black businesses to grow—which is a wonderful way to support emerging businesses.

  1. Compliance

An issue that should be top of mind for Small & Medium Businesses as new tax laws and compliance requirements fly at them fast is using technology to automate and streamline their processes. It is especially important as businesses stay ahead of changes to schemes such as the Employment Tax Incentive and the possibility of a payroll levy or tax for the planned National Health Insurance. We believe that by 2020 admin-free businesses will become a reality for our customers by using technologies such as the cloud and artificial intelligence.

Closing words

Our customers in the Small & Medium Business sector are working hard for South Africa’s prosperity. It is pleasing to see that they are getting more attention in the Budget with each year that passes. We believe that entrepreneurs hold the key to a more equal and prosperous South Africa, and that it is important for their voice to be heard as government makes economic policies and regulations.

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Online retail gets real

After decades of experience in selling online, retailers still seek out the secret of reaching the digital consumer, writes ARTHUR GOLDSTUCK.

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It’s been 23 years since the first pizza and the first bunch of flowers was sold online. One would think, after all this time, that retailers would know exactly what works, and exactly how the digital consumer thinks.

Yet, in shopping-mad South Africa, only 4% of adults regularly shop online. One could blame high data costs, low levels of tech-savviness, or lack of trust. However, that doesn’t explain why a population where more than a quarter of people have a debit or credit card and almost 40% of people use the Internet is staying away.

The new Online Retail in South Africa 2019 study, conducted by World Wide Worx with the support of Visa and Platinum Seed, reveals that growth is in fact healthy, but is still coming off a low base. This year, the total sale of retail products online is expected to pass the R14-billion mark, making up 1.4% of total retail.

This figure represents 25% growth over 2017, and comes after the same rate of growth was seen in 2017. At this rate, it is clear that online retail is going mainstream, driven by aggressive marketing, and new shopping channels like mobile shopping. 

But it is equally clear that not all retailers are getting it right. According to the study, the unwillingness of business to reinvest revenue in developing their online presence is one of the main barriers to long-term success. Only one in five companies surveyed invested more than 20% of their online turnover back into their online store. Over half invested less than 10% back.

On the surface, the industry looks healthy, as a surprisingly high 71% of online retailers surveyed say they are profitable. But this brings to mind the early days of Amazon.com, in 1996, when founder Jeff Bezos was asked when it would become profitable.

He declared that it would not be profitable for at least another five years. And if it did, he said, it would be in big trouble. He meant that it was so important for long-term sustainability that Amazon reinvest all its revenues in customer systems, that it could not afford to look for short-term profits.

According to the South African study, the single most critical factor in the success of online retail activities is customer service. A vast majority, 98% of respondents, regarded it as important. This positions customer service as the very heart of online retail. For Amazon, investment back into systems that would streamline customer service became the key to the world’s digital wallets.

In South Africa online still make up a small proportion of overall retail, but for the first time we see the promise of a broader range of businesses in terms of category, size, turnover and employee numbers. This is a sign that our local market is beginning to mature. 

Clothing and apparel is the fastest growing sector, but is also the sector with the highest turnover of businesses. It illustrates the dangers of a low barrier to entry: the survival rate of online stores in this sector is probably directly opposite to the ease of setting up an online apparel store.

A fast-growing category that was fairly low on the agenda in the past, alcohol, tobacco and vaping, has benefited from the increased online supply of vapes, juices and accessories. It also suggests that smoking bans, and the change in the legal status of marijuana during the survey, may have boosted demand. 

In the coming weeks, we can expect online retail to fall under the spotlight as never before. Black Friday, a shopping tradition imported “wholesale” from the United States, is expected to become the biggest online shopping day of the year in South Africa, as it is in the USA.

Initially, it was just a gimmick in South Africa, attempting to cash in on what was a purely American tradition of insane sales on the Friday after Thanksgiving Day, which occurs on the third Thursday of November every year. It is followed by Cyber Monday, making the entire weekend one of major promotions and great bargains.

It has grown every year in South Africa since its first introduction about six years ago, and last year it broke into the mainstream, with numerous high profile retailers embracing it, and many consumers experiencing it for the first time. 

It is now positioned as the prime bargain day of the year for consumers, and many wait in anticipation for it, as they do in the USA. Along with Cyber Monday, it provides an excuse for retailers to go all out in their marketing, and for consumers to storm the display shelves or web pages. South African shoppers, clearly, are easily enticed by bargains.

Word of mouth around Black Friday has also grown massively in the past two years, driven by both media and shoppers who have found ridiculous bargains. As news spreads that the most ridiculous of the bargains are to be had online, even those who were reticent of digital shopping will be tempted to convert.

The Online Retail in SA 2019 report has shown over the years that, as people become more experienced in using the Internet, their propensity to shop online increases. This is part of the World Wide Worx model known as the Digital Participation Curve. The key missing factor in the Curve is that most retailers do not know how to convert that propensity into actual online shopping behaviour. Black Friday will be one of the keys to conversion.

Carry on reading to find out about the online retailers of the year.

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Reliable satellite Internet?

MzansiSat, a satellite-Internet business, aims to beam Internet connections to places in South Africa which don’t have access to cabled and mobile network infrastructure, writes BRYAN TURNER.

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Stellenbosch-based MzansiSat promises to provide cheap wholesale Internet to Internet Service Providers for as little as R25 per Gigabyte. Providers who offer more expensive Internet services could benefit greatly from partnering with MzansiSat, says the company. 

“Using MzansiSat, we hope that we can carry over cost-savings benefits to the consumer,” says Victor Stephanopoli, MzansiSat chief operating officer.

The company, which has been spun off from StellSat, has been looking to increase its investor portfolio while it waits for spectrum approval. The additional investment will allow MzansiSat’s satellite to operate in more regions across Africa.

The MzansiSat satellite is being built by Thales Alenia Space, a French company which is also acting as technical partner to MzansiSat. In addition to building the satellite, Thales Alenia Space will also be assisting MzansiSat in coordinating the launch. The company intends to launch the satellite into the 56°E orbital slot in a geostationary orbit, which enables communication almost anywhere in Africa. The launch is expected to happen in 2022. 

The satellite will have 76 transponders, 48 of which will be Ku-band and 28 C-band. Ku-band is all about high-speed performance, while C-band deals with weather-resistance. The design intention is for customers of MzansiSat to choose between very cheap, reliable data and very fast, power-efficient data. 

C-band is an older technology, which makes bandwidth cheaper and almost never affected by rain but requires bigger dishes and slower bandwidth compared to Ku-band connections. On the other hand, Ku-band is faster, experiences less microwave interference, and requires less power to run – but is less reliable with bad weather conditions.

MzansiSat’s potential military applications are significant, due to the nature of the military being mobile and possibly in remote areas without connectivity.  Connectivity everywhere would be potentially be life-saving.

Consumers in remote areas will benefit, even though satellite is higher in latency than fibre and LTE connections. While this level of latency is high (a fifth of a second in theory), satellite connections are still adequate for browsing the Internet and watching online content. 

The Internet of Things (IoT) may see the benefits of satellite Internet before consumers do. The applications of IoT in agriculture are vast, from hydration sensors to soil nutrient testers, and can be realised with an Internet connection which is available in a remote area.

Stephanopoli says that e-learning in remote areas can also benefit from MzansiSat’s presence, as many school resources are becoming readily available online. 

“Through our network, the learning experience can be beamed into classrooms across the country to substitute or complement local resources within the South African schooling system.”

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