24 February 2022: In his maiden Budget Speech, delivered on Wednesday, Finance Minister Enoch Godongwana ushered in a series of initiatives that the Southern African Venture Capital and Private Equity Association (SAVCA) believes will offer the people of South Africa some reprieve whilst looking to support economic growth.

Increased infrastructure investment

SAVCA welcomes government’s decision to “accelerate infrastructure investment”, and the R17.5 billion it has allocated to do so. The decision to modernise border posts, which will enable more efficient movement of people and goods across our borders, is a welcome one and one that we believe will help underpin our economic recovery and fuel trade. 

We are especially supportive of the use of blended finance projects and the Public-Private Partnerships framework, which have the potential to crowd in private investors and mobilise capital. SAVCA has long been of the view that the private sector can catalyse more investments with the expertise that it brings, which Minister Godongwana rightly refers to as the “backbone of a thriving economy”.

He also announced that amendments to Regulation 28 of the Pensions Fund Act, which governs the extent to which retirement funds can allocate to certain asset classes, are to be gazetted next month. These include an increase to the amount that retirement funds can invest in infrastructure investments.

SAVCA is pleased to see progress on this front; greater investment into infrastructure by pension funds could offer savers a better degree of diversification. This would not only improve individuals’ financial security but at a macro level, could provide much needed stimulus to the South African economy and most importantly, a better country for pension savers to retire in.

We are hopeful that the amendments to Regulation 28, which SAVCA has been advocating for some time now, will come to fruition and that National Treasury will take the enhancements proposed by industry, to remove potential ambiguities and unintended consequences from the current draft, into account.

Strengthening the financial system and modernising the exchange control system

SAVCA is encouraged that government departments are working towards improving South Africa as an investment destination; specifically, Minister Godongwana’s commitment to addressing the significant weaknesses identified in the Financial Action Fast Force’s (FATF) review of the South African anti-money laundering system.

According to the findings, the country needs to make meaningful progress on this front to avoid appearing on the “grey” list, which indicates a jurisdiction in need of increased monitoring. Such a situation may well preclude international investors, including Development Financial Institutions (DFIs) – which are significant investors into South Africa – from investing here.   

SAVCA is, however, disappointed that more hasn’t been announced regarding the modernising of the exchange control system which would make South Africa a more attractive investment destination. Specifically, that the restrictions on Intellectual Property transfer and loop settlement were not further relaxed for high growth companies wishing to raise international capital to fund their global expansion.  We firmly believe such relaxations would unlock significant capital to fund job creation in South Africa.  

Boosting the SME sector

Small-and-medium-sized enterprises (SMEs) have suffered disproportionately during the Covid-19 crisis and yet they tend to be the fastest creators of new jobs, something our country desperately needs. In the president’s recent SONA speech, he included various initiatives for SMEs including reducing red tape to improve the ease of doing business. SAVCA was disappointed that the Minister did not propose more fiscal measures to support this key sector, specifically for high growth SMEs.

However, we are pleased about the new business bounce-back scheme to be launched. The loosening of criteria for small business loan guarantees and increasing the participation to non-bank financial institutions to provide loans and equity-linked loan guarantee support should stimulate SME growth. Critically important is the speed and quality of execution of such a programme so that SMEs are not mired in administration and delays.

Tax relief for businesses and individuals

SAVCA welcomes the 1% reduction in corporate tax for companies with years of assessment ending on or after 31 March 2023. The 1% decrease in corporate tax for companies will however be offset by additional tax measures such as the limitation of the use of assessed losses and the restriction of deductibility of interest paid to exempt persons. Startup companies often rely on the cashflow shield of assessed losses for a number of years until they are cashflow positive.

On balance though we think these changes, along with the 50% increase in the value of the employment tax incentive coupled with no increase to the general fuel levies, will go some way toward fostering economic growth.

Carbon tax changes

With climate change a defining feature of our generation, SAVCA is pleased to see the Minister acknowledge this in his speech. The increase in carbon tax from R134 to R144, effective from 1 January 2022, as well as the commitment to increase the rate every year to reach $30 per tonne by 2030, sets us on a path aligned to international requirements.

As this is the primary means by which the country can reduce its greenhouse gas emissions, SAVCA is fully supportive of these measures. SAVCA members are cognizant of ESG factors when it comes to their investment decisions, and these carbon tax changes will assist with balancing the need for climate change investment whilst investing into the social needs of a country such as South Africa.

Creating conducive conditions

SAVCA believes Minister Godongwana and the measures he announced in his inaugural Budget Speech pave the way to inclusive economic growth. He is faced with the difficult task of balancing fiscal sustainability with inclusive growth. It is, however, imperative that we move from talking about the issues to more action. As ever, SAVCA stands ready to support the government in its endeavour to create conducive conditions for investment in South Africa.

ENDS.

About SAVCA:

The Southern African Venture Capital and Private Equity Association (SAVCA) is the industry body and public policy advocate for private equity and venture capital in Southern Africa. SAVCA represents in excess of R205 billion in assets under management through circa 180 members that form part of the private equity and venture capital ecosystem. SAVCA promotes the Southern Africa venture capital and private equity asset classes on a range of matters affecting the industry.

SAVCA also provides relevant and insightful research, offers training on private equity and creates meaningful networking opportunities for industry players.        

For more, visit our website: https://www.savca.co.za/ 

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