The world has been closely observing and contemplating the political and economic situation in South Africa over the past year. The nation waited in anticipation for the 2018 State of the Nation Address and budget speech which would determine the future of the country, knowing that each decision made by South Africa’s ruling government will influence consumers and businesses alike. The result indicated that it will bring improvement in the country if key challenges are addressed with real solutions.
The inspiring State of the Nation Address
Newly elected President Cyril Ramaphosa’s SONA speech inspires a movement of change in South Africa. One person won’t be able to bring change to a nation, we all need to stand together to bring South Africa back onto the road of success.
“We are building a nation where our greatest concern must be those in the society who have the least, the poor, unemployed.” President Cyril Ramaphosa and his commitment to supporting small business, entrepreneurship, fighting unemployment and uprooting corruption has encouraged and inspired the nation.
Tony Da Fonseca, The Franchise Association of South Africa’s (FASA) Chairman stated that “We are encouraged by the President’s promise to increase co-operation with business and look at ways to encourage entrepreneurship, training and job creation. We are confident that the franchise sector can play a pivotal role through innovations like the development of social and micro franchising which hold enormous and largely untapped potential for the development of the economy and to improve service delivery.”
A tough but necessary Budget 2018
Finance Minister, Malusi Gigaba indicated that the budget decisions were made to support the radical socio-economic agenda to ensure a better life for future generations. He called it a “tough but hopeful budget” and stated that “we gonna be alright”. The biggest take away from the budget speech was that life is going to get a bit more expensive.
The following section summarizes the most important announcements that will affect each consumer, business and franchise’s pocket:
- VAT increased from 14% to 15%
- Current zero-rated VAT has been kept on basic items to assist the poorest households, such as bread and milk
- Change in income tax brackets
- The top earning income brackets will remain unchanged
- The bottom earning income brackets will be adjusted for inflation through a 3.1% increase
- No wealth tax will be introduced on wealthy individuals but,
- Duties on luxury goods will increase from 7% to 9%
- Estates above R30 million will be taxed more with an increase from 20%-25%
- Higher fuel levies – the fuel levy will increase by 52c per litre, effective 1 April 2018
- Carbon tax will be implemented from 1 January 2019
- Free education is becoming a reality
- R57 billion over the next three years has been allocated to free tertiary education.
- 4 billon will be allocated to poor students and working-class families that meet the requirements
- NSFAS (National Student Financial Aid Scheme)students’ loans for 2018 onwards will be converted into bursaries
- State owned companies will be reviewed
- Government debt is projected to stabilize by 2022/23 with a growth of 1.5% this year
- Changes in medical tax credit
- Increase of 2.3% for first two beneficiaries
- Increase of 2.5% for remaining beneficiaries
- Social grants increase by 7% on average.
- Sin tax increases
- Alcohol will increase between 6%-10%.
- Tobacco products will increase by 8.5%.
- A provisional allocation of R6 billion will be set aside in 2018/19 (R10bn over three years) for drought relief and augmenting public infrastructure.
- Property related changes:
- Property tax increases to 25%
- Transfer duties on properties worth less than R900 000 won’t incur admin-related costs
The net effect of political and economic events
- It might be enough to avoid a further downgrade
- Fiscal outlook will improve
- Restoring international and local investor confidence through growth and investment through a change initiative being promised and reinforced by the renewed policy coordination and effective implementation thereof
- Challenges still remain for South Africa due to rising national debts, revenue shortfalls and the current financial condition of state owned enterprises
- The new leadership of the governing party has brought forward a wave of optimism and positivity that they might be able to stop the mismanagement of the economy and decrease the government deficit
- GPD is projected to rise to 1.4% in the next financial year which will have a positive effect on SME’s and franchise growth
- 2018 now holds the promise for more opportunities and growth
- The consumer will have less disposable income due mainly to the increase in fuel prices and increased VAT. We believe retailers/businesses will use this time to also take a price increase at the same that they change their policies to incorporate the VAT increase. This will result in a double blow for the consumer
- The average salary increase is approximately 6% and just the increase in VAT amounts to 7,14%
How the franchise industry can assist
- The franchise sector will be able to assist with reducing the unemployment rate – this will be a great mechanism for job creation and advancing social cohesion
- Growth and investment confidence – people would now be more confident to invest in an established brand to minimize risks and maximise their return on investment
- Franchising can contribute to meaningful economic participation by developing small businesses into a franchise network
- Giving the youth access to training and business opportunities
- Transfer ownership of the economy by accelerating BEE and Enterprise Development opportunities with entrepreneurs and corporate companies
- Confront corruption and promote ethical business partnerships in conjunction with FASA by writing bylaws and promoting an ethical franchise code of ethics in all franchise brands