“By far the biggest impact announced in today’s (Wednesday 22 February 2017) Budget is the fuel levy which has a huge knock on effect,” says Karl Westvig, CEO of Retail Capital, a company which provides working capital to businesses. “It represents a double whammy for the retail and small business sector, as it results in cost inflation for the business owner and takes money out of the pockets of customers of that business.”
“We saw in our December statistics* that retail sales are at their lowest level in the last six or seven years,” he says. “Over 40% of the population has a negative credit record, indicating they are not meeting their monthly payments.”
Westvig says since the introduction of the new credit regulations, we have seen credit sales fall below those of cash sales, furniture and clothing retailers to some extent, have been affected and many are already in weakened positions.
With slow GDP growth of only 1.3%, the overall retail sector will remain under pressure, with spend shifting around but the pie will not be growing. “So from a retail perspective, businesses will not see a significant increase in retail sales in the next year or two,” Westwig says.
“Additionally the increase in social grants will support the FMCG and basic product retail businesses, but the increase in the top marginal tax rate as well as the dividend withholding tax will put pressure on the motor vehicle and luxury goods sector.”
For Treasury, there is a very difficult balancing act, between trying to get economic growth up and pushing taxes up.
“The investment of R3.9bn in the SME sector should lead to more jobs but this is not a short-term outcome,” announces Westwig. “In terms of SMEs, we are likely to see some cost savings on the back of the stronger rand, but higher taxes and fuel levies will impact. There will be margin squeeze and the Budget announcements will take money out of the pockets of small and medium businesses, as well as their customers.”
In the last Budget speech, there were concerns around the drought and food inflation, which proved to be justified. However, even though there are signs that the drought has lifted, it will take some time before the effects flow through, but we should see food price inflation coming down. Food prices have also been saved from undue increase by the recent strength in the rand, which has brought import prices down,” Westvig says.
“Lastly the R0.5bn being spent on promoting tourism will support the travel and food and beverage industries which is currently the strongest performing sector of the economy,” ends Westwig.
1.) MORE ABOUT Retail Capital: Retail Capital was established to provide businesses with an alternative funding solution to traditional small business loans. It provides working capital to small businesses, the majority of which accept debit and credit cards as a payment method. Since 2011, the company has advanced close to R1 billion to thousands of businesses including restaurants, retailers, beauty spas and medical practitioners. For further details, visit www.retailcapital.co.za
3.) Retail Capital’s comments were also covered in the Budget special edition of Business Day newspaper on Thursday 23 February 2017.