PHOSANE MNGQIBISA: SONA vs Budget Speech - The MSME support conundrum

The 2025 State of the Nation Address (SONA) delivered by President Cyril Ramaphosa and the Budget Speech presented by Finance Minister Enoch Godongwana should ideally reflect a coherent economic strategy. 

However, comparing these two key policy blueprints critically disambiguates a worrisome inconsistency in the government’s Micro, Small, and Medium Enterprises (MSMEs) strategy. 

While the SONA establishes a promising tone by emphasising targeted support for MSMEs, the Budget Speech fails to reinforce these commitments with the necessary fiscal measures, creating a misalignment in policy that jeopardises inclusive development, job creation and economic growth.

In his 2025 State of the Nation Address, President Ramaphosa acknowledged the crucial role of MSMEs in job creation and economic transformation. He announced an R20 billion Transformation Fund to support black-owned and small enterprises over five years. 

Furthermore, the President emphasised the necessity for reforms in public procurement to ensure equitable access to government contracts for businesses owned by youth, women, and people with disabilities. 

He highlighted targeted support for rural and township enterprises, reinforcing the government’s commitment to integrating these businesses into the mainstream economy. To mitigate the impact of load shedding on small firms, the President introduced the Energy Bounce Back Loan Guarantee Scheme, designed to protect MSMEs against financial losses caused by power disruptions.

These commitments could catalyse entrepreneurial growth, particularly in historically marginalised sectors, if implemented effectively. Regrettably, these ambitious declarations were conspicuously absent from the Finance Minister's Budget Speech. Instead, the speech centred on fiscal consolidation and extensive infrastructure investment bailouts for state-owned enterprises without explicitly mentioning MSMEs.

This glaring omission raises concerns about whether the government truly prioritises small businesses or merely pays lip service to their significance. Notably, one of the key pillars of the Budget Speech was infrastructure investment, with R1 trillion allocated over the next three years. While such investments are vital for economic growth, the absence of MSME-specific procurement targets poses a significant policy dilemma.

Historically, public infrastructure projects have favoured large and well-established corporations, detrimentally excluding small businesses from participating in lucrative state contracts. 

Considering that many BRICS and African economies enforce mandatory MSME quotas in public procurement, South Africa’s failure to adopt and rigorously implement a similar approach represents a lost opportunity. 

To address this gap, the government should legislate and promptly enforce a procurement threshold of 30% for large infrastructure projects to ensure that MSMEs benefit directly from state-funded initiatives.

Godongwana’s announcement of a VAT increase to 16% over the next two years further exacerbates the challenges faced by MSMEs, which are already struggling with stringent tax compliance requirements and high operational costs. These small enterprises will bear the brunt of this increase as they lack the financial buffers that larger firms possess. 

In contrast, SONA did not mention any tax relief for small businesses, nor did the Budget Speech introduce compensatory incentives such as corporate tax reductions for small enterprises, VAT exemptions for micro-businesses, or special grants for startups in high-growth economic sectors. 

However, tax incentives for MSMEs are a key driver of economic diversification in countries like China and Nigeria. Consequently, South African small businesses remain overburdened and uncompetitive without such measures.

The 2023 FinScope MSME Survey reveals that over 60% of South African MSMEs lack access to formal credit, significantly hindering their growth.

Ramaphosa’s State of the Nation Address acknowledges this barrier, promising expanded financial support through the R20 billion Transformation Fund and strengthening rural and township entrepreneurship programmes by introducing the Energy Bounce Back Loan Guarantee Scheme. 

However, Minister Godongwana’s Budget Speech did not provide these financial interventions, raising concerns about whether the promised funds will
materialise. Regrettably, these commitments risk being merely political rhetoric without precise budget allocations and disbursement mechanisms.

In contrast, Kenya’s Youth Enterprise Fund and Nigeria’s Bank of Industry SME Fund provide specialised low-interest loans to small businesses, fostering sustainable growth. Notably, South Africa’s failure to implement a structured financing mechanism for MSMEs exposes a significant policy gap that requires urgent attention.

Therefore, the government should establish a national MSME credit guarantee scheme supported by state and commercial banks to enhance financial inclusion and mitigate lending risks.

President Ramaphosa’s SONA emphasised advancements in digital transformation, including a 51% reduction in mobile data costs and the expansion of e-visa services to bolster trade and tourism. 

However, the Budget Speech fell short of converting these initiatives into targeted programmes for MSMEs. In a global economy increasingly driven by e-commerce, fintech, and digital platforms, neglecting digital support for MSMEs signifies a substantial policy failure. 

For instance, countries like India and Brazil have established dedicated innovation funds for small businesses, ensuring they remain competitive in the digital era. South Africa’s inability to introduce subsidised digital tools, ICT training, and e-commerce incentives has disadvantaged its MSMEs.

To support the trajectory of economic growth, the South African government should consider establishing a Digital MSME Fund to provide small enterprises with subsidised digital tools and technology training.

Gauteng’s township economy remains crucial for both formal and informal job creation. However, the Budget Speech overlooked the structural challenges that township businesses face, such as crime and security concerns, limited access to infrastructure, and market exclusion. 

While the SONA highlighted the significance of township and rural entrepreneurship, no specific budget allocations were made to support these initiatives.

Without targeted interventions, informal traders will continue to encounter systemic barriers.

As a matter of urgency, the proposed Township Economy Fund by the Gauteng Provincial Government should be expedited to enhance infrastructure and provide financial assistance and business development services tailored to the needs of township enterprises.

The disconnect between SONA’s vision and the execution of the Budget Speech highlights poor policy alignment and a lack of fiscal commitment to MSME development.

South Africa possesses progressive economic policies; however, their implementation remains fragmented, inconsistent, and often obstructed by inadequate political will and bureaucratic inefficiencies. 

The country has repeatedly announced ambitious programmes to support small businesses, yet the gap between policy statements and tangible fiscal commitment continues to widen.

Without dedicated structural reforms and funding, South Africa’s small enterprises will continue to face challenges, undermining economic transformation and job creation. Suppose South Africa is genuinely committed to inclusive economic growth. In that case, it must bridge the divide between policy announcements and budgetary commitments, embracing the principle that “when the President speaks, the Ministers implement."

To foster a supportive environment for MSMEs, the government must ensure that the R20 billion Transformation Fund operates as both an aspirational commitment and a well-structured financial instrument with precise disbursement mechanisms. Infrastructure projects should actively engage MSMEs through mandatory procurement targets, ensuring that small businesses benefit significantly from state contracts. 

Furthermore, a revised tax framework should provide targeted relief for micro and small enterprises, acknowledging their essential role in job creation and economic inclusion. Therefore, the government must prioritise the digital transformation of MSMEs by equipping them with crucial tools, skills, and platforms to compete in a technology-driven economy.

Without these interventions, South Africa’s economic recovery will remain unfulfilled, and the potential of MSMEs as economic drivers and job creators will go untapped. The contradiction between SONA’s promises and the omissions in the Finance Budget Speech suggests that while the country boasts progressive economic policies on paper, their implementation remains the Achilles’ heel of economic growth and development.

Phosane Mngqibisa, Doctoral Candidate (DBA), Economics and Public Policy, University of Northampton (Department of Law and Business), Deputy Chair, GEP, SMME Activist.