How 2019 Budget impacts the beauty industry

25 February 2019

In his 2019 Budget Speech presented on 20 February in Cape Town, Finance Minister Tito Mboweni acknowledged the importance of SMEs (Small and Medium-Size Enterprises) to South Africa’s economy and allocated R481.6m to the Small Enterprise Development Agency's incubation programme.

This is expected to boost both the creation of new businesses and the survival rate of existing businesses.

In addition, the minister set aside R3.2bn to operationalise the small business and innovation fund over the medium term.

According to Business Day, the expected economic growth for 2018 is still at 0.7% as outlined in the 2018 medium-term budget policy statement, despite the 2018 technical recession. Real gross domestic growth in 2019 is expected to rise to 1.5% and strengthen moderately to 2.1% in 2021.

Welcome news from the 2019 Budget is that there will be no increases in income tax rates and the VAT rate will remain unchanged.

Visa requirements will be relaxed, which bodes well for the tourism industry This, in turn, is likely to impact favourably on South African

hotel/resort spas and wellness centres, in line with the strong growth of the global wellness tourism trend.

However, a worrying element is that a Carbon Tax will come into effect from June 1 2019, meaning we will pay tax for polluting the environment. In addition, fuel levies will increase by 29c per litre for petrol and 30c per litre for diesel.

Although Minister Mboweni did not hike the fuel levy above the inflation rate, Fin24 has quoted the Automobile Association of South Africa (AA) as saying: “The increases to the fuel levies will have a deep impact on the fuel price for the months ahead, placing consumers on the back foot before any price adjustments for the rest of the year are even made.”

Fuel levy hikes are hardly new to South Africa and every time they are introduced, food prices (among other things) rise and consumers inevitably tighten their belts. This will affect salons and spas wanting to entice customers with treatments (often regarded by consumers as a non-essential luxury) and professional retail products, with consumers opting for cheaper drugstore brands. In addition, transport costs for the distribution of beauty products from suppliers to stockists will increase.

On the plus side, Mboweni was adamant that data costs must fall, good news considering that most beauty businesses use online and mobile technologies to run their schedules and bookings, and heavily utilise social media for marketing purposes.

The economy continues to be plagued by the on-going crisis at power utility, Eskom, with many small beauty business forced to shut down operations during electricity outages. Government’s urgent plan to turn Eskom around by splitting it into three entities (i.e. Generation, Transmission and Distribution – under Eskom Holdings) is perceived as a positive move but is likely take a long time to implement and before benefits can be felt. (Report by Joanna Sterkowicz)