Whilst the downgrading of investor status by Standard & Poor and Fitch already drives foreign investment away from South Africa with capital flight from the JSE, at the local front ineffective crime prevention by the Government is one of the largest disincentives for enterprise investment: a million people would have considered home-based businesses were it not for criminality.
The failure of the state’s capacity to provide adequate protection to its citizens as well as institutions, is evident in the growing percentage of South Africans shying away from pursuing home-based business opportunities. From 2010 to 2015 the percentage of persons refraining from establishing businesses from their homes because of crime has increased from 8.2% to 11.8%. This is evident when comparing Stats SA’s Victims of Crime reports for these two years.
When looking at the percentages one can easily dismiss it as insignificant: but it is not a 3.6% increase, it represents an increase of 44% of persons shirking home-based businesses because of high levels of criminality. Whilst it is common sense that not all enterprises that would be started (were it not for high crime levels) would have been successful, one can on a few base assumptions calculate the disinvestment caused by poor governance on entrepreneurial activity and the employment landscape.
Take the 6.214 million unemployed South Africans and add the 2.277 million South Africans who are already so discouraged that they not longer look actively for employment: a total of 8 491 000. With this figure in mind one can estimate the impact on unemployment as well as the social grant burden on the state by the following parameters:
- In all likelihood, the security and protection deficit is experienced much stronger by poor and lower middle-income persons than in the case of the wealthier since the latter, if wanting to start with a home-based business, would be able to contract private security firms.
- Taking the 11.8% of the unemployed work seekers and the discouraged unemployed that would have considered home-based enterprises were it not for crime, the potential group would have numbered 1 001 938. If only 10% of these would have been successful with launching home-based businesses, 100194 people would have been taking care of themselves and perhaps even of their household members. And this does not consider potential jobs to be created in addition to those of the potential entrepreneurs.
- If those avoiding home-based businesses (as a strategy not to become crime victims) rely on social grants as an alternative, poor and ineffective policing cause 100 194 more social grants to be disbursed every month than would have otherwise been necessary. With the average of an old age pension, a disability grant, a foster child grant, a care dependency grant and a child support grant being R1 220/month, ineffective crime prevention results in an annual social grant disbursement of R1.5 billion (most conservative, since if a person would launch a successful home business, other household members receiving social grants could also be lifted beyond the grant threshold).
The racial groups scared off most by Government’s inability to protect them, are Coloured and Indian, followed by Blacks. Economic empowerment and an increased enterprise participation rate by blacks can be promoted by Government doing one of the most basic Kindergarten tasks of governance properly: protecting people and their assets.
- EOSA is developing an index that would measure at local municipal level the average number of crimes against business per formal enterprise. In a next blog we will focus on where (provinces) the fear of criminality is preventing South Africans from pursuing home-based businesses.