The folly of creating businesses whilst tolerating a criminal-friendly environment

Johannes Wessels
@johannesEOSA1

The South African enterprise world remains in critical condition despite numerous initiatives to cultivate entrepreneurship and new businesses since the real causes undermining its well-being are not addressed.  One of the fundamental causes for a struggling enterprise world is the fact that SA is more criminal-friendly than enterprise friendly.

We’ve seen that:

• as the belief in the (unproven) curative powers of bloodletting had prevented an active search for medical applications that could cure the range of problems bloodletting was supposedly curing, the paradigm of small enterprises as the knight that will overcome unemployment and economic stagnation comforts its adherents in their belief that they are on the right track. 
• Repetitive incantations of beliefs embolden policymakers and administrators that there’s no need for them to consider alternatives and that they can ignore evidence to the contrary. Why seek solutions acknowledging the data-supported evidence of regularities that shape entrepreneurial space if you “know” that all that is required is the “massification” of new businesses through state-induced enterprise creation?

Comfortable in this paradigm, Government embarked on an interventionist road to transform the economy in accordance with its perceived reality. It launched a range of black enterprise incubation programs with massive grants, prescriptive procurement strategies, BEE, industry charters, interference with IP and a commitment to even expropriate without compensation.

Knowing better than the market-place, Government decides which sectors to back and which industrialists and SMEs to boost. The strategy:  transformation by preaching B-BBEE, but practicing SBEG (Selected Black Entrepreneurial Grantees).

State-induced enterprise incubation as a strategy to promote growth and jobs also serves to obscure the fact that Government is in fact undermining the total economy through its mismanagement of some basic tasks.

One of the Kindergarten tasks of any Government is to ensure a safe environment for and protection of the rights of all the people and legal entities (companies, trusts, etc.) in its jurisdictional area. This task entails not only effective crime prevention, but also effective detective work and prosecution so that wrong-doers can be brought to justice.

Consider for a moment the under-achievements of the ANC Government under the Zuma Administration in protecting the rights and property of businesses.  (This is the period covering the Motlanthe and Ramaphosa vice presidencies, ten years with Rob Davies and Ibrahim Patel at the helm of respectively Trade & Industry and Economic Development, and Treasury for seven budgets under Pravin Gordhan).

Using the World Economic Forum’s (WEF) rankings for 2007 and 2017, the outcome of this period resembles the downhill speed-skiing performances at the Winter Olympics:

The outcome: South Africa ranks high (one of the top five) as a haven for criminals to feed off business. In the period of comparison, South Africa bypassed Trinidad, Nigeria, Liberia, Kenya, Haiti, Jamaica and Mexico as a beneficial environment for criminals. It is only Guatemala, Honduras, Venezuela and El Salvador that South Africa has to overtake to become the undisputed champion as having the highest cost of crime for business.

An overstatement?  Only the views of the large disgruntled corporates?

Combining EOSA data on the number of enterprises per municipality with Crime stats from the Institute for Security Studies (ISS) enables us to express five specific crimes against businesses as the number of crimes (with enterprises as victims) per 100 enterprises in a municipal area.  On this basis, one can compare small and large municipalities.

In Tokologo in the western Free State, there were 262 crimes with businesses as victims per 100 enterprises in the municipal area:  on average 2.6 crimes per business per year.  No wonder the local private sector has already disinvested from the municipal area:   the value of non-farm commercial and industrial properties forms less than 1% of the value of the Tokologo municipal valuation roll.

SMEs can no longer compete due to rampant crime

At this level, it is small and medium sized firms that can no longer compete due to rampant crime.  But crime has also a massive impact at micro firm level in the informal economy. A 2011 study by P Cichello, L Mncube & M Oosthuizen found that crime was the primary deterrent preventing people from entry into the informal sector.

Based on Stats SA’s Victims of Crime reports for 2010 and 2015, the percentage of persons refraining from establishing a home business out of fear for crime had increased from 8.2% to 11.8%. Considering the 6.214 million unemployed South Africans and add the 2.277 million South Africans who were so discouraged that they had stopped looking for employment: a total of 8 491 000.  Were it not for high crime levels, more than a million people would have attempted starting a home-business.

It is common sense that not all would have been successful, for even in the informal sector entrepreneurial space is not just vacant and lying in wait to be occupied.

Mix into these damning statistical evidence the headline grabbers of:

• Truck burning and looting at Mooi River Toll Plaza;
• The black-mailing of construction companies by mafia-contractors insisting on 30% sub-contracts;
• The H&M destruction by the EFF inspired mob;
• The dramatic rise in blatant attacks on Cash-in-Transit vehicles (rumours abound that some incidents are linked to building a campaign treasure chest for the 2019 elections)

and the investment roadshow by Ramaphosa’s four ambassadors looks like an attempt to wall-paper the cracks.

The business environment has deteriorated so dismally, that according to SARS data 2015 had 8 000 less SMEs submitting Company Tax Returns than in 2007 implying a disappearance rate of 31/week: just think of the outcry would the rhino poaching figures reach that level!.  In addition, based on SARS assessed CIT, net taxable income of all CIT returns had deteriorated from R97.241 billion to a –R52.065 billion in 2015 – a clear indication of a very sick business environment.

By failing its obligations of:

• protecting the rights and property of citizens and businesses;
• conducting effective detective work, and
• successfully and speedily prosecuting offenders,

government is more effective in stimulating a criminal-friendly environment than ensuring enterprise-friendly conditions.

Supporting attempts to stimulate business creation through grants (BIS, National Gazelles and all other enterprise incentive schemes) for the lucky selected few whilst neglecting one of the most fundamental tasks of governance that (if properly carried out) would achieve much more for economic growth, is the equivalent of a Cabinet and ANC caucus applauding the correct pronunciation of Nkandla rather than acting to uphold the Constitution.

If Government is really serious about the business environment, it would push crime back (without contemplating summit on how to tackle it) by implementing a system requiring accountability and impact at each of the SAPS stations in the country.