Is South Africa’s ‘radical transformation‘ from a leader to a laggard in the upper middle-income countries the cause or the result of a brain drain? It is hard to tell. What is certain, is that there is an extremely strong inverse correlation.
In fact, it is so strong that one can use one statistic to deduce the other. And if high-skilled emigration is going to continue, the country’s decline towards the ranks of the lower middle-income countries will also continue.
Small enterprise in South Africa is unimportant for the Government. Whilst there is lip service to creating conducive conditions for small enterprise, the Government ignores the reality of small formal firms disappearing at an alarming rate. Small enterprise is the canary in the coal mine of a toxic business environment: they die off first before the toxic conditions are lethal for large businesses.
Government favours Big Business (for tax income) or Big Labour (watering its socialist
roots to ensure worker class loyalties). Small business cannot fulfil either
these roles. The demise of small formal
enterprises in South Africa (as recorded in SARS data) is indicative of an
utter indifference by Government to the plight of small enterprise.
That raises two questions:
Is the demolition of the small formal enterprise environment a strategy by Government to achieve its objective of radical racial economic transformation?
Is it also a strategy to plug a hole in the leaking SARS ship since, from a VAT perspective, businesses with a turnover below R1 million is a drain on Treasury?
Based on SARS data on Value Added Tax (VAT) covering the years 2007/8 to 2017/18 the devastation on micro and small businesses with a turnover of R1 million or less, is evident. The number of VAT vendors in this bracket declined by 49% from 300 299 in 2007/8 to 154 559 in 2017/18.
The landscape of incorporated South Africa in the financial and business services sector has changed dramatically: in 2007 a total of 222 532 companies in this sector submitted tax returns, but SARS Company Income Tax (CIT) data show by 2016 this figure had shrunk to 139 664: a 37% decline.
The CIT data base records a decline by almost 83 000 incorporated firms. What happened?
This sector includes banks, money lenders, short term insurance firms and independent brokers, investment advisors, business consulting firms as well as real estate services. Figure 1 shows how the number of firms were relatively stable from 2007 to 2010 before a rapid decline before stabilising again from 2014 onwards.
SA is increasingly deteriorating into a combination of the Wild West and a Mafia state with Government incapable of keeping crime in check. Minister Beki Cele admits “the ball was dropped” but remains adamant that “(w)e haven’t reached a state of lawlessness in South Africa and we won’t”.
The South African population begs to differ: Crime pays… and quite handsomely as well.
The returns on crime far exceeds returns on long-term investment in blue chip stocks. South Africans’ trust in and reliance on the police is scarcer than icebergs in tropical oceans. And inefficient policing doesn’t only kill the economy: it kills justice as well.
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.
On a sunny autumn morning in Bloemfontein I visited a business hand-picked by Government as a National Gazelle: one of the firms Government believes has the potential for massive growth and substantial job creation to attack the three-headed dragon of inequality, unemployment and poverty.
Popcorn & Flat Bread
The National Gazelles Programme is financed (well, by tax-payers) through SEDA (Small Enterprise Development Agency) and the Department for Small Business Development (DSBD). In the first phase 40 firms were identified in “10 priority industry sectors aligned with the National Development Plan and SEDA’s SME strategy”. The recruitment of the next batch is underway. (In enterprise literature, a Gazelle is defined as a company that grows by at least 20% per annum for 4 successive years)