Treasury’s document: Small shift in common sense; no giant leap in ideology

Johannes Wessels
@johannesEOSA1

The public reaction to the most important Government document on economic policy since the ANC threw GEAR (Growth, Employment and Redistribution Policy) into reverse, namely Treasury’s “Economic transformation, inclusive growth, and competitiveness: Towards an Economic Strategy for South Africa”, will convince both Moody and potential investors that South Africa remains far removed from a stable investment destination.

Since its release end August, the Treasury document attracted both support and condemnation. For some it signals a first ray of the much-delayed New Dawn promised by Ramaphosa’s 2017 manifesto; for others, a total onslaught on worker’s rights and a selling out to the forces of unbridled capitalism. 

Much bolder than the elaborate National Development Plan (NDP) that received mere lip service during the Zuma-Ramaphosa era from 2014 – 2018, Treasury’s document bluntly concludes:   

The current state of the South African economy is unsustainable. Low economic growth entrenches poverty and inequality… Addressing our economic challenges requires an immediate focus on policies that will raise South Africa’s potential growth.”

Ideological drift sand

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Ramaphorian air spray no longer conceals the stench of a decaying economy

Johannes Wessels
@johannesEOSA1

President Cyril Ramaphosa’s commitment to revitalise the economy reminds one almost of president Zuma’s commitment to combat corruption: spraying air freshener to divert attention from a rotting carcass.

Read instructions on the can for effective application…

The person who promised in his New Dawn manifesto a growth rate of 3% in 2018 through “an unrelenting focus on economic growth” has delivered after 18 months a growth rate of 1.3% in 2018 and negative growth up to date for 2019. Some people would say low growth is still growth, however economic growth below the population growth rate impoverishes the population.

He presides over an economy in worse shape than when he assumed power: one characterised by:

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SA lost 83 000 companies in the financial & business sector in 10 years

Johannes Wessels@

@johannesEOSA1

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.

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SA enterprise sector critically ill

Johannes Wessels

@johannesEOSA1

The formal South African Enterprise Sector is critically ill. Were the company tax returns of the 768 000 companies combined and submitted as that of a single entity (say SA Amalgamated (Pty) Ltd) there would not have been any Company Income Tax (CIT) payable to SARS for three consecutive tax years.

SARS data on Company Income Tax (CIT) confirms the private sector is in a dismal state. In the tax years 2014 – 2016 assessed joint losses of all companies surpassed joint taxable income by R445 billion.

SARS data on CIT from 2007 to 2016 on assessed CIT returns bring the following to the fore (see Figure 1 below):

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White Monopoly Capital: astute reverse double somersault or a Janus performance?

Is the presidential acknowledgement of entrepreneurs as heroes and not villains the equivalent of Pope John Paul II’s admission that the church was wrong to condemn Galileo for endorsing a helio-centric view? If so, it is one of the most astute political reverse double summersaults. As deputy-president Mr. Ramaphosa himself sung heartily the “Down with White Monopoly Capital” song in the Zuma choir.

Janus Ramaphosa

Does the comment during the dinner of the Investment Summit really signal the dawn of economic freedom or was it merely a modern manifestation of Janus? Will the future reveal a Ramaphosa butterfly that was an ugly caterpillar under Zuma or is the two-mouths-two-messages the real reality?

The first requirement to assess future options is a proper understanding of the present. Let us explore that by assessing the ANC Government’s (and Ramaphosa’s) views on SMEs:  does it indicate an embrace of private initiative or something else?

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Government sabotages growth through property rights uncertainties and ignoring Moody’s warning shots

The heated debate between proponents of property protection and those in favour of  confiscation (expropriation without compensation) has been characterised by a lack of data and waged mainly on ideological and emotional arguments.  The lack of an acceptable factual basis is evident in:

  • Government, AgriSA and Afriforum operating with different figures for categorising land ownership according to race;
  • The number of farms on the list for the first round of expropriation.  (If there was such a list).
  • Uncertainty about the number of recipients of free subsidy houses (where transfer of title has not taken place) and how these properties should be counted.
  • Arguments that expropriation would kill the economy simply being countered with promises that the economy would not be harmed.

At the public consultations the facts applied were almost always derived from (and limited to) local situations and narratives with no or little attention to systemic information. EOSA therefore analysed last year’s WEF’s Global Competitiveness Index (as part of our enterprise research on relevant data and statistics) to assess whether there are some global indicators to inform the debate.  Several significant correlations are evident from the WEF data:

  • Highly competitive countries have strong protection of property rights.
  • High per capita GDP goes hand-in-hand with property rights.
  • Poor policing and high cost of crime for businesses are not characteristics of highly competitive countries.

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