SMEs not the magic “Open Sesame” that unlocks growth & jobs (1)

Within a week of his inauguration as Finance Minister, Tito Mboweni muttered the magical “Open $e$ame” words that, according to legend, will reveal the treasures of economic growth, job-creation and the eradication of inequality.

open-sesame-your-uservame-o-password-are-ectu-open-segame-26200568Addressing the Association of Black Securities and Investment Professionals, Mboweni said “to get the economy performing, government needed to create an environment which allowed small and medium enterprises to operate at an optimum level.

“We must think in particular how to support small and medium enterprises. In Germany the economy is driven by the hidden champions that are small and medium enterprises,” Mboweni said.

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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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Pro-poor LED fails our cities, towns & the poor: Enterprises of the right kind generate city growth

There is an intriguing symbiosis between cities and towns on the one hand and enterprises on the other. As the world population urbanise, so are business activities.

Physicist Geoffrey West in his “Scale:  The Universal Laws of Life, Growth and Death in Organisms, Cities and Companies” says based on city growth one can state precisely what will happen with the number of businesses in that city: a doubling of population does not require a doubling of grocery stores or filling stations, economies of scale kick in in a predictable manner. The reverse is also true.

Geoffrey West & Scale

Unfortunately, South Africa’s economic and enterprise development policies and strategies ignore these predictable realities. In addition, LED plans by municipalities in the main demonstrate a lack of understanding of what drives development.

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Are our enterprise policies shaped by obsessions? Paradigm paralysis (2)

Ramaphosa’s Manifesto – “A New Deal” – envisages the “massifying” of black enterprises to promote growth and job creation. It is shaped – like the National Development Plan – by the paradigm of SMEs as prime agents for growth and jobs. As the belief in the curative effects of bloodletting – it was the general consensus – acted as a barrier that prevented the consideration of alternative treatments, the belief in SMEs obscures evidence that net job creation is largely independent of firm size.

Convictions, one must remember, do not necessarily yield to evidence.

Masaai Mara crossing

For the creation of several hundred thousand successful businesses (or would “massifying” – Ramaphosa’s term – imply businesses by the million?) there needs to be at least a similar number of entrepreneurs with effective business skills and plans for these businesses to have a chance of survival.

But for a business to succeed one needs other ingredients than mere entrepreneurial aptitude and astute management: it requires support from customers and clients. Successful “massifying” of new businesses would therefore depend on a prior (or at least simultaneous) mushrooming of the spending power of existing consumers and/or the “massifying” of consumers.

On that, the New Deal is silent… Could a 2016 warning about economic transformation hold the explanation?

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Investment ambassadors can try, but SA company losses exceed taxable income

Pres Ramaphosa’s announcement that four special ambassadors – including well respected Trevor Manuel – are to roam the globe in an aggressive pursuit of foreign investment  “… like a pack of lions”, appears to be premature. It would have helped these ambassadors if they could have had a better story to tell than one of a business environment with stagnating profitability and growing losses where:

  • only 25% of firms have earned sufficient to be liable for company tax;
  • firms with a taxable income below R10 million decline at a rate of 31 per week;
  • a mere 635 companies are responsible for 77% of company tax;
  • from 2009 to 2015 company losses as submitted to SARS increased by 85% and for the last two years were higher than the taxable income assessed.

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The other side of the ‘tourism coin’

The 2015 Statistics South Africa report on tourism1 concentrates on information about travellers, e.g. their numbers and origins, but does not provide any information about tourism and hospitality (T&H) enterprises in South Africa, e.g. their numbers or locations. Neither do the 2015/16 Annual Report of the Department of Tourism2 and the 2016 Report of the World Tourism Organization3 provide such information. Something is lacking in the tourism scene of South Africa.

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