SME – EOSA

Anti-business, Black economic empowerment (BEE), Buying local, Company tax, Competitiveness, Developmental state, Economic freedom, ECONOMIC GROWTH/ANTI-GROWTH FACTORS, Economic Reconstruction and Recovery Plan, Enterprise friendly environment, Enterprise profitability, Entrepreneurial space, Export-led growth, Expropriation without compensation, Informal businesses, Job creation and unemployment, Large enterprises, Medium sized enterprises, Preferential procurement, Property rights, Registered companies / Incorporated businesses, Small and medium enterprises (SMEs), Small enterprises, Small, medium and micro-sized enterprises (SMMEs), SME, State Owned Enterprises (SOEs), White monopoly capital theory

Loan guarantee scheme overwhelmingly inadequate: cut VAT & CIT to help SMEs

Johannes Wessels
@johannesEOSA1

The centrepiece of the Ramaphosa government’s recovery and economic resuscitation scheme – the loan guarantee fund – is as helpful as giving a desperately hungry infant a dummy, pretending it is food. Not even 5% of formal registered businesses have applied for funding and by end November about 1.8% of these firms have obtained assistance from the scheme.

It is far more affordable to cut Company Income Tax and to raise the VAT threshold to get the economy growing again, than to continue with the current package of the Economic

Why the low interest in the Loan guarantee fund?

On the one hand the enterprise world was pre-lockdown already coping with difficult conditions due to an unfriendly enterprise environment with a president that is on record that he disagreed “with the view that the most effective and efficient way to provide services to our people is through the private sector.” Many business owners, especially in the case of SMEs, are reluctant to take on more debt in such circumstances, especially when running also the risk that their properties may be confiscated (expropriation without compensation).

On the other hand, the government, being out of pocket and not keen on disbursing billions that it would lose if the beneficiaries cannot service the loans, had asked the banks to apply their own existing loan assessment criteria when evaluating the applications. Were it a Khula or a SEFA process, the money would long ago have disappeared. So, despite utterances of concern about the low and slow disbursement process, the president cannot be surprised or concerned that the banks are circumspect.

In May already, EOSA had spelt out the devastating impact of lockdown measures on the enterprise world , arguing that the systemic damage caused to the spontaneous order of enterprises can best be ameliorated by a systemic response that would enable the spontaneous order to establish its own patterns again.

The government, however, kept its focus on basically two things:

Promoting Covid-19 to the highest pedestal of dangers, wilfully ignoring all other existing problems as well as the additional problems the lockdown strategy would create, and
Pursuing its social engineering efforts to reshape the South African economy in particular, and society at large, by limiting state relief measures to businesses complying with BEE (effectively throttling white sole proprietor businesses to death), deciding which kind of businesses are essential and which not, and pursuing anti-tobacco and prohibition agendas by bans on cigarette and alcohol sales.

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Anti-business, Company tax, Cooperatives, Corruption, Crime against business, ECONOMIC GROWTH/ANTI-GROWTH FACTORS, Informal businesses, Municipal efficiency, National Gazelles Programme, Personal services, Public service delivery, Real estate services, SME, Tourism & hospitality services, Township enterprises

Sin tax to plug the hole in SARS coffer: the government laying the table for a Boston tea party?

Johannes Wessels
@johannesEOSA1

The prolonged lock-down has been a roaring success: not in enabling the public health system with “sufficient beds, ventilators and staff” for the inevitable “Covid-peak”, but in empowering organised crime syndicates.

Not only did the ban on the transportation and sale of liquor and cigarettes provide an unprecedented window of opportunity for already existing smuggling networks to strengthen their production and supply chain networks, they were wholeheartedly supported by the government to expand their client base exponentially.

The government by decree stopped the legal trade in liquor and cigarettes, effectively providing a protected oligopoly for the smuggling networks. Since there was no competition, they hiked their prices. That saw:

cigarette cartons that would cost around R450 before lock-down selling at anything between R1 500 to R2 000;
Gordons Gin selling at four times the pre-lockdown price, and
A litre red Robertson box-wine fetching R1 400, easily beating some of the prices achieved by top wines at the Nederburg Auction.

Patel hounded Dischem, but the smugglers, spazas & tenderpreneurs were the price hikers

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Anti-business, Black economic empowerment (BEE), Central planning, Economic freedom, ECONOMIC GROWTH/ANTI-GROWTH FACTORS, Enterprise friendly environment, Free State, Job creation and unemployment, Limpopo, Northern Cape, Public service delivery, Small towns, Small, medium and micro-sized enterprises (SMMEs), SME, Sole proprietors, Spending power (wealth/poverty), State Owned Enterprises (SOEs), Western Cape

GDP shrinkage of 12%: It’s not the virus, but the lock-down, stupid!

Johannes Wessels (@johannesEOSA1) & Mike Schüssler (@mikeschussler)

At the end of the initial 3 weeks lock-down a GDP decline of about 5% was considered as quite a catastrophic outcome. Even at that level, it was considered worth the price since delaying the spread of the Covid 19 virus would give a window of opportunity for the health sector to get beds, ventilators and care protocols in place for the spike that would inevitably come.

The minister of trade and industry (dti), Ebrahim Patel, however dismissed the negative projections of economic shrinkage as mere “thumb-sucking”.

After prolonging the hard lock-down with just a gradual easing to level 4 to end May, the growing queues of the hungry waiting for food parcels, the increase in the claims from the unemployment insurance fund and the drastic shrinking of the state’s purse, would make a 5% decline in GDP a dream outcome.

The GDP figures for Q1 2020 will only be known end June. Data from other countries indicate that those whose governments had opted for a hard lock-down are in for excessive economic damage.

Change in GDP trend is the difference between growth in 2019 and 2020 1^st quarters, implying that the Philippines that experienced a change of -6% went from 5.9% GDP growth in Q1 2019 to -0.1% in Q1 2020. This chart reveals the following:

Countries with a hard lock-down that kept only essential services and providers open, saw an average decline of 5,2% in GDP trend.

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Accelerated and Shared Growth Initiative for South Africa (ASGISA), Anti-business, Black economic empowerment (BEE), Business incubation, Central planning, Company tax, Cooperatives, ECONOMIC GROWTH/ANTI-GROWTH FACTORS, Enterprise friendly environment, Informal businesses, Job creation and unemployment, Lockdown, National Gazelles Programme, Registered companies / Incorporated businesses, Small and medium enterprises (SMEs), SME, Sole proprietors, Spontaneous order, Tourism & hospitality services

Enterprises, unlike bears, don’t hibernate: lockdown will cause the death of firms and people

Johannes Wessels
@johannesEOSA1

Government’s decision for a stringent lockdown has put at least 100,000 formal enterprises – incorporated and sole proprietorships – on death row by effectively freezing the economy. Unlike bears, firms do not hibernate well: without customers and clients buying their goods and services, they starve and die.

Business relief measures by the government and the funds established by the Ruperts, Oppenheimers, Motsepes and others may enable some enterprises to pull through. But a substantial percentage of formal SMEs will not. Not with an economy that is likely to retract by between 6 and 10%.

Enterprises are already in a predicament and have run up more losses than profits since 2014. SARS data shows that the assessed losses exceed the assessed taxable income for the period 2014 to 2018 by R830 billion (Figure 1).

An economy already damaged by anti-growth policies has now been dealt a vicious blow. The damage is systemic and a systemic approach is required to restore a healthy business environment.

Figure 1: The pre-Covid 19 situation of SA firms was dire

The economy doesn’t resemble Eskom’s electricity supply. Load-shedding means no electricity during the power lockdown, but when the switch is thrown on again with the transmission lines conveying electrical current, the lights burn, the fridges cool, the stoves cook and TVs entertain just like before.

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Anti-business, Black economic empowerment (BEE), Company tax, Crime against business, ECONOMIC GROWTH/ANTI-GROWTH FACTORS, ECONOMIC POLICY AND STRATEGY, Enterprise friendly environment, Enterprise profitability, Enterprise research, data and statistics, Small and medium enterprises (SMEs), Small enterprises, SME, Township enterprises, White monopoly capital theory

Small enterprise: the canary in the coal mine of a toxic business environment

Johannes Wessels
@johannesEOSA1

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.

Big 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.

145 740 small enterprises gone…

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