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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Lockdown? Or is it perhaps meltdown?

Johannes Wessels
@johannesEOSA1

Halfway into a five-week lockdown it is appropriate to compile a kind of “balance sheet”. When the lockdown was announced, Pres Ramaphosa made it clear that protecting lives against Covid 19 was paramount: a position he reiterated when prolonging the lockdown.

For the ANC Government, all other considerations weigh less and may be sacrificed. Mutating from a supreme commander in military camouflage uniform rallying his troops to “kill the virus” to a pope like appearance during Easter sympathizing with the population for carrying the heavy cross, almost like Simon of Cyrene, Ramaphosa has been lauded all around as “bold” and “presidential”. The few voices that since the beginning have argued that severe restrictions that limit fundamental freedoms would fuel poverty and unemployment, were brushed aside as being both inhumane and wrong.

To date it is uncertain whether the lockdown, the wide application of Bacillus Calmette–Guérin vaccine in SA or any ther factor has contributed to the (still) low infection rate in South Africa. What is dead certain is that the economy (already in a critical condition prior to the appearance of Covid 19) has been rushed into ICU to a position close to the door where the dead are wheeled out to the morgue.

Read EOSA’s proposals on how Government can assist SMEs by cutting CIT and exempting those with a turnover below R2.5 million from VAT.

Government has, as yet, to indicate its estimates of the economic impact of the lockdown measures, e.g.:

  • the decline in VAT receipts;
  • the decline in CIT (and for sole proprietors, the decline in personal income tax);
  • the additional costs of demands on the UIF;
  • the additional costs of deploying the military and the police at the current levels;
  • the cost of measures to support the informal traders, small enterprises and other assistance measures to support businesses;
  • the support measures to assist businesses in the hospitality industry;
  • how these would impact on the budget deficit and what the implications are for government debt.
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The resilience of some small towns in the Karoo

A new article in the Journal of Arid Environments (see reference below) examines the ‘Small Town Paradox’ in eight small towns in the Eastern Cape Karoo. Normalised data (enterprise numbers per thousand residents) and estimates of enterprise richness were used in the comparisons. Willowmore, Steytlerville and Jansenville outperformed Aberdeen, Hofmeyr, Steynsburg, Venterstad and Pearston in terms of total enterprises per 1000 residents as well as enterprises per 1000 residents in the tourism & hospitality services and agricultural products and services sectors. In fact, in some measures these towns even outperformed the larger towns of Graaff-Reinet, Cradock, Somerset East and Middelburg. Over some seven decades, the enterprise richness of Willowmore, Steytlerville and Jansenville increased (like those of the larger towns) whereas the enterprise richness of the other five small towns decreased. Hausmann et al. (2017) postulated that productive knowledge is a main determinant of the wealth/poverty of nations. I think this is also true for towns and used enterprise richness as a proxy for the levels of productive knowledge in the towns.

The resilience of towns is now a hot scientific topic. It refers to the ability of towns to respond successfully to adverse changes. Some do it well and some not; hence the ‘Small Town Paradox’. The decline of agriculture, particularly wool farming, in the Karoo stressed many Karoo towns. The study was done to determine if resilience was present in the Eastern Cape Karoo. It was.

The article demonstrates two important issues: 1. There are useful measures whereby the strengths/weaknesses of the entrepreneurial development of South African towns can be compared. 2. Productive knowledge is probably an important component of the resilience of South African towns.

References

Toerien, DF (2018) The ‘Small Town Paradox’ and towns of the Eastern Cape Karoo, South Africa. Journal of Arid Environments. Available free of charge for a limited period at:
https://authors.elsevier.com/a/1WwV0Vu7-m4sz

Hausmann, R, Hidalgo, CA, Bustos, S, Coscia, M, Chung, S, Jiminez, J,  Simoes, A & Yildirim, MA. (2017) The Atlas of Economic Complexity: Mapping Paths to Prosperity. Center for International Development, Harvard University.

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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If monopolies are the problem, start dismantling the worst: the State-owned Enterprises

Rating agenciesWith Moody’s soon to announce their assessment of SA’s credit risk, Finance Minister Malusi Gigaba made it clear that a white minority was controlling the economy through a monopoly and that was now to change.  Gigaba, speaking mostly in isiZulu, said “The economy is controlled by a minority; they are a monopoly. There are a lot of companies owned by very few people and the services and products on offer enrich these few people.” (Gigaba: It is time to put us first ).

Addressing an ANC Youth League event in Pinetown, Gigaba remarked that there was an agreement in 1993 that white people would continue to have a say in the economy.  The ANC stayed committed to this, “but now has come a time for change. It is time to put us first.Continue reading “If monopolies are the problem, start dismantling the worst: the State-owned Enterprises”

Challenges in assessing the potential impacts of shale gas production on tourism in the Karoo

Shale-Gas-SA-cover-A4_FINAL-722x1024Tourism is not a clearly defined industry in the International Standard Industrial Classification of all Economic Activities (ISIC). The key factor in the Tourism Satellite Account for South Africa is to relate purchases by tourists to the total supply of these goods and services. Quantification of tourism enterprise numbers does not form part of the national assessments; yet it was necessary to know how many tourism-related enterprises could be impacted by shale gas production in the study area of the Karoo.

So how did we endeavour to solve this problem?
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