Large enterprises

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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Buying local, Central planning, Developmental state, Economic freedom, ECONOMIC GROWTH/ANTI-GROWTH FACTORS, ECONOMIC POLICY AND STRATEGY, Economic Reconstruction and Recovery Plan, Export-led growth, Job creation and unemployment, Large enterprises, Market economy, Medium Term Budget Policy Statement, Northern Cape, Tourism & hospitality services

Ramaphosa’s bold plan (2): weak on detail, strong on flights of fancy

Johannes Wessels
@johannesEOSA1

Two recent key government speeches gave rise to two important questions:

Is the inability of the government to effectively implement its policies & plans (?) worse than its inability to table concrete action plans, underpinned by clear strategies, designs, milestones, budgets and target dates?
Why can even Thabo Mbeki see the president is naked whilst organised big business still praises the beauty of his imaginary clothes?

The president’s tabling of the Economic Reconstruction and Recovery Plan (ERRP) was lame and lacked detail, whilst the Minister of Finance’s Medium Term Budget Policy Statement (MTBPS) left one with a feeling there is not much grasp within the collective government on how to prevent SA from slipping rapidly, if not tumbling, down the slope.

Instead of rekindling confidence and inspiration, vague and mixed messages fuelled doubt and a disbelief that the government can prevent SA from boarding the proverbial bus to Argentina (debt default). I put the following three arguments to illustrate this assessment:

Will the government stand solidly behind Mboweni’s strategy of freezing public sector wages for three years when they cannot deal with the much easier route to stop financing the effectively bankrupt SAA? Recall also how Pravin Gordhan in 2018 (knowing well that Eskom was not only overstaffed, but the personnel besides overpaid) overruled the Eskom Board and management when they had decided on a zero salary increase as part of addressing the Eskom viability issue.
Can one rely (trust would be too much to ask) on the government’s undertaking to reign in public expenditure? This, when they had failed multiple times to table a comprehensive plan on how to deal with Eskom’s debt and the growing debt burdens of other State-owned Enterprises (SOEs).
How is the “growth through infrastructure roll-out” approach different from numerous previous attempts – since the days of Thabo Mbeki – to strengthen the country’s economic fibre by infrastructure investments announcements, with the emphasis on announcements?

Flipchart notes or a detailed plan?

The Enterprise Observatory of SA reckons four fundamental problems underpin the ERRP and the MTBPS:

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Anti-business, Company tax, Competitiveness, Construction services, Crime against business, ECONOMIC GROWTH/ANTI-GROWTH FACTORS, Enterprise friendly environment, Enterprise profitability, Financial services, Investment/Divestment, Large enterprises, Real estate services, Small and medium enterprises (SMEs), Small enterprises, Trading services

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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Company tax, Competitiveness, ECONOMIC GROWTH/ANTI-GROWTH FACTORS, Enterprise friendly environment, Enterprise profitability, Expropriation without compensation, Financial services, Large enterprises, Medium sized enterprises, Small and medium enterprises (SMEs)

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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ECONOMIC GROWTH/ANTI-GROWTH FACTORS, Enterprise research, data and statistics, Job creation and unemployment, Large enterprises, Multinational enterprises, Small and medium enterprises (SMEs), Small enterprises, Small, medium and micro-sized enterprises (SMMEs), Sole proprietors, Spontaneous order

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

Johannes Wessels
@johannesEOSA1

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.

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Addressing 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.

The religious preacher built his sermon on the inspired text of the syncretic National Development Plan, chapter 3 verses 115 & 139:

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Business and economic indexes, Company tax, Demographic-entrepreneurial relationships, ECONOMIC POLICY AND STRATEGY, Enterprise profitability, Enterprise research, data and statistics, Entrepreneurial activity, Investment/Divestment, Job creation and unemployment, Large enterprises, Medium sized enterprises, Population size, Small and medium enterprises (SMEs)

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

Johannes Wessels
@johannesEOSA1

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.

SARS data for tax years 2009 to 2015 (for the latter 95.4% of company tax returns have been assessed) as indicators for the health of the South African enterprise landscape, show the business devastation of the Zuma administration (5 with Motlanthe and 4 with Ramaphosa as deputy). This administration, responsible for mismanaging the macro-environment and overseeing the collapse of the police force and education quality and a rise in crime and corruption, critically damaged the enterprise environment.

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