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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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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Enterprise policies as untested as the practice of bloodletting: no wonder they fail (1)

More than 3000 years the practice of bloodletting was applied to cure a range of illnesses: intense headaches, constipation, abdominal pain, boils or fever… It was administered by barbers (they had sharp blades) and later by qualified doctors. Some of the famous who received this treatment were Marie Antoinette (when giving birth in 1778 to her daughter Marie-Therese) and George Washington in 1799 on the day of his death when doctors drew about 40% of his blood in an attempt to cure him from a severe throat infection. In Washington’s case, the bloodletting did not cure him and one can only wonder to which extent it had contributed to his death. In 1793 acute bloodletting by guillotine definitely caused the demise of Marie Antoinette.

Why did the bloodletting practice with its origins in ancient Egypt continue until a century ago as an esteemed medical practice? Two reasons:

  • The existing paradigm considered bloodletting successful, elevating it to the realm beyond questioning or doubt. It was practised by all the trained practitioners. It was therefore not questioned. Respect for specialist insistence on accepted practice re-enforces paradigmatic reign. Even after the description of the circulatory system by William Harvey in 1628 it took three centuries before the practice of bloodletting was largely abandoned as an unproven cure. One of the most striking examples of this blind acceptance of so-called “expert opinion” is the 1500 years that Greek physician Galen’s doctrines were revered. Galen said of one of his cures: “All who drink of this remedy recover in a short time, except those whom it doesn’t help who all die. It is obvious that it fails only in incurable cases.

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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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