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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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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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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Creating jobs and reducing poverty: why not enable the informal sector properly?

Author: Frederick Fourie

President Cyril Ramaphosa aims to set the country on a new path of growth, employment and transformation. Key to this are action plans for employment creation, to be deliberated at a jobs summit.

The South African Informal Sector: Providing jobs, reducing povertyA new edited volume, published by HSRC Press, flags the importance of explicitly addressing the informal sector in such initiatives, given the key role it plays in providing paid employment and reducing poverty. The book is based on research done in the Research Project for Employment, Income Distribution and Inclusive Growth (REDI3x3).

This research shows unambiguously that the informal sector is an important source of employment (and of paid employment), with a growing propensity to employ. Regrettably, for many decades the sector has remained forgotten or, at best, in the margins of economic analysis and policy consciousness. Many policy makers appear to group it together with formal SMMEs. Such an approach risks missing key elements of the ‘forgotten’ world of informal enterprises – their potential, the constraints they face, their particular vulnerability, and the policy support they need to be viable and self-standing.

How many jobs are created in the informal sector?

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

Johannes Wessels
@johannesEOSA1

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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Government’s attempts to promote business formation as effective as a rain dance…

it would help more to combat crime effectively

Is the blind leading the blind when it comes to the promotion of black businesses? This question in my previous blog apparently ruffled a few feathers. Let us therefore compare the positive impact of Government strategies to stimulate business formation and the negative impact on business formation by Government’s failures in core governmental functions. Continue reading “Government’s attempts to promote business formation as effective as a rain dance…”