Sole proprietors

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.

Continue reading “Enterprises, unlike bears, don’t hibernate: lockdown will cause the death of firms and people” →

Anti-business, Central planning, ECONOMIC GROWTH/ANTI-GROWTH FACTORS, ECONOMIC POLICY AND STRATEGY, Factories, Informal businesses, Job creation and unemployment, Lockdown, Small and medium enterprises (SMEs), Small towns, Sole proprietors, Tourism & hospitality services

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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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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ECONOMIC POLICY AND STRATEGY, Enterprise friendly environment, Enterprise regularities, Job creation and unemployment, Pro-growth strategies, Small and medium enterprises (SMEs), Small enterprises, Sole proprietors

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 one can only wonder to which extent the bloodletting 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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Black economic empowerment (BEE), Business incubation, Cooperatives, Crime against business, Home-based businesses, Municipal efficiency, Preferential procurement, Public service delivery, Small enterprises, Sole proprietors, State Owned Enterprises (SOEs)

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…” →