Please Don’t Kill the Goose that Lays the Golden Egg

Written by: Jonathan Crisp, Director, BarnOwl GRC software solutions

It has been an extremely tough year for everyone and for most businesses and countries worldwide. There are a few exceptions where some industries have flourished such as those providing telecoms and digital services including cyber security services. However, it has been devastating particularly for industries such as the tourism, restaurants, airlines and the commercial property sector whose problems are still to filter through as leases expire and hybrid rental models become the norm. Businesses have found innovative ways to survive including the adoption and acceleration of various technologies especially collaborative technologies (Teams, Zoom etc.). Businesses are now more accepting and willing to fast tracking technological advances such as AI, IoT, Robotics, Drones, 3D printing, Bio engineering etc. It is becoming increasingly evident that if your business doesn’t adapt fast enough to these enabling technologies it will be left behind and won’t survive in the ‘new normal’ world.

In such dire circumstances where South Africa’s debt ratio is now close to 70% (and on top of this SA has been downgraded to junk status by all rating agencies), the unemployment rate has crept up to approximately 30%, SA is in recession with the economy contracting to unprecedented levels, 18 million people rely on social grants, what can we do to survive let alone recover? Whilst Covid has significantly exacerbated these woes, these woes have been escalating for years and years. Perhaps the Covid crisis is the catalyst required to force the ‘powers that be’ in government, business and labour to work more closely together with genuine intent to alleviate some of these problems.

In my opinion, probably the most pressing issue is to get the economy up and going again and for government to do everything in its power to create an environment that helps businesses to survive, recover and hopefully flourish again. This is especially true of SMMEs (small business) who have very limited resources when it comes to surviving a crisis. In addition, significant economic growth can come from SMMEs as well as employment opportunities.

Businesses and entrepreneurial individuals should be encouraged to succeed especially in in these tough economic times. One often hears rhetoric about how bad it is to be a capitalist and to make money. Every single one of us in the country is far better off thanks to successful businesses who make profit and pay their corporate taxes and to those individuals running the businesses who pay a significant portion of their earnings in taxes.

There are approximately R5 million tax payers in South Africa of a population of close to 60 million. 4% of tax payers contribute 22% of South Africa’s personal income tax. 16.6% of the tax payers contribute 47.3% of the South Africa’s personal income tax. https://businesstech.co.za/news/finance/363120/these-3-graphs-show-whos-paying-south-africas-income-tax/

Close to 18 million people are reliant on social grants supported by successful businesses and individuals paying their taxes. https://statista.com/statistics/1116081/population-receiving-social-grants-in-south-africa-by-province/

In addition, as at 2017, out of 54 African countries, South Africa ranks 7th in GDP (gross domestic product) per capita and ranks 89 in the world. https://en.wikipedia.org/wiki/List_of_African_countries_by_GDP_(PPP)_per_capita

In conclusion, the following are a few actions that I believe would make a difference to the well-being of the economy of South Africa which would filter through to all South African citizens:

• Now is the time for ‘powers that be’ in government, business and labour to work more closely together with genuine intent to alleviate long standing issues,
• Put a stop to ongoing corruption and looting,
• Make doing business easier for SMMEs. Cut down on red tape and draconian BEE requirements especially for small businesses. Create an enabling platform for entrepreneurs to get going, survive and flourish,
• Lower the cost of doing business in SA and reduce the legislation and red tape that blocks investment. “When you look at the level of investment and tech capital coming into the African continent, you’ll see that SA is only fourth on the list. Nigeria is on top of the list and then you have Kenya followed by Algeria and then SA,” Phuti Mahanyele-Dabengwa, CEO of Naspers SA noted.
• Create an environment to attract and retain skilled South Africans. There is an ever increasing stream of middle and wealthy class individuals emigrating from South Africa to other countries. Every skilled person who leaves SA is generally a high-contributing tax payer and possibly someone who has the potential of starting a small business and employing people. According to the UN’s dataset, the number of South African-born persons residing outside of South Africa increased from 330,000 in 1990 to 900,000 in 2017 – an average of 21,000 South Africans per year.Nov 25, 2019
• Clamp down on crime and especially on farm murders which threaten our food security and destroy confidence in the country.
• Consider making access to bandwidth and data a basic human right. With access to the internet it is possible for anyone anywhere to plug into the benefits of a digitally driven world including online education.

Sources include:

https://tradingeconomics.com/south-africa/gdp-growth The South African GDP shrank an annualized 51% on quarter in the three months to June of 2020, after a downwardly revised 1.8% contraction in the prior period and more than an estimated 47.3% decline

https://ceicdata.com/en/indicator/south-africa/government-debt–of-nominal-gdp#:~:text=South%20Africa’s%20Government%20debt%20accounted,Dec%201960%20to%20Jun%202020. South Africa Government debt accounted for 69.4 % of the country’s Nominal GDP in Jun 2020, compared with the ratio of 63.3 % in the previous quarter

https://businesstech.co.za/news/finance/363120/these-3-graphs-show-whos-paying-south-africas-income-tax/ Personal Income Tax (PIT) at 38.3%, Corporate Income Tax (CIT) at 16.6% and Value-added Tax (VAT) at 25.2%, in aggregate remain the largest sources of tax revenue and comprise about 80.1% of total tax revenue collections

https://ewn.co.za/2020/11/12/sa-unemployment-rate-increases-to-30-8-in-q3-of-2020-qlfs South Africa’s unemployment rate increased by 7.5 percentage points to 30.8% in the third quarter of 2020 compared with the second quarter, according to data from Statistics South Africa. Nov 12, 2020

https://iol.co.za/business-report/opinion/importance-of-smmes-is-big-business-for-country-1768670 Currently, the SMME sector contributes more than 45 percent of the country’s gross domestic product. SMMEs have the potential to create and expand employment opportunities, develop entrepreneurial skills and enhance market opportunities.

https://poundsterlinglive.com/zar/13620-south-african-rand-outlook-sa-in-unsustainable-debt-trap-says-investec The problem for South Africa lies with its significant debt burden that means it cannot borrow and spend its way out of the current economic crisis, “while global events continue to have the major impact on the rand, the domestic currency is unlikely to return to purchasing power parity in the medium to long-term,” says Annabel Bishop, Chief Economist at Investec in Johannesburg. South Africa now has no investment-grade sovereign credit rating from any of the major ratings agencies for the first time since its return to global markets in 1994. The OECD now forecasts South Africa’s economy to shrink 7.5% in 2020 with the South African Reserve Bank pencilling in a 7.0% decline.

Written by: Jonathan Crisp, Director, BarnOwl GRC software solutions