BIZ NEWS / 17 APRIL 2020 - 16.21 / JACKIE CAMERON
B4SA and Brand South Africa heavyweight Stavros Nicolaou has painted a very grim picture of the South African economy, saying there is no good news – just degrees of bad news. He was speaking to BizNews editor-in-chief Alec Hogg about what is being done behind-the-scenes to prepare South Africa for the lifting of the Covid-19 lockdown. In this hard-hitting open letter to President Cyril Ramaphosa, economist and entrepreneur Dr Lawrence McCrystal and legal expert Advocate Hein van der Walt, propose radical – and controversial – steps to overhaul the economy. In a nutshell, they are asking for dramatic changes to tax laws, black economic empowerment rules and labour legislation. Implementing the plan won’t be popular among ANC cadres, but it could be a game-changer for South Africa. As McCrystal and Van der Walt point out, countries like South Korea and China looked insignificant before embarking on major reforms. The Covid-19 crisis creates an opportunity to fix an economic strategy that has failed to generate the growth necessary to create a better life for more than a minority. – Jackie Cameron
Originate a new economy on sound fundamentals for a ‘new economic dawn’ – Cofesa plea
Dear President Ramaphosa,
We welcome the announcement: “All the Cabinet clusters have been asked to work together to produce one consolidated document on key priorities of the country’s economic recovery plan, to be completed before the next Cabinet meeting scheduled to take place on Monday, 20 April 2020.”
Herewith our plea for fundamental economic reform to realise your vision of a ‘new economic dawn’ to change the face of the RSA and our continent.
Proclaim your vision of ‘Our new economic dawn’ to originate a new economy on sound fundamentals, proclaim like Mr FW de Klerk with his brave ‘2 February 1990 statement’, like Margaret Thatcher turned around the UK economy, like Michael Gorbachev, like Conrad Adenhaur and even like Donald Trump.
Pick the ‘low hanging fruit’ at zero cost to Government
Pick the ‘low hanging fruit’ of deregulation, commercialisation, and privatisation which will generate 15% VAT on a thriving economy, as well as on company and personal taxes. Only a healthy economy will generate increased revenue and solve SA’s pressing problems.
World Economic Freedom Audit of 2019
The world’s leading economists found that at the least cost, effective structural reforms can quickly be implemented, will generate increased revenue to government and generate an estimated 22m to 30m jobs in S.A. plus more than 50m jobs on the African continent.
The audit stated that
Since 1960 South Korea, Taiwan, Singapore and Botswana’s GDP growth has beaten us. South Korea which had a lower per capita GDP than SA’s in 1960. Today their per capita GDP is 32 times higher than ours.
South Africa’s per capita GDP was a third larger than Singapore’s in 1960. Singapore’s is now 7 times higher than that of South Africa.
Botswana whose growth has outstripped even that of the Asian ‘tigers’.
Nigeria now tops South Africa as the continent’s biggest economy 3 March 2020 South Africa, it’s now confirmed as the continent’s second-largest economy.
Zimbabwe, SA now have the same growth forecast for 2020 from the IMF. The International Monetary Fund has forecast that South African and Zimbabwe will in 2020 have the same growth rate of 0.8%. – Fin24 February 2020.
Over decades COFESA, the Confederation of Employers of South Africa, has served at shop floor level the human resources, industrial and enterprise development needs of more than 110 000 employers. We have empirically assessed the impact of current legislation on growth.
Let the sun shine on stimulus incentives
On Tax: Reduce tax to benefit all and everyone as a direct stimulus of the economy.
On the restructuring of government departments to integrate with DTI – Break down departmental ‘silos’ and reduce the public-sector wage bill with R160-billion.
Invoke the ‘Temporary’ Removal of Restrictions on Economic Activities Amendment Act 1987
Let the sun set on black empowerment.
Let the sun set on bargaining councils. Bargaining Council levies and regulations inflate our wage bills by 18%-33%. Deregulation is part of the ANC legacy.
Let the sun set on excessive fines levied on employers
Let the sun set on prolonged strikes.
Let the sun set on laws that thwart employment creation. SMME’s are failing at a rate of 75%; laws, inconsistent with international norms, laws that are intended to permit unions to affiliate independent contractors and temporary employees as members.
Let the sun set on the general application of minimum wages.
Let the sun set on diaspora – More than 400 000 high income professionals immigrated. Let the President’s ‘Thuma mina’ engagements signal the turning point.
Let the sun set on poor service delivery and delays in the transfer of title deeds. The transfer of title deeds will have a ‘Marshall Plan’ effect.
Let the sun set on poverty in Africa. The ‘new economic dawn’ will have a “Marshall Plan” ripple effect through Africa. With research and development drive the integration of the economies of 52 African countries. Deregulate and create 22 million to 30 million jobs in S.A. plus more than 50 million jobs on the Africa continent- (according to the World Economic Freedom 2019 Audit).
Let the sun set on poor infrastructure. With our spare capacity in construction, engineering, science, finance etc and at SOEs lead the ‘New Africa economic dawn’.
Let the sun shine on deregulation, on commercialisation, private sector initiatives, on incentives.
And the sun will set on poverty.
Tax: Reduce tax to benefit all and everyone as a direct stimulus of the economy
President Donal Trump and the UK reduced company tax: We must follow America’s example where President Donald Trump reduced company tax from 35% to 21% to turn his economy around, the United Kingdom from 30% to 19%, and in China’s CIT rate is currently 25%.
Reduce company tax to 17%. Similarly Mr Mboweni must reduce company tax to 17% from an accumulated 42% (the current 28% plus 14% on dividends) and even as high as 52%, to enable entrepreneurs to build capital and pay taxes. The fact that an expected R63,3bn less tax will be collected than budgeted for 2019, signals that the ‘tipping point’ has been reached and that higher tax rates will generate less income.
Reduce VAT to 10% or even to 5%. In 2019-20 VAT contributed R346.2 bn to the budget. Reducing VAT by 5% (R115 bn) will directly alleviate poverty and stimulate the economy.
The recent increase of VAT to 15% negatively impacted on the economy. No business takes home 15% on turnover without any risk. In fact without any risk, government now profits more from businesses than business themselves.
Reduce personal tax to 11%. Personal tax need to be reduced from 18% to 11%.
Reduce excessive property tax. Excessive property taxes also need to be substantially reduced.
Tax people into poverty
Economist Mike Schussler has broken down the weighty tax burden placed on individuals in South Africa, showing that we have one of the highest tax rates in the world. Notably, Schussler said, South Africa already carries some of the highest tax rates in the world, and hiking these will only serve to further stifle growth, he said (March 2020).
SARS collected R66,2bn less tax than budgeted for 2020, signalling we reached the ceiling and Mr Mboweni couldn’t raise taxes any more.
The country could not risk antagonising the 574 000 people who pay almost 20% of all tax in SA, which has a population of 55m. A constant spiral of worsening fiscal statistics and higher taxes were feeding a growing sense of despair about the country’s prospects. The finance minister at least broke that cycle to hopefully will boost consumer confidence.
Re-aligning our industrial policies
‘Macroeconomics’ involve all government departments and officials now functioning in ‘silo’s’ and in organisational pyramids.
We call for an overarching Independent Advisory Council of visionaries, specialists, business leaders for the new economic dawn, an Economic Development Board and Advisory Council and as a custodian an Independent Advisory Council to re-align our industrial and trade policies to initiate fundamental reforms and visionary projects.
We need to emulate the success of the automotive industry of the late 90’s (when Mr Tito Mboweni was Minister of Labour) and extend this policy action plan to other industries: Dr McCrystal was chairman of the team that designed structural reforms for a wide range of industries starting with the motor industry which has been highly successful. The others were never implemented because they were not up and running when the ANC took over the government. They were not seen as urgent and shelved.
Automotive Positive balance: R84.7bn (2017) 300 000 jobs created. This highly successful incentive schemes were developed before 1994. If replicated the potential growth in jobs can be as follows:
Agriculture With moderated incentives a projected additional 700 000 jobs can be created.
Metal and allied (engineering, chemical and associated/allied industries cluster). With incentives a projected additional 300 000 jobs are within reach.
Other industries, such as clothing, tourism, etc, With ‘focused investment’ they will generate substantial numbers of jobs.
Let the sun shine on SMME’s now failing at a rate of 75%, the highest failure rate in the world
When we had 5, 579,767 small businesses in 2011, they employed an estimated 12 million people countrywide (Source: jtb consulting). This has declined substantially since then, primarily because of the Government’s laws and regulations which Minister Nxesi now wants to make even worse.
A study by SEDA, a subsidiary of the DTI, has reported a failure rate of 75% for SMMEs, with five out of seven new small businesses started in SA, failing within the first year; the highest rate in the world.
Fresh research by Dr Pali Lehola, former Statistician-General dated April 2020 indicated that over 55 000 SMMEs will not survive the Covid-19 pandemic. At least 42 350 people working for these SMMEs will lose their jobs and more than 423 500 people working for these SMME’s risk losing their jobs. Other sources estimate that a further 1 m people will become unemployed.
Diaspora – More than 400 000 high income professionals plus their families have emigrated since 1994 and millions of remaining individuals are utilising the easing of foreign exchange controls to let their money emigrate. (Thank you Mr President for calling for their return). About 3 000 super-rich (those with wealth of $1million or R15million or more) “migrated” from South Africa over the past 10 years, Andrew Amoils, head of research at New World Wealth, told Fin24 in April 2019. The monthly loss in tax is estimated to be between R10bn and R20bn. From 2015 the number of companies registered at SARS declined from 3,2 million to the present 2 million.
Time for an Economic Development Board and Advisory Council
The most successful development plan is the one for the motor industry (it generates a positive balance, above government incentives. This plan was formulated in 1988-1991 by the then Board of Trade and Industry. It is time to formulate similar plans for numerous other industries including the metal and allied engineering and chemical industries, clothing, textiles, footwear, electronics, furniture and agricultural industries.
Independent Advisory Council focused on a growth strategy
With close to 10m people unemployed, plus job losses that will be caused by Covid-19, as well as a dwindling membership numbers, trade unions lost their grip on the economy and their prominence at NEDLAC became disproportional.
We propose that NEDLAC be replaced with an Independent Advisory Council of leading economists, visionary business leaders, and specialist high-level government officials to advise the Presidency and the relevant ministries (Finance, Trade and Industry) on appropriate economic policies for growth to benefit all and everyone, including the unemployed and employers.
Restructure government departments to synergize/integrate with DTI – Break down departmental ‘silos’ and pyramids and focus on economic growth
Down size and rationalize government departments and functions, privatise, commercialise, out source for effectiveness, service delivery, cost saving, the 4IR, etc.
Fast track deregulation, privatise, commercialise, incentivise, (also incubators, mentorships and coaches).
The Department of Employment and Labour is functioning in its own ‘silo’ and pyramids, frustrating the enterprise development drives of the DTI. It is time to streamline and incorporate the functions of the Department of Labour as in the Department of Trade and Industry to
Enhance coordination between them and to consolidate strategy and governance, to modernize and face the Fourth Industrial Revolution. The Departments of Economic Development and Small Enterprises could also be incorporated into DTI.
Incorporate the registration of trade unions and employer organisations under the DTI For unbiased, objective, streamlined and transparent administration the office of the Industrial Registrar of the Department of Employment and Labour needs to be incorporated in the DTI, a department that administers our modernised Companies Act. The scope of the Companies Act also covers Non Profit Organisations and collectives such as churches, unions and employer organisations. (The DTI also administers co-operatives). Their up-to-the-minute e-filing, systems and services boost business.
Bargaining Council levies and regulations increase our wage bills by 18%-33%, not only making us uncompetitive against imports but causing us to retrench employees on a huge scale. Extending Council agreements to non-signatories is undemocratic. Urgent relief from the Councils will also dispose of burdensome ‘red tape’ which the President said he intended to minimise to restore the growth of start-ups.
Transfer of title deeds for a ‘Marshall Plan’ stimulus
With title deeds in hand, the new owners will access bank loans and bonds to upgrade, repair and extend their houses, buy white goods, cars, etc, thereby stimulate the economy. Transferring the 800 000- 2,08 million new title deeds for residential property will generate VAT income of R5bn to R10bn and potentially 3m jobs in services and retail.
Fast tracking the transfer of title deeds will unlock the intrinsic value of land and create enormous wealth- a ‘Marshall Plan’ stimulus. We see potential of creating incubators that lead to career paths for ‘one million’ unemployed graduates with the latest Fourth Industrial Revolution dashboards, interactive monitoring and management systems. Cofesa developed and implemented a successful system for both urban as well as rural clients that trains, mentors and monitors the performance of 3,000 digital youth enterprises providing services to 650,000 residents.
Let the sun set on black empowerment
It is notable that before the imposition of affirmative action and black empowerment ESKOM was internationally recognised as one of the five most efficient power producers in the world. Now many large corporations have relocated to elsewhere in the world, leaving skeleton offices behind, to get away from the burdens imposed by affirmative action which made them uncompetitive internationally and to retain their highly skilled expertise.
An analysis by a leading economist, Mr Mike Shussler, of 2019 stats of Statistics SA found that BBBEE and affirmative action benefitted an elitist group, a maximum of between 30 000 possibly only as few as 10 000 people. It distorts the economy. (Beeld 18 November 2019 page 12).
Diaspora – More than 400 000 high income professionals plus their families have emigrated since 1994 and millions of remaining individuals are utilising the easing of foreign exchange controls to let their money emigrate. (Thank you Mr President for calling for their return). About 3 000 super-rich (those with wealth of $1million or R15million or more) “migrated” from South Africa over the past 10 years, Andrew Amoils, head of research at New World Wealth, told Fin24 in April 2019. The monthly loss in tax is estimated to be between R10bn and R20bn. From 2015 the number of companies registered at SARS decline from 3,2 million to the present 2 million.
Key to new dispensation- Abolish centralised bargaining, ie bargaining councils
Ms Margaret Thatcher abolished bargaining councils in the 1980’s to turn around the British economy. At home the Minister of Employment and Labour extends agreements signed by a small number of employers and unions to non-parties so as to cover the whole industry. This practice increases employment costs by between 18% and 32%.
Ms Thatcher was followed by Mr Jim Bolger of New Zealand, who abolished the nationwide agreements by monolithic trade union power blocs with ‘compulsory union membership that bred wasteful strikes and scandalous abuses’. In months Mr Bolger’s actions produced startling results, bringing down inflation from 15% p.a. to 1,3% p.a. and increasing the foreign trade surplus by 500%.
Back in 2005 Mr Trevor Manuel blamed the extension of bargaining council agreements to non-parties for our economic woes. They monopolise markets and protect themselves against competition at the cost of economic growth and employment.
We must motivate corporates to use their freedom of disassociation and to disassociate from the bargaining councils, or to limit their agreements to the signatories, and establish in-house bargaining or practise shop floor bargaining.
Deregulation is part of the ANC legacy
In 1994 Mr Derek Hanekom disbanded the outdated agricultural control boards. He is credited for today’s thriving global agriculture exports – Landbouweekblad’s 100: 1919-2019 ‘n Eeu op die platteland’ commemorates his monumental accomplishment.
Since 1994 the gross value of the agriculture sector has increased nine-fold and was about R277bn in 2018, according to data from the Department of Agriculture, Land reform and Rural development, with a positive trade balance of R81.3bn, 7% of GDP, 8% of total exports, employing 700 000 workers. A global demand for food creates lucrative trade opportunities and government incentives will have a major impact. This growth enabled commercial farmers to assist communal farmers to increase their wool production from R1,5 million in 1997 to R383,6 million, contributing to school fees and bread on the table.
R160bn of cuts to the public-sector wage bill
Finance Minister Tito Mboweni said in his annual budget speech that he wanted to make R160-billion of cuts to the public-sector wage bill over the next three years. President Ramaphosa signalled his support for curbing the public-sector wage bill.
We support government tough line with unions over public-sector wages, which account for around a third of state spending. We cannot afford 29 000 salary millionaires in government service. We cannot tolerate poor or no service delivery.
Let the sun set on excessive fines levied on employers
We could not find similar excessive fines in BRICS countries: 44 firms, some of them listed on the JSE, were criminally prosecuted in 2018 under the Employment Equity Act. The majority were fined R1,5m. Companies face a daunting task of reflecting the country’s demographic profile, calculated as 77% black employees by the Department of Labour: Fines from R1 500 000, with R1 800 000 for a previous contravention and R2 100 000 for further contraventions, or 10% of turnover.
Let the sun set on prolonged strikes that cripple the economy and scare away investors
Apply Pendulum Arbitration as an alternative practical way of resolving labour disputes quickly and fairly. We need to ensure that legal strikes are both peaceful and of shorter in duration, without causing damage to the economy. Compulsory “Pendulum Arbitration’’, an internationally recognized mechanism, would ensure this ideal.
Let the sun set on laws that thwart employment creation; laws, inconsistent with international norms, laws that are intended to permit unions to affiliate independent contractors and temporary employees as members.
Scrap the presumption (Section 200A t of the LRA) that a person (such as an independent contractor) is presumed to be an employee until proven otherwise. This presumption discourages outsourcing and enterprise development and economic growth. Encourage independent contractors, incubators, entrepreneurs and synergize with them. They are the macro employers of tomorrow. Cofesa’s empirical study on the productivity of ‘contractors’ in contrast with ‘employees’ found that contractors are between 50% and 300% more productive than ‘employees’ and are consequently paid accordingly. The ‘cottage industries’ of China, create valuable entry levels to the formal industries. We need to promote similar models.
Let the sun set on the general application of minimum wages
Minimum wages should not apply to trainees, interns or small businesses, and as in Germany, should not apply for the first six months or perhaps one year for previously unemployed persons. Since December 2018, 34 000 domestic workers have lost their employment.
Amend the Competitions Act: No 89 of 1998 should also apply to collective bargaining agreements.
Let the sun rise on trade
Dr Lawrence McCrystal, Cofesa’s chairman, is an economic strategist. He was part of the IDC team which saw the need for a harbour for Jo’burg. They identified land at the sea and built Richards Bay.
The ‘new economic dawn’ will have a “Marshall Plan” ripple effect through Africa
Research and development are needed to facilitate the integration of the economies of 52 African countries and to eliminate trade barriers such as:
83 Documents amounting to 623 pages, 28 SADC certificates and five invoices to export a single container between two countries.
The NEPAD Business Foundation did an analysis in 2018 in which it analysed the volume of documentation required for a South African-based exporter to move a container of products to Angola.
That study found that during the 2016/17 financial year, a typical firm would require 56 customs signatures, 84 customer stamps, 83 documents amounting to 634 pages, 28 SADC certificates and five invoices to export a single container between two countries. It took a lead time of between 10 and 15 working days to process the paperwork, which translated to a significant cost disadvantage. Financial services, such as critical banking and insurance, are still deemed to be highly restricted, or four times more restrictive than else where in the world- Global Insight by Dr Tinashe Kapuya, agricultural economist, Farmer’s Weekly 26 July 2019 p13
Water from the Kunene The Water Commission back in 1970 concluded that SA will, in due time, need to bring water from surrounding countries to help S.A. The IDC in the 1960’s worked on a plan to bring water from the Kunene river to Gauteng and promote agricultural and related industrial development along a canal through Namibia and Botswana. We could join this, through Angola, to a canal to bring water and hydro power from the Congo river. That is where the Lesotho Highlands Scheme started.
Water “highway” from the Nile river to the Cape – The AfCFTA’s now makes possible a water “highway” from the Nile river to the Western Cape which would promote economic development all along the way. The canals could also be navigable for trade, agriculture and tourism. These plans would generate great economic development for S.A. and other African countries as well as attract foreign investment. Fast tracking the implementation of the AfCFTA’s (the African Continental Free Trade Agreement), which not only provides access to a continent-wide market of 1.2 billion people worth $2.5 trillion, but also effectively places Africa as the world’s largest free trade zone by population, for an ‘Africa Marshall Plan’ effect and alleviate the food crises or emergency levels of food insecurity of more than 11-million people due to the deepening drought and climate crisis. A waterway from the Cape to Cairo will be over a distance almost the length of the Roman aqueducts built 4 000 years ago. It provided the empire with water security and has benefitted their economy.
Let the sun shine on a new generation
In Sub-Saharan Africa 1.1 million newborns die in the first month of life. If current trends persist, 1 in 3 children in the world will be born in sub-Saharan Africa, and its under-five population will grow rapidly. The highest rates of child mortality are still in Sub-Saharan Africa—where 1 in 9 children dies before age five, more than 16 times the average for developed regions (1 in 152).
We need a pipeline to bring 7% of the Orange River’s water now running to the sea, to the cities and farms of the Cape. It will provide water double their present needs.
Let the sun shine on our spare capacity in construction, engineering and other expertise
Since the completion of the 2010 World Cup, the South African capital project environment has witnessed a steady decline in activity and productivity. With some of the larger construction projects ending, the immediate future for the industry is bleak. This has been complicated further by some prominent construction companies off-shoring their business or going into business rescue and even bankruptcy. The departure of these companies will eventually impact on skills depletion, resulting in the long-term shortage of capacity to deliver on capital project investments.
We have spare capacity in construction, engineering, manufacturing, transport, management, finance, technology, agriculture, nature conservation, tourism, training, etc and other resources that can be used for an ‘African Marshall Plan’ to change the face of the continent. Expertise can also be sourced from overstaffed human resource complements at some State Owned Entities.
Pleas for urgency to invoke the ‘Temporary’ Removal of Restrictions on Economic Activities Amendment Act 1987
This Act “empowers the President to suspend temporarily laws or conditions, limitations or obligations hereunder or to grand temporary exemption from the provisions thereof, if in his opinion circumstances exists under which the application of or compliance with those laws, conditions , limitations or obligations unduly impedes economic development or competition in the economic field, or the creation of job opportunities: and to provide for incidental matters”.
We can repeat what we have achieved when Mr Mboweni was Governor of the Reserve Bank with Mr Trevor Manuel as Minister of Finance and the country reached a growth rate of 6% to relieve the hardship of 10m unemployed people and the 17m receiving government grants and incentivise the precious 15m people who are employed, employers: entrepreneurs/businesspersons in all industries
Turning point- The Thuma mina engagements of President Ramaphosa
The Thuma mina engagements of President Ramaphosa and the leadership of Mr Tito Mboweni, Pravin Gordhan and many others signified a turning point. He calls on all and everyone to turn around the economy; black, white, Indian, Chinese, coloured.
Junk status? No, let’s turn around the economy’ – Mr Brand Pretorius
Mr Brand Pretorius saved McCarthy Motor Holdings from bankruptcy after the group was declared technically insolvent in February 2001. Under Brand’s leadership McCarthy was successfully recapitalized, restructured and restored to financial health, saving thousands of jobs. Today the group employs 7000 people, has an annual turnover in excess of R20 billion and it sells approximately 75 000 new and used cars annually. Let’s do the same for SA Pty Unlimited. Unlock the potential of our powerful economy and ignite the economies of Africa.
With a brave ‘2 February statement’ and a blitz referendum proclaim the ‘new economic dawn’ with fundamental deregulations.
Announce a blitz referendum to further enforce your leadership and broaden your national support base.
With a blitz referendum Mr Boris Johnson received a strong mandate
Similarly we need a blitz referendum for a ‘new economic dawn’, an opportunity for the suffering and silent majority, including the 10m unemployed voters, non union members and the business sector to respond to the President’s Thuma mina (send me) calls and to give him a strong mandate.
Mr Mboweni warned in an alarming series of tweets of dire consequences if South Africa does not push ahead with economic reforms: “If you cannot effect deep structural economic reforms, then game over! The consequences are dire. Your choice”. While political factions hold back reform and foil a ‘new economic dawn’ II our economic crisis calls for ‘action and more action’ and like ex-president Ronald Reagan said of America, we say ‘Our country is too great for small dreams’.
Let the sun shine on our ‘new economic dawn’.
Dr Lawrence McCrystal and Adv Hein van der Walt
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER