The folly of creating businesses in a criminal-friendly environment
'Government is undermining the economy through its mismanagement of some basic tasks.'
By Johannes Wessels 28 Jun 2018 00:36
South African enterprise remains in a critical condition as the root causes undermining it go unaddressed. Picture: Moneyweb
The South African enterprise world remains in a critical condition since the real causes undermining its wellbeing are not being addressed.
We've seen that:
The paradigm of small enterprises as the knight that will overcome unemployment and economic stagnation comforts its adherents in their belief that they are on the right track.
Repetitive incantations of beliefs embolden policymakers and administrators to believe that there's no need for them to consider alternatives and that they can ignore evidence to the contrary. Why seek solutions by acknowledging the data-supported evidence of regularities that shape entrepreneurial space if you know that all that's required is the 'massification' of new businesses and a dogged adherence to state-induced enterprise creation?
Comfortable in this paradigm, government embarked on an interventionist road to transform the economy in accordance with its perceived reality. It launched a range of black enterprise incubation programmes with massive grants, prescriptive procurement strategies, BEE, industry charters, interference with intellectual property, and a commitment to expropriate land without compensation.
Knowing better than the marketplace, government decides which sectors to back and which industrialists and SMEs to boost. The strategy: transformation by preaching B-BBEE, but practicing SBEG (Selected Black Entrepreneurial Grantees).
State-induced enterprise incubation as a strategy to promote growth and jobs also serves to obscure the fact that government is in fact undermining the total economy through its mismanagement of some basic tasks.
One of the kindergarten tasks of any government is to ensure a safe environment for and protection of the rights of all the people and legal entities (companies, trusts and so on) in its jurisdictional area. This entails not just effective crime prevention, but also effective detective work and prosecution so that wrongdoers can be brought to justice.
Consider for a moment the under-achievements of the ANC government under the Zuma administration in protecting the rights and property of businesses. This is a period covering the Kgalema Motlanthe and Cyril Ramaphosa vice presidencies, ten years with Rob Davies and Ebrahim Patel at the helm of Trade & Industry and Economic Development respectively, with Treasury for seven budgets under Pravin Gordhan.
Using the World Economic Forum (WEF) rankings for 2007 and 2017, the outcome resembles the downhill speed-skiing performances at the Winter Olympics:
SA a contender for the down-hill record at Davos
Overall ranking of South Africa on the WEF's Global Competitiveness Index
Overtaken by 13 countries, including Panama, Turkey, Portugal, Mauritius, Vietnam, Kazakhstan, Rwanda, Bulgaria and Costa Rica
No of countries
Per capita GDP (US$)
GDP (Billion US$)
Ranking: Burdensome business regulations
Cost of crime to business
Reliability of police in protecting business from criminals
The unreliability has almost been perfected: The SAPS is one of the 20 worst in the world
Diversion of public funds
Dropped from the top 50 to join the bottom 30
Efficiency in government spending
From the top 25 countries to the bottom 35
Property rights protection
Watch this space: this was long before the embrace of expropriation without compensation.
The outcome: South Africa ranks high (one of the top five) as a haven for criminals to feed off business. In the period of comparison, South Africa bypassed Trinidad, Nigeria, Liberia, Kenya, Haiti, Jamaica and Mexico as a beneficial environment for criminals. It is only Guatemala, Honduras, Venezuela and El Salvador that South Africa has to overtake to become the undisputed champion as having the highest cost of crime for business.
An overstatement? Only the views of the large disgruntled corporates?
Combining data by the Enterprise Observatory of South Africa on the number of enterprises per municipality, with crime statistics from the Institute for Security Studies, enables us to express five specific crimes against businesses as the number of crimes (with enterprises as victims) per 100 enterprises in a municipal area. On this basis, one can compare small and large municipalities.
In Tokologo in the western Free State, there were 262 crimes with businesses as victims per 100 enterprises in the municipal area; on average 2.6 crimes per business per year. No wonder the local private sector has already disinvested from the municipal area – the value of non-farm commercial and industrial properties forms less than 1% of the value of the Tokologo municipal valuation roll.
At this level, it is small and medium sized firms that can no longer compete due to rampant crime. But crime also has a massive impact at micro firm level in the informal economy. A 2011 study by P Cichello, L Mncube and M Oosthuizen found that crime was the primary deterrent preventing people from entry into the informal sector.
Based on Stats SA's Victims of Crime reports for 2010 and 2015, the percentage of persons refraining from establishing a home business out of fear of crime had increased from 8.2% to 11.8%. Consider the 6.214 million unemployed South Africans, and add the 2.277 million South Africans who were so discouraged that they stopped looking for employment: a total of 8 491 000. Were it not for high crime levels, close to one million people would have attempted to start a home business.
Mix into this damning statistical evidence the following headline-grabbers, and the investment roadshow by Ramaphosa's four ambassadors looks like an attempt to wallpaper the cracks.:
Truck burning and looting at Mooi River Toll Plaza
The blackmailing of construction companies by local business forums insisting on 30% of the work in subcontracts
The destruction of an H&M store by an EFF-inspired mob
The dramatic rise in blatant attacks on cash-in-transit vehicles (rumour has it that some incidents are linked to building a campaign 'treasure chest' for the 2019 elections).
The business environment has deteriorated dismally. According to Sars, 8 000 fewer businesses submitted tax returns in 2015 than in 2007, implying that formal businesses disappeared at a rate of 31 each week – far higher than the rhino poaching figures that evoke so much emotion. In addition, net taxable income of Sars-assessed corporate income tax returns deteriorated from R97.241 billion in 2007 to R52.065 billion in 2015 – a clear indication of a very sick business environment.
By failing in its obligation to protect the rights and property of citizens and businesses, government is more effective at stimulating a criminal-friendly environment than ensuring enterprise-friendly conditions.
Supporting attempts to stimulate business creation through grants for the lucky selected few (the Black Industrialists Scheme, the National Gazelles and all other enterprise incentive schemes) while neglecting one of the most fundamental tasks of governance that would, if properly carried out, achieve much more for economic growth, is the equivalent of the Cabinet and the ANC caucus applauding the correct pronunciation of Nkandla rather than acting to uphold the Constitution.
If government is really serious about the business environment, it would push crime back (without contemplating the convening of a summit on how to tackle it) by implementing a system requiring accountability and impact at each of the Saps stations in the country.
Johannes Wessels is the director of the Enterprise Observatory of SA. This is a condensed version of an article that first appeared on EOSA.
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Richardthe Great 3 years ago
There are issues and then there as issues. This article highlights many of them. In essence, it is a good article that pulls no punches but for one. Implicit rather than explicit is the notion that South Africa is not business friendly and action will not be taken by the state against crime, simply because the country is being run by like minded criminals who are busy pillaging and plundering the coffers of the nation. Too busy to govern. The ANC, after all, used armed robbery to fund themselves so nothing has changed, really.
Or maybe simply, there is honour amongst thieves.
Lynne 3 years ago
I think this is the most significant article I have read in a while. From expropriation of mining rights to police standing by while protesters loot spaza shops what sane person would want to invest in SA?
It should be compulsory reading for every government official.
JaNee 3 years ago
Agreed. Provided that the data is sound (sources have been given), this article is strongly evidence-based and highly significant.
johannes eosa.org 3 years ago
Thanks Lynne
I appreciate your comments. This is the third article dealing with the enterprise policy environment. The first was carried by Moneyweb and can be read at https://www.moneyweb.co.za/moneyweb-opinion/enterprise-policies-as-untested-as-the-practice-of-bloodletting/ The second dealt with paradigm paralysis and can be read at https://eosa.org.za/2018/06/17/are-our-enterprise-policies-shaped-by-obsessions-paradigm-paralysis-2/
Mike Schussler 3 years ago
One of the best and most informative articles I have seen. The fact that crime costs business and customers are not fully understood in the country.
Given that not top person implicated in State Capture; major corruption has been in court yet is also a worry.
One can add murders on commercial farmers and of course on foreign-owned Spaza shops. At present SA has seen close to 100 trucks burned all over the country.
One can also add the bribes some state officials want for normal stuff like a truck license or be taking a truck off the road as the fire extinguisher has an old date on it and then demands R1000 to let it go on.
This is a necessary view that is expressed well with some facts and figures added.
casper1 3 years ago
So sad but so true!!!!
bobsmith 3 years ago
The SA regime IS a criminal syndicate but expects all underlings to abide by the laws!
SARS is first and foremost the enforcer to allow the plundering of taxpayers' money. Now you know why so many in SA loath to handover any cash to a state that is incapable of running a bar in a brewery!
Sensei 3 years ago
The populist redistribution policies of the ANC create a criminal-friendly environment. In South Africa we have laws that legalize, enable and motivate plunder. In South Africa the looters are protected by the law, while the honest and hardworking individuals are persecuted by the law. BEE and EE and socialist policies like the Mining Charter and National Health Insurance are vehicles of plunder. The ANC abuses its legislative powers to steal from some citizens in order to bribe other citizens to vote for them.
Criminality is the basis of our government. The rule of law is the basis of a free-market economy. This means that we cannot have an economy under ANC rule. It is that simple.
"Sometimes the law defends plunder and participates in it. Thus the beneficiaries are spared the shame and danger that their acts would otherwise involve… But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them and gives it to the other persons to whom it doesn't belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime. Then abolish that law without delay – No legal plunder; this is the principle of justice, peace, order, stability, harmony and logic."
― Frédéric Bastiat, The Law
sollyp786 3 years ago
Having seriously considered opening a labour intensive retail business I backed out due to the unfriendly labour laws, the uncontrolled crime , bribes demanded by the police/ health inspectors and competing with street traders and foreigners selling on the street as the municipal bye- laws do not apply to the street traders but is vigorously applied to the retailer.
Oh, not forgetting the myriad of paperwork demanded by the bureaucrats and taxman.
Foshan 3 years ago
I can't count on one hand the number of politicians who have successfully created and built a business from scratch. They simply do not know how business works, they think business is simply 'whats my cut'? Even Ramaphosa had his wealth thrust upon him. So, whereas a competent, creative and honest person would use a variety of ingredients to make something greater than the sum of its constituents, our ……. simply steal the ingredients!
It's surprising that so many people are still optimistic given the atrocious state of complete incompetence, corruption and crime in our beloved country. Obviously many people think that the situation can be corrected and that a leopard can change it's spots.
zakdesai 3 years ago
What a read!! Most honest telling of thefeeling on the ground. I've closed my business for some of the reasons listed here. big businesses will continue to thrive in this environment making income inequality etc worse
I wonder each day why nobody speaks so frankly in the media.
Radical Economic Theivery anyone?
Africa Pragmatist 3 years ago
This is the culmination of the 'unwritten' policy of corrupt ANC cadres, that the only way to grow rich instantly is to take from others, not wait for economic growth or shared growth.
This is part of the 'Criminal State' referred to by RW Johnson in his book 'How long will SA survive".
The ANC is killing any prospect for economic liberation for all the people of SA.
boomgloom 3 years ago
With so much bad news in the last 6 months, it must now be time to emigrate if you can.
Let Eskom turn out the lights.
teamed209 3 years ago
We need someone to decolonise these results quick!
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