HILARY JOFFE: Desperately needed small firms struggle to compete while ‘super giants’ thrive
‘The challenges for SMEs are not just about lack of access to finance. They are also about education levels and SA’s extra-poor education outcomes’
Just as the Gini coefficient for individuals shows SA is one of the world’s most unequal countries, a Gini of sorts can also be computed for companies. And there, too, the inequality gap is huge and probably widening.
It’s a phenomenon Citi economist Gina Schoeman pointed to in a presentation this week, in which she argued that corporate profitability in SA had fallen through the floor in the eight quarters to the end of 2016. However, while small and medium-sized firms were still struggling to weather the storm, the "super giants" were now doing even better.
They are large enough to have economies of scale, which, for example, enable them to cut operating costs rather than hike prices to survive, in a way smaller companies cannot. Those super giants, as Schoeman calls them, make up a fraction of South African companies: tax data show that only 0.9% of the companies that submit tax returns have an annual profit exceeding R100m, while almost two-thirds earn R1m or less. Schoeman says highly profitable large companies have to be the target for tax hikes.But her corporate Gini notion touches on an issue highlighted in studies by Business Unity SA (Busa), the IMF and others, which is that SA simply has far too few small and medium enterprises (SMEs). That is one of the main reasons for the economy’s failure to create jobs or growth, and a key reason for genuine economic inclusion being so elusive. Busa’s recent document on the approach by business to economic transformation notes that smaller businesses contribute only 65% to employment in S...