BRUCE WHITFIELD: Why can’t SA treat business owners like grown-ups?
As the lockdown begins to ease, the government needs a new, well-articulated strategy, fast, as the real-world impact of stopping the economy dead is taking its toll
Frustration is mounting in business circles, as the risk of company failures grows without any sign that government even realises the critical role the private sector can play in keeping the economy alive.
On Tuesday, Sars commissioner Edward Kieswetter warned that SA had lost about R285bn in tax revenue during April due to the Covid-19 shutdown and ratings downgrades. That’s a shortfall of 15%-20% on the usual amounts collected.
But that reality has yet to fully percolate through government, despite frustration in the National Treasury that its warnings about the long-term economic destruction of the hard lockdown just aren’t being heard. Tax receipts from companies are collapsing and fewer individuals will pay tax, as unemployment queues grow.
There are a couple of ways to fix the country’s revenue problem.
The obvious one would be to raise tax rates across the board. But even in the (relatively) better days of February 2020, that was dismissed as foolhardy, considering SA is already one of the world’s most heavily taxed jurisdictions.
Second, the government could cut spending — but that would lead to serious dissent in cabinet. The third option is for the state to ease the lockdown so that more companies could begin earning money, to ensure they survive and can contribute to the fiscus.
This is all rather urgent since, beyond the revenue shortfall, the more serious worry is that SA loses economic capacity for good and that the illicit economy booms. There is evidence of that happening already in the trade of illegal booze and cigarettes.
When President Cyril Ramaphosa imposed the lockdown, it was to ensure that SA’s fragile and wholly inadequate health system wouldn’t buckle under the weight of Covid-19. The relatively slow rate of infections is testament to the efficacy of that strategy.
However, as the lockdown begins to ease, the government needs a new, well-articulated strategy, fast, as the real-world impact of stopping the economy dead is taking its toll.
History shows that while voters might be grateful to those who lead them through crisis, often they want fresh economic thinking as they emerge from calamity. So what government needs is a survival strategy — not just for business and jobs, but for itself.
And yet, while Treasury data is pointing to the strong possibility of economic catastrophe, a large part of government seems content to ignore it.
Business Leadership SA CEO Busisiwe Mavuso took the unusual step of singling out trade and industry minister Ebrahim Patel, whose statements on banning hot food sales and internet shopping trivialised the economic disaster. Government needs to take heed and realise that a return in confidence lags the lifting of regulatory restrictions by some distance.
The truth is, the economy can only restart when people can safely go back to work. No business owner wants to open up only to be forced to close again due to a Covid-19 infection in the workplace. During the Spanish flu of 1918, the virus arrived in three devastating waves over an 18-month period before it finally petered out.
The modern economy is unlikely to be able to sustain that sort of repeated stop-start any more than it can withstand inaction.
It means that it’s time to start treating people who have built job-creating businesses like the adults they are, and put the burden of responsibility on them to start generating economic activity, safely.
The alternative -suffocating businesses and relying purely on cold data when making decisions — means that officials are able to sanitise the human catastrophe. The economy is shrinking before our eyes and its consequences are painfully visible.
SA’s companies collapse
This pending disaster was apparent when Edcon CEO Grant Pattisson told his suppliers six weeks ago that they wouldn’t be paid due to the dramatic slowdown in sales and there was a chance his firm wouldn’t survive the lockdown. Edcon has now applied for business rescue, and like SAA, there is no guarantees it will pull through — particularly if the economy isn’t defibrillated soon.
Nor is it the only business in crisis with a proud history. Jane Raphaely’s ground-breaking Associated Magazine Publishing has shut for good. The announcement last Thursday shook the publishing industry amidst a collapse in advertising revenues.
Then this week, Caxton announced it was getting out of magazines, looking for buyers for a slew of beloved titles, including Garden & Home, Country Life, and other iconic publications.
Businesses globally have figured out there is no commercial advantage to advertising if they’re not allowed to operate – and besides, who knows that shape your customers will be in, once they emerge from isolation.
The future of air travel is also so unpredictable that Warren Buffett has sold stakes in four of America’s biggest airlines at a loss. Buffett once proclaimed if there had been a capitalist at Kitty Hawk the day the Wright brothers first flew, and had shot them down, investors would have been saved billions of dollars.
Yet, despite that, the SA government remains wedded to the dream of a state-owned carrier, even as it prepares to close SAA and lay off 5,000 people.
This week, airline company Comair, which until this year had not once reported an annual loss in its 74-year history, applied for business rescue. It was an effort to preserve a business that may, or may not, be able to relaunch and fly commercially in October or November. Business Rescue may have come in time for Comair, which will use this process to extricate itself from contracts, and shut some of the businesses it built.
It means that next time you pass through an airport, there won’t be a charming Slow Lounge where you can escape the bustle of queuing humanity. And following the liquidation application for SA Express, it’s increasingly unlikely that SAA will have lounges either: we may have a new-look state airline, but it won’t resemble the 90-something year old grande dame of the skies it once was.
Famous Brands, which owns the likes of Mugg & Bean, Steers and Debonairs Pizza, this week warned it would keep most of its operations closed as it experimented with hot food deliveries in the 10-hour operating window which level 4 lockdown permits. McDonalds did the same. Everywhere you go, you see small businesses opening in the hope that they won’t be jackbooted back to enforced closure.
With hospitality in crisis, many restaurants will not survive to reopen, most hotels are shuttered, and even activities such as horseracing are at risk, as Phumelela looks to raise R300m to save itself from the knackers yard.
It means SA will be looking to sell distressed SOE’s at precisely the wrong time. There will be buyers for many of them, but buyers know when you’re a forced seller, so they’re pretty much able to name their price. And that price will reflect the value of an asset at a moment in time — not its potential.
But again, government’s unwillingness to confront economic reality will ensure it is forced to sell some of these assets for a song, as it can’t keep pouring money it doesn’t have into these bottomless pits.
Rip in the social fabric
Few statements illustrate the madness of the self-defeating draconian regulation quite like the confession of water minister Lindiwe Sisulu that, following government’s speedy rollout of water tanks in poor communities, many of those tanks couldn’t be installed because hardware stores were locked down.
Aerial footage of food queues, estimated at between 3km-5km long in Centurion, will only worsen as the crisis of families — desperate for food amidst a failure of government emergency programs to help — develops. With treasury estimating that unemployment will spike past 50%, the country’s fragile social fabric risks being torn apart.
There is a tasteless joke that suddenly seems quite apt: What is the difference between a recession and a depression? A recession is when your neighbour loses their job, a depression is when you lose yours.
It illustrates that you can publish as much data as you like, but unless you understand that it reflects the real-world catastrophe happening outside your ivory tower, you’re just playing a game of Marie Antoinette roulette.
There is only one way that ends. And it is messy.
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