On behalf of Cofesa, the Confederation of Employers of Southern Africa and our members we wish you well for the 2020 Budget.
We support you in turning around the economy and will do our part to honour your legacy and progressive vision; to repeat what you have achieved as Governor of the Reserve Bank when, with Mr Trevor Manuel as Minister of Finance, the country reached a growth rate of 6%.
And now by deregulating (especially small and medium enterprises), 22 million to 30 million jobs in S.A. could be created over time as forecast by the World Economic Freedom in its 2019 Audit.
Austerity for private and public sector
We lament that from 2015 the number of companies registered at SARS declined from 3,2 million to the present 2 million. Annual wage increases and bonusses became a sweet memory for most of us.
For growth we need a significant reduction in taxes. To make this possible it will be necessary to cut government budgets, put a moratorium on non critical expenses, bonusses and salary increases, freeze new appointments, travel and expense allowences and credit cards.
Dramatic reduction of tax is unavoidable . We must follow international trends
35% to 21% President Donald Trump of America reduced company tax from 35% to 21% to turn his economy around.
The United Kingdom reduced company tax from 30% to 19%
China’s company tax rate is currently 25%.
Mr Mboweni, like in America, you need to reduce company tax with 16% to between 25 and 30% to turn this economy around. It will enable entrepreneurs to re-build their companies’ capital base and, by virtue of the growth these measures will quickly stimulate the economy, as happened in the USA, and enable them to pay much needed taxes to fund government.
The current 15% VAT rate also negatively impacts the economy. No business takes home 15% on turnover, but without carrying any risk, government now profits more from transactions than the business that take the risks.
The scale of personal taxes need also to be reduced at the lowest income bracket of 18% to 12% and at the highest bracket of 45% to 30%.
Excessive property taxes also need to be substantially reduced.
Tax relief will help us to outgrow other economic constrictions.
R100 bn monthly tax income is lost due to the diaspora of more than 400 000 high income professionals and 3 000 super-rich
We realise that it is not the focus of your portfolio to deregulate the burdens of labour legislation, but burdensome labour legislation dramatically reduces your tax income. The erosion of employers’ rights resulted in the diaspora of talent and cause more unemployment. Please implore your colleagues to fast track deregulation for the sake of growth.
With us, you have witnessed, over the past decade, a flood of burdensome labour legislation which has caused unemployment to increase from 4m in 1994 to more than 10 million hopeless, voiceless and angry, destitute and troubled people today, including more than a million graduates.
Let the sun set on black empowerment. It contributes to the diaspora which has substantially reduced your tax income.
Let us restore non-racialism and non-sexism, the supremacy of the Constitution and the Rule of Law and achieve equality, the advancement of human rights and freedoms to attract entrepreneurs. 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.
Elites benefit:An analysis by a leading economist, Mr Mike Schussler, of 2019 stats produced by Statistics SA found that BBBEE and affirmative action benefitted an elitist group - a maximum of approximately 30 000 and possibly only as few as 10 000 people. For these few people the whole economy is being distorted and millions pushed into unemployment. (Beeld 18 November 2019 page 12).
A R100 bn monthly loss in tax income is due to the diaspora of more than 400 000 high income professionals plus their families who have emigrated since 1994 and millions of remaining individuals are investing overseas because they see no economic growth here.
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.
We plead for a moratorium and for the formulation of a practical, non-intrusive, constructive approach modelled on the many successful business initiatives such as incubators which have already proven successful in employing young black people.
Let the sun set on bargaining councils and turn the economy around like Margaret Thatcher did in the UK and Jim Bolger did in New Zealand
When Ms Margaret Thatcher abolished bargaining councils in the 1980’s she turned around the British economy. At home our Minister of Employment and Labour extends agreements signed by a small number of employers and trade unions to non-parties so as to cover the whole industry. This practice increases employment costs for small and medium enterprises by between 18% and 32%.
‘Who governs the country?’ We have the same question that Edward Heath asked years ago in the UK. The country was not quite sure. The trade unions had too much legal and political power vested in their leaders and too little in their members. A series of new laws diminished their immunities and increased their members’ rights. These prohibited support for members of another trade union against an employer, out of sympathy, bringing union members from elsewhere to participate in demonstrations and preventing non-striking employees from entering their work-places.
They also empowered the courts to sequestrate the funds of unions which flagrantly breached the laws. The trade union leaders were barons but Mrs Thatcher did not make the mistake of giving them a Magna Carta. She simply stepped past them to the men and women they claimed to represent.
Mrs 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% and increasing tax revenue.
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 excessive fines levied on employers
We could not find similar excessive fines in BRICS countries. In SA 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 are 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 laws that restrain employment; 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 tof 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 to also apply to collective bargaining agreements.
From 2015 the number of companies registered at SARS declined from 3,2 million to the present 2 million.
Let the sun shine on deregulation. It 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.
Effect of reduced budgets: Reduced budgets will force government departments to involve and synergize with the business sector, to deregulate, innovate and to commercialise.
Let the sun shine on emergent entrepreneurs
SMME’s are 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 SMME’s, with five out of seven new small businesses started in SA, failing within the first year; the highest rate in the world.
Let the sun shine on economic growth
We respond to your alarming series of tweets warning of dire consequences if South Africa does not push ahead with economic reforms: "If you cannot effect deep structural economic reforms, then game over! Stay as you are and you are down graded to Junk Status!! The consequences are dire. Your choice," you warned, while political factions hold back reform.
Like in the UK and New Zealand, business holds the key to initiate fundamental reform which will have a domino effect, similar to the fall of the Berlin wall. We must circumvent the present stale-mate between the President, the unions and SACP. A blitz referendum will broaden his support base.
Since 1960 South Korea, Taiwan, Singapore and Botswana’s GDP growth has beaten us. South Korea had a lower per capita GDP than S.A’s in 1960. Today their per capita GDP is 32 times higher than our’s.
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’.
Picking the ‘low hanging fruit’ of deregulation, commercialisation, and privatisation, which will generate 15% VAT on a thriving economy, as well as company and personal taxes, at zero cost to Government, we calculate could generate, over time, between 22m and 30m jobs in S.A. plus more than 50m jobs on the African continent, based on the World Economic Freedom Audit of 2019, growth similar to the countries above.
Strong forces foil a 'new economic dawn' while our economic crisis calls for ‘action and more action’ and like ex-president Ronald Reagan said of America, we say ‘(South) Africa is too great for small dreams’.
Let the sun shine on democracy
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’sThuma mina (send me) calls and to give him a strong mandate.
Let the sun shine on our 'new economic dawn'
In addition to dramatic tax cuts, we need to celebrate our 'new economic dawn' with a brave '2 February statement'
President FW de Klerk, on the 2nd of February 1990, on the steps of Parliament, fearlessly and publicly announced that Mr Nelson Mandela would be released from prison, and that the ANC, PAC, SACP and 33 other liberation movements would be unbanned, the state of emergency uplifted and so changed our destiny.
Similar to that historic moment, the business world expects a decisive public proclamation of the ‘new economic dawn’ with urgent and fundamental tax cuts and deregulations, a blitz referendum to broaden the constitutional base for our leaders, a Codesa to fast track growth to realise the World Economic Freedom 2019 Audit’s projected 22 million to 30 million new jobs in S.A
Let the sun shine on Africa
The ‘new economic dawn’ will have a “Marshall Plan” ripple effect through Africa with the AfCFTA’s (the African Continental Free Trade Agreement), which provides access to a continent-wide market of 1.2 billion people worth $2.5 trillion and places Africa as the world’s largest free trade zone by population.
Let the sun shine on goodwill and co-operation
The Thuma mina engagements of President Ramaphosa and the leadership of Mr Tito Mboweni, Pravin Gordhan and many others signified a turning point. They called 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. ‘South Africa and Africa are too great for small dreams’.
Issued by The Confederation of Employers of Southern Africa