The government should make the economic environment conducive to business and not just to existing businesses, but also to encourage new start-ups. File picture: Pixabay
The government should make the economic environment conducive to business and not just to existing businesses, but also to encourage new start-ups. File picture: Pixabay

How SA can start rising out of Covid-19 ashes

By Jan Dreyer Time of article published May 29, 2020

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If South Africa was a bird, it would definitely be a phoenix. Yes, the official bird is the secretary bird, but years of state capture and maladministration suggest that the stately secretary bird is perhaps no longer a true reflection of our country. 

However, we have risen from the ashes on numerous occasions. From having international sanctions against the apartheid regime to delivering two Nobel Peace Prize winners, from Verwoerd to Madiba, from losing to Japan and Italy to winning the World Cup. 

And in the wake of Covid-19, South Africa finds itself once again in ashes. This time it is ashes that our country found challenging to rise from in the past: the ashes of economic ruins. Data suggests that since the global economic crisis in 2007/ 2008, the South African economy recovered at a much slower rate than other developing economies. 

Still struggling to fully recover from the 2007/ 2008 global economic crisis, the South African economy is now hit by Covid-19. Whether the continued lockdown is the correct strategy to fully combat the virus is for the health experts to decide. A First World solution may perhaps not be fully applicable to a country with high levels of poverty, a lack of housing as well as poor access to water and sanitation. 

Many people may choose facing the risk of contracting the virus as opposed to starving from hunger. The saying "hindsight is 20-20" and the Afrikaans saying "die beste stuurman staan aan wal", meaning that the people watching from the outside may always think they know better than those in the midst of the crisis, are applicable and as such I will refrain from expressing too much criticism against the lockdown.

The fact that the economy has suffered greatly from this crisis cannot be disputed. Many people have already lost their jobs (current estimations are more than a million people nationwide), and many businesses have been forced to close. Even large companies have had to shut their doors for good. 

That is the reality, but South Africa is a phoenix and if we are to rise from these ashes, how will we do so? The answer is unfortunately not an easy one. In short, the government should make the economic environment conducive to business and not just to existing businesses, but also to encourage new start-ups. 

Businesses should also be encouraged to employ more people to alleviate the job loss currently experienced. In more practical terms, the government should consider the following:

Relaxation of B-BBEE regulations

Foreign investors have indicated that they require a relaxation of the B-BBEE regulations in order to invest in South Africa. As we are now in desperate need of new companies and foreign investment, the relaxation of B-BBEE regulations should be paramount. 

Research suggests that B-BBEE regulations are one of the reasons why South Africa has struggled to achieve its economic potential. Other empowerment initiatives internationally were successful in times of high economic growth, and thus in a time of recession, B-BBEE regulations should be reconsidered. 

Removing B-BBEE criteria from government contracts may also lead to procurement savings, reducing the burden of Covid-19 debt.

Tax incentives

Yes, the government has spent a lot of money on Covid-19 relief packages, and the money needs to be recouped, ultimately through taxes. The problem is, however, that the basis from where tax is collected (business and personal income) has now been eroded, and recovery thereof should be the first priority. 

An increase in economic activity and personal wealth would ultimately lead to an increase in tax revenue and a recoupment of the Covid-19 debt. Hiking tax rates in a weak economy will unduly increase prices and thus drive inflation higher than what is currently seen and may lead to hyperinflation. 

Raising personal tax rates would just impoverish an already impoverished population and may lead to tax evasion. The government should rather use tax incentives to stimulate economic growth and curb unemployment. 

Possible solutions could include that newly registered companies are exempt from tax in their first year. A newly formed company should also be able to choose whether it wants to register for VAT in its first year or not, alleviating the administrative burden start-up companies face. 

For existing companies, the government could encourage these companies to employ more people by reducing their corporate tax rate if they increase their workforce. In my opinion, adjusting a company’s tax rate based on the number of employees relevant to its size, and the company’s relative pay gap, can be a more efficient and more sustainable alternative to B-BBEE.

The fight against Covid-19 is not over yet, neither is the fight against poverty. If the phoenix does not reposition herself to rise out of the ashes of economic ruins, the devastation of poverty can be more severe than the virus. 

The government should understand that rebuilding the economy can be a greater challenge than overcoming Covid-19. South-Africa is a phoenix, and I believe that we can rise from the ashes once again, but it will not be an easy rise. 

May God bless this phoenix and the people who so dearly love her.

* Dreyer is a lecturer at the School of Accountancy at Stellenbosch University

** The views expressed here are not necessarily those of Independent Media. 


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