By Alec Hogg
LONDON – As the winds of change sweep the globe, the clarion call is for new jobs and the wealth creation which brings social stability. Countries everywhere are seeking new ideas, fresh capital and enthusiastic entrepreneurs. Sensing the public mood, political leaders are promising to do whatever it takes to attract them.
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From Donald Trump to Theresa May, from Mauricio Macri to a host of wanna-be candidates, headline makers are falling over each other to make their homelands more attractive to business. Among their tools is tax reform, with the common thread being a slashing of corporate tax rates.
It’s the new race to the bottom, based on a view that businesses provide a multiplier effect: what National Treasury loses through corporate tax is more than made back through VAT and employee income tax. Free enterprise is getting a powerful second wind in most parts of the world.
For the moment, this approach enjoys little support in South Africa. Instead, the Zuma Administration uses organs of State to reward loyal cadres, paying market-topping salaries and pension benefits while turning a blind eye to “tenderpreneurship”. It adds a penchant for subsidising taxpayer-funded enterprises competing with the private sector.
There has been a rational reaction. Last year South Africans directly exported over R40bn in long-term capital. Much of it by the corporate sector.
The dilemma for many of SA’s companies is when their asset base is primarily in the country. Their initial blunder was their appeasement approach. They channelled billions of shareholder funds into a Black Economic Empowerment model specifically designed to create and enrich a new elite.
That was never going to work. There are just too many suddenly newly risen influential fellows who demand their turn at the trough. The companies foolishly assumed their gift was a one off; a belief that once-empowered is always-empowered.
So Animal Farm’s hard-working Boxer is belatedly seeking new friends. Business has aligned with a feisty Finance Minister with unquestioned integrity, but whose economic policies are to the left of the UK’s Labour Party. This alliance was publicly confirmed by 80 CEOs and cemented last month when Johann Rupert declared to Pravin Gordhan “your enemies are my enemies”.
While all of this plays out, consequences are logical for those paying attention. Rational South Africans, no matter how emotionally rooted, need a Plan B. Fortunately, for entrepreneurs and those with skills or investable capital, a welcoming world awaits.
