The Real Challenges Businesses Face In South Africa

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Taxes are killing the economy and as more tax revenue dries up due to businesses and high earning individuals leaving the taxes are being raised to cover the short fall. We are already on a path that is not sustainable with discussions of a VAT increase rejected 2 months ago now back on the table. Less taxation would generate more tax revenues because there would be more disposable income and companies could expand employing more people.

When you start to dig around you soon start to realise how depressed businesses really are. The economy was forecast to grow by a modest 1.6% this year which is wishful thinking on whoever came up with these numbers as the figure for the first quarter was 0.1%. I even think this figure has been tweaked because the reality is the economy is stagnant and has been shrinking with negative growth.

Our business clients are retailers and online platforms who have been feeling the pinch as there is less disposable income than there was 10 years ago. Their client base is not like it used to be so they are under financial pressure.

If you place yourself in a retailers shoes it does not paint a pretty picture and one can understand why various retailer groups are having to restructure by shutting down stores and consolidating. One retailer the equivalent of a Tesco in the UK shut down 32 stores which is a big number as they were losing too much money.

Retail sales are notably down which is a direct indicator of where the economy really is. Less disposable income due to high inflation and interest rates equals less money resulting in weaker retail sales. In South Africa there is a limited number of customers due to the high unemployment which is a figure that is rising. Buying luxuries like electrical appliances represents a small percentage of the population so when you see food retailers closing stores the situation is rather dire. South Africa finds itself in a rather unique position as the country relies so heavily on the private sector for employment yet they tax these businesses so heavily they cannot afford to expand and they have been forced to operate in survival mode.

When you consider households are spending their monthly income on housing, food, transport and possibly insurance there is very little left over. These days the extras are used to pay off rising debt and there is no disposable income for the majority.

Operational costs is another problem as these numbers only increase each year with things like rentals, electricity and security. Electricity requires back up systems to be installed for load shedding which is a regular occurrence. The municipalities failings via service breakdowns has made the costs of goods to sky rocket and throw in rising crime it is not a shock that some retailers in certain areas had to shut their doors.

One of my businesses is a packaging manufacturing business which is actually a good example to use to highlight how things have changed. Ten years ago I would estimate there were around 100 manufacturing companies in our sector and I would estimate that is now in the mid thirties so nearly seventy percent have vanished. The problem is so have the clients so the entire number of what used to be businesses employing people was eroded away and lost for good.

The businesses that remain you would like to think have filled the void and grown yet they have not and are still the same size. There are a few exceptions, but the majority are not booming like one would expect. I know quite a few companies who are not sure if they will still be in business within the next 5 years if there is no drastic change to the economy. They all tell the same story they do not know if it is all worth the effort as they are just maintaining what they have with no growth.

I am obviously trying to expand our customer base with the packaging company with a year end goal of 30 new clients. This is not on my own as I have sales people these days who are experienced and well connected yet that figure would seem like a failed target 10 years ago yet today it seems realistic. A sign of the times I guess and for those who are employed or own a business must just be grateful for what they have as so many have no hope and no future prospects.

Posted Using INLEO