Part 4 – The SA economy in a nutshell

SA Economy in a nutshell

 

From a population of ±57M people, South Africa has ±3.1M registered companies. So far, so good.

However, only ±850K submit income tax returns to SARS (the balance being considered dormant). 76% of these active businesses are companies with 18.4% individuals. Of these 850K, 774K were registered as VAT vendors but only 504K is registered as employers (i.e. they earn enough to pay VAT and have enough employees to submit PAYE).

The picture gets scarier still – of the 770K companies whose tax returns were assessed:

  • 27% reported negative taxable income
  • 48% reported zero taxable income
  • 25% reported positive taxable income. Of which:
    • 20% reported taxable income below R1M and collectively generate R6.3Bn of Tax.
    • 4% (34K companies) reported taxable income between R1M and R100M. These generate 10x more tax for the fiscus – R63Bn of tax.
    • Only 0.1% of companies reported taxable income of over R100M. The 694 companies in this bracket generate R129Bn of tax for the government – over twice as much as the 34K companies in the previous bracket.

SA company mix

The table above (from the SARS 2018 VAT reports) shows that in 2016 (the latest available data) the 694 companies with income over R100M generated more than twice the tax of the 34K companies in the R1M to R100M income bracket, who in turn generated 10x more tax than the 152K companies with income up to R1M. A very real power law applies.

Note that companies that break-even or are loss-making in a given year are not necessarily terminal but a situation where only 1% of registered companies contribute 95% of corporate income taxes is not reassuring.

SA Company landscape by BEE category:

Since the table above does not fit the EME/QSE/Generic categories used in BEE scores, we refer to the SARS Vat vendor by Turnover table from which we have derived the number of companies in each bracket as follows:

VAT Vendors by BEE size category 2017

Category#Number
27% of reported negative income
EME176,000
QSE34,451
Generic8,946

Only ±15% of the EMEs fit into the R5M-R10M bracket, so this bracket is very skewed towards the smaller companies.

Economic Stagnation:

The economy is under pressure. This demonstrated by the very low GDP growth of 0.8% recorded by Stats SA:

South African annual GDP growth

This overall GDP growth of only 0.8% is not evenly distributed, with construction, mining and agriculture all in a severe recession.

How did South African industries perform in 2018?

Worryingly, STATS SA reports that “the second largest contributor to positive growth was government, which expanded by 1,3%” which is not necessarily a good thing (especially given the known inefficiencies and corruption in all spheres of government).

Source: http://www.statssa.gov.za/?p=11969

The economy is now known to have contracted by 3% year on year in Q1 of 2019, and while a lot about the corruption of South Africa by the ANC is known, there is still a lot to come and it will take brave political leadership to turn South Africa around.

It’s against this backdrop of recession, corruption and identity politics that companies who choose to compete for business in South Africa must decide how best to address BB-BEE.

Continue to read Part 5 – To BEE or not to BEE?

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