“More needs to be done” Minister 21/2/18 - SBI...2018/02/28 · • Appreciate work done to...
Transcript of “More needs to be done” Minister 21/2/18 - SBI...2018/02/28 · • Appreciate work done to...
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“Moreneedstobedone”Minister-21/2/18
FiscalFrameworkandRevenueProposals-2018
PresentationtotheStandingCommitteeofFinanceandtheSelectCommitteeofFinance
ByGuyHarrisCA(SA)
FounderofKLOPAcceleratorandEducation&GovernanceActivist
28February2018
Updatedfordistributionwithintroductorycomments,elaborationandresponsetoquestions350wordwrittensummaryavailableaswell
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Outline• IntroductoryComments• RegainingourRightfulRatings• TransformingforInclusiveGrowth• OverviewofInput• TheEconomicEnvironment• ROIfromECD–threeDichotomies• EffectiveEarlyChildhoodEducationistheFoundationforFutureSkills• JobCreatingLeverOptions• AnnouncedSMEFundingnotyetDelivering• SupportiveEnvironmentforJobCreatingMediumSizedBusiness
Development• SelectedCommercialisationforFundingPivotalProjects• Reregulation• InSummary• Questions/CommentsandResponses• ThePresenter
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IntroductoryComments• AppreciateworkdonetopivotSAreputationstartingwith
reconstitutionofEskomBoard,January2018,butweneedeconomicgrowthforrerating–SME’scandeliver!
• AppreciateworkdonebyTreasury,SCOPAandParliamentaryCommitteestoimprovegovernanceandreturnsontaxgatheredbutdailythenewsremindsushowmuchstillneedstobedone
• ThelardwasspreadthinbyrecentrashpopulousdecisionsbutweshouldhavefoundsomejamforthetwocornersofECDandmediumsizedbusinessjobcreationthatwillputusontherightgrowthpathandassistjobcreationinthelongandshorttermbutthatrequiredevengreaterinnovationandbolderleadership.Theywillprovidethepathwaysoutapovertytoturnaroundthefreewaysintopovertybuiltbypastandcurrenteducationsystems
• The45%marginaltaxratecanbemanageddownandeconomicgrowthupbyinvestinginjobcreating“real”S12J’s
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RegainingourRightfulRatingsEveryonecarriestheburdenintheinterim!
• Whatistheplan?• ShouldbepriorityNo1asitimpactsacrosstheboard
• HowdidSouthKoreadoitsoquickly?Whatcanwelearn?
• Whatareour:– Planstomakesurenofurtherdowngrades– Targetdatestoregainourpreviousratings,andimprove
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(radical)TransformingforInclusiveGrowth• SAEconomyiscurrentlyanunstable,teetering,elegant
thinstem,topheavywineglass:– Large,overlyconcentratedindustriesdominatedbyafewbigcompanies,supportedbybiggovernmentandbiglabour,inthebowloftheglass
– FragilethinstemofSMEbusinesses– Aneconomicallysmall(butlargepopulation)baseof70%ofSAhouseholdssurvivingonlessthanR6000permonth=R20-30ppd
• Needtotransformintoamuchmorerobusttumbler:– Concentratedbowltransformedtobemorecompetitivethroughsupplychaininclusion
– AsubstantiallyexpandedandstrongSMEstem– Acapacitatedbasethathaspathwaysoutapovertyintoformalbusinesssectorviajobs/entrepreneurshipviascalablebusinessesratherthanpovertyalleviationmicroenterprises
Noexcisedutypaidonwineglasscontents–justpureCapeTownwater!
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OverviewofInput• Ratingsdowngradesneedtobereversedquickly!• Educationisthekeydriverforreducinginequality
sustainablybutneedsamuchstrongerEarlyChildhoodDevelopment*basethatiswellfundedandhasclarityofwhereresponsibilitylies(Province,MunicipalorBasicEducation?)–FreeTertiaryispopulousandtoolate.
• Jobcreationiskeytoreducingunemploymentandprimingeconomicgrowthand,iffocusedonentrylevelupskillablejobs,willreducepoverty–TheMediumSectorcandeliver
• Tofundtheabovewithoutnegativelyimpactingongovernmentratiosandtemptingfurtherdowngrade–useselected,targetedcommercialisationandadditionalsintaxesforareaswithhighsocialcostssuchasFAS/substanceabuse,importsurchargeswherelocallymanufacturedsubstituteproductsareavailable
*HighlightedinSONA2018
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TheEconomicEnvironment
• Ratingsdowngradearealitybutneedrealeconomicgrowth,alongwithregainedstrongfiscalmanagementandincreasedpolicycertainty,toregainfavour
• Moststablelabourenvironmentinadecadeoverthelastfewyears–itisallofourjobsecurity
• GovernmentandLarge(corporate)Businesscooperatingbutlittleinputfrommediumsizedbusinesseswhoarethemostlikelyengineroomofjobcreation,esp.forexistingpoorlyeducated
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ROIfromECD–threedichotomies
• WecannotaffordECDastoomuchmoneyiswastedontertiarydropoutsandhighschoolrepeats
• WecannotaffordECDasweneedtospendonprisonsfilledwith“necessity”criminalswhomissedapositivegrounding
• WecannotaffordECDaswearedealingwithsocialillsandcorrectinglearningdifficulties
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EffectiveEarlyChildhoodEducationistheFoundationforFutureSkills
• Atpresenttoomuchdumpinganddormitoringratherthanrealdevelopmentofthechildinfirstthousanddays,secondthousanddaysandpreGrade1.OnemillioninECDshouldbethreetofivemillion+andwhatqualitydevelopmentaretheygetting?Benchmarktestresultspoor
• Mostbraindevelopmentoccurspriortoage6• SupportviacapacitatingECDcentres:
– “GogaorGrannyinabox”– NSFsupportshouldbegiven– BBBEESDexpenditureshouldqualify– S18Ataxdeductionviadistributor
• Needstobesupportedby:– Reducedsubstanceabuse,FAS– Increasedfatherinvolvement– Householdlevelfoodsecurity–braincannotfunctiontoreasonablecapacity
onanemptystomachoronefilledwithchipsandcoke– CommunitycollegestoallowparentsandNEETtocatchuptheirskillsthrough
secondopportunitiesandstartovercominglegacyissuesAlongwithECdumpingthesefourarethefivereasonsforourvenomousdowncycle
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JobCreatingLeverOptions• Government–noasalreadyexceeding%ofspendingonwages
regardedassustainable,EPWPispovertyalleviationnotjobs• Survivalistentrepreneurs–little,verylowmultipliers(1.3)• Lifestyleentrepreneurs–bynaturelownumberofemployees• Tenderpreneurs–notsustainableunlessahigh%of“normal”
businesstocountercyclicalityoftenderswhichiswhytenderpreneursaremainlyopportunistic“markup”distributersratherthanmanufacturersandsustainablebusinesses*
• Smallstartupbusiness–yesbuthighfailurerate,smallnumbersuntilinvestableandstartacceleratingbeyond10employees
• Bigbusiness–unlikelyasdownsizingandautomatingandmainlyrecruitinghighlyskilledsonodirectpovertyreduction,12iandotherincentivestargetinglargebusiness=highcostperjobcreated
• Mediumsizedbusinessthatacceleratefrom10-50andscalefrom50-500employeesaretheremaininghope,policyshouldfocusonsteroidsforthesebusinesses
*PPPtargetsneedtobespentonviablesme’snotjusttoticktheboxandpromotefrontingandimports
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AnnouncedSMEFundingnotdeliveringyetandnotfocusedwheregreatestpaybackwillbe!• Initiatives
– CEOInitiativeR1.5bnSMEFund;focusedonPrivateEquityFoFratherthanVentureCapital;Governmentshouldmatchvia“nocost”deregulationstepsofR3bn
– LatestbudgetR2.1bnDSB/DST/TreasuryStartupFundyettobedefined;overcomehighfailuresatstartupstage
– FinancecharterR100bnblackbusinessgrowthfundyettobedefined;shouldemphasisnotbeonjobs?
• FocusshouldbeonlaterstageangelsandtrueVC’s;lean,selfandFFF(family,friendsandfools)seldommorethan:– Underresourcedentrepdifficulttoraise>R10k-R100k– Wellresourcedentrpusuallypeakat<R100k-R10m
• Howtofocusonfinancingjobcreatingscalingbusinessesquicklyandeffectively?
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SupportiveEnvironmentforJobCreatingMediumSizedBusinessDevelopment• NeedAngelInvestorsratherthanhighendVentureCapital/lowend
PrivateEquity,newchannelsbeyondJewish,MuslimandStellies• IncentivestogrowbeyondR50mtoR500mturnovernotdisincentives
tostaybelowR50m• 30daypaymentisnotworkingandnotenforced,rathergetTreasury
tofactorvaliddepartment,soeandmunicipaldebts–problemareaswillbequicklyhighlightedandmoreeasilyaddressed
• Bigbusiness(>500employees,>R500mturnover)shouldalsocommitto30daysandnominatedbankshouldfactorthosevalidunpaiddebtsatbigbusinesscost
• Aneffective12JthatworksquicklyandhasuptakesimilartotheUK,andonefocusedonjobcreationnot“adapted”tofundgamefarms,socalledBnB’s,equipmentpurchase,etc
• Anincentiveforinvestingatangelstage• Largescalederegulationtomakeiteasiertostartandgrowtocritical
massandbecomehighvolumeemployers
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SelectedCommercialisationforFundingPivotalProjects
• Startwithnoncoreandnonstrategicassets• PlaytostrengthsoftheprivatesectorandincludebroadbasedBEEcommunities
• HelpputSOE’sontopropercapitalisation– recapitalisationviarevenueisveryinefficient-SARSistheonlywinner
• Anexample–oldpowerstationsnearendoflifewhereStatecansettherulesandPrivateSectorcansweattheassetandextendtheusefullivesthroughinnovationandfocusedmanagementSupplementedbyincreasedsintaxesonproductsthatdetractfromeffectiveECD
andjobcreation–e.g.substanceabuse
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Reregulation• Currentregulationdrivenvialargebigbusinessdominated
structuresinconsolidatedindustriesandcascadeddowntosmallerplayers,whoareoftenmorelabourintensive,withlimitedexemptionopportunities
• Threetierproposal:– Small–0-50ee’s–focusonhealthandsafety– Medium-50-500ee’s–swingbalancetomanagementbutemployees
andtheirrepresentativeshavewaysoftakingunscrupulousandexploitativeownerstotask,encouragegainsharing
– Big->500ee’s–currentmodelbutBargainingCouncilstasked(andtracked)withexpandingtheirindustry,ensuringjobcreationandenhancingcompetitiveness
• Dramaticallysimplifytax,registrationandcomplianceforsmallandmediumbusinesses,esphighjobcreators
• Makeentrepreneurshipvisasmoreaccessible,subjecttograduateddeliveryoflocaljobssustainably
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InSummary• TheRatingsdowngradehasimpactedonconfidenceandiscosting
usalldirectlyandindirectly• Educationisthekeydriverofreducinginequality,alongwith
redistributionwhichisnotsustainable– Inaknowledgebased4.0economyneedeffectiveeducation+far
morethantheexisting4%*ofmatriculantsgetting>50%inmathsplusgoodreading,writing,arithmetic,codingandsocialskills
– EarlyChildhoodDevelopmentisthebaseandneedsevenmoresupport#feesmustrisetofundECD
• Jobcreation,mostlikelyviamediumsizedbusiness,iskeytoreducingunemploymentandavoidingan“ArabSpring”andifjobsareentrylevelupskillable,jobswillstartreducingpoverty
• TofundtheabovewithoutraisingDebt/GDPratioorfurtherincreasingalreadyhighmarginaltaxrates(corporate,individualorindirect)requiresinnovativethinkingandstrongleadership
*Expressedasa%ofthosestartinggrade112yearsearlier
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Questions/CommentsandResponsesQuestion/Comment Response
ECDfundsallocatedforinfrastructure,MP’sandMPL’smustseemoneywellspent
NotclearwhohasrespforECD– ProvorNatlSocialDev,ProvorNatlBasicEducationorMuniciplaities.Needtogobeyondtheinfrastructure(hardware)andalsolookatteachers(warmware)andlearningtools(software).FromPRILSdoesnotlookgreat
ECDfundswerepromotedattheGoodHopeconference3yearsago
Doesnotseemadequateofonly1mof4-5mareinECDandnotestsonqualitybutteachershavetodealwithconsequenceofpoorornoECDholdingbackotherlearners.AmpersonallyinvolvedinagrassrootsECDinitiativeinLavenderHillandcommunitiesaredoinggreatworkunderdifficultconditions
HowelseshouldSOE’sberecapitalisedifnotviarevenue
UsingEskomasexample,makesprofitofapproxR6bnperannumandR2bngoestoSARS.Pricesup,Demanddown,competitivenessofSAdown,espEIUG,jobsdown.Versusselloffoldassetswithguaranteedbuybacktoaprivatesectorthatcansweattheasset,avoidscurrentconsumerssubsidisingfutureconsumers!
Exampleof30daypaymentproblem
LocalNPOthatdesignsandsellswheelchairsintoAfricaandtoprovincialhealthdepartmentsdoesnotgetpaidfor270daysputting40jobs,manydisabledworkersatrisk.240daysofunnecessarystressandeyeoffthebusinessballcouldhavebeenavoided!
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ThePresenter
• GuyHarrisCA(SA)• 0825598755• [email protected]• 20yearsatDeloitte– HeadofConsultingDurban• 20yearsatBellEquipmentasaDirector–50yearsagoBellwasamidsizescalablebusiness!
• Nowfocusedonscalingmediumsizedbusiness,helpingPoP(PathwaysoutaPovertyforNEETYouthindisadvantagedareastostarttheirjourney)andvariousgovernanceandeducationinvolvements