Our economy is structured like a sandwich: When you look at the sandwich, it consists of two pieces of bread with a thin slice of meat in the middle. The bread is the visible bit, and you hardly see the meat. However, the protein and nutrition is found in the meat, not the bread itself, it’s what gives that meal its true energy and true value.
In this podcast from The Money Show with Pavlo Phitidis, Pavlo breaks down what it means to be the meat in Sandwich, in the economy…
How it looks from an economic point of view is that policies are made with a key focus on corporates and micro-businesses, disregarding SME sector. Let’s unpack this:
In 2017, South Africa had ,1400 businesses that had a taxable income of greater than R50 million. A tiny number. We had approximately 161,000 businesses with a taxable income (profit before tax) of between one R0 and R1 million.
We had 35,000 businesses, that did, from a taxable income point of view, R1 million to R50 million of taxable income.
The bread in the sandwich is in the corporate sphere because it is exciting for investors because in many instances these are public companies.
The smallest 161,000 businesses in the formal economy are very interesting to government because they carry a lot of voting power.
Government incentives are often structured to be easily accessible to the large corporates, particularly multinationals which are some of the biggest beneficiaries of grants in our country. An example is the automotive industry where we pay to play in order to have Mercedes and BMW and Ford and all these large brands established in South Africa on the basis that they are job generators and on the basis that they spur on an extensive supply chain.
Corporate sector executives are invited to meetings where discussions are had, settlements and deals are done, and the structure of the economy is created around what is best for corporates. In essence corporates have a louder voice when it comes to government.
And then government focusses extensively on micro enterprises because it suits government to do so in order to secure favour when elections come around.
The same is true in most countries.
But here’s the thing: Competition is predominantly found in that mid-tier market of R1M – R50 million.
The mindset of these business is to invest relentlessly to grow your business. There are enough resources in terms of people, purpose, plant and equipment and leadership for them to compete viciously – if they don’t get the deal, there are a dozen competitors who will.
That means you have to constantly improve the value you are offering – and that happens through innovation. Innovation in itself attracts funding. Funding and innovation attract talent, which creates further innovation – and this all creates vibrancy is this segment.
We can’t escape the fact that big business has to exist, as the consumer of mid-tier services, but the more inclusive this mid-tier becomes, the better for the economy, for big business, and for government.
This segment is the meat – this is where the economy is innovating, energised and growing – because it has to!