According to the latest South African Global Entrepreneurship Monitor (GEM) research released by the GSB this week, Total Early-stage Entrepreneurial (TEA) activity in South Africa was at 9.1% in 2011, statistically not different from the level of 8.9% in 2010, but the country has slipped back below the median of entrepreneurship rates of all countries participating in the survey.

GEM is the largest research project of its kind in the world and South Africa has participated in the study for the past 11 years. Team leader Mike Herrington says the cumulative data showed that entrepreneurship in South Africa, after holding steady at low levels, jumped 62% from 5.9% in 2009 to 8.9% in 2010. This was ascribed to the 2010 World Cup. And while researchers had been gloomy about the prospects of holding this gain, they are pleasantly surprised by the latest data.

Good news for job creation

“What we are seeing are some of the many excellent initiatives across the country starting to pay off and that entrepreneurship is gaining ground,” says Herrington. “This is good news for our economy and for job creation because entrepreneurship has been shown conclusively to be key in creating jobs.”

However, Herrington adds that the numbers were not all rosy. Looking a little deeper reveals that South Africa has once again slipped below the median of all 54 countries that participated in the 2011 study. Historically, South Africa has always been below the median, only managing to get above it in 2010. This shows that the country is still not performing as well as it should be on the global stage.

What is holding us back?

“There is huge potential for entrepreneurship in this country. If you compare us with similar economies like Brazil and China, we should be performing at about 14 or 15%. We really need to interrogate why this is not happening,” says Herrington. “The report shows that people’s perceptions towards entrepreneurship in South Africa are changing – more people believe they can start and run a business now than they did a few years ago which is positive – but this is still not translating into gains on the ground. This suggests that the problems are more systemic.”

Herrington adds that understanding what is holding us back is important not only to create opportunities for more businesses to emerge, but also to ensure top level support for those business that have survived since 2010 so that they mature into established firms that will generate more jobs. Historically South Africa has had a high attrition rate meaning that new business mostly fail before they reach maturity. This is disastrous for the economy as mature business generate the most jobs.

The GEM research points to several factors that inhibit entrepreneurship in South Africa. The major challenges remain top-down corruption, high levels of crime, low standards of education – particularly at primary school level – and poor health among South Africa’s labour force. Significantly, South Africa performed badly on all these metrics in the latest Global Competitiveness Index.

SA in the BRIC context

This year the research also looked specifically at BRIC countries – weighing up how South Africa performs relative to this group. The picture that emerged was not pretty, with South Africa only barely pipping Russia at the post on many key metrics. Brazil and China led the pack with high levels of TEA (14.9% and 24% respectively).

In Brazil, the TEA rate has increased by 28% since 2006 – an improvement attributed to well-managed government programmes to stimulate and support small businesses, as well as numerous legislative reforms that focus on making it easier to start businesses. Surveys amongst citizens also showed a significant decrease in their fear of failure.

Media support for entrepreneurship is also a significant factor, argues the report: in Brazil the media supports entrepreneurial initiative with free advertising and coverage and by publicising issues affecting entrepreneurs.

Government needs to up its game

National experts participating in the study rated South Africa’s physical infrastructure highest in terms of stimulating entrepreneurial activity, while government entrepreneurship programmes scored lowest. There was strong criticism levelled at the fact that government agencies with significant funding were often still not addressing the needs of entrepreneurs adequately.

The report makes extensive policy recommendations for education and training, R&D transfer, infrastructure, market openness, access to infrastructure, entrepreneurial capacity, financial support and improved government programmes.

“The GEM project aims not only to create awareness of the state of entrepreneurship, but also to contribute to the debate around how an entrepreneurial climate can be fostered,” says Herrington. “Recommendations are offered in the hope that real, concerted effort will be applied to transforming South Africa’s entrepreneurial environment, and creating opportunities for lasting economic growth.”

Make sure you aren’t making these common Vat mistakes which can cost you thousands.

1. Claim all of your input tax.

Many businesses are still unsure as to what transactions input tax can be claimed on. Read on to discover some lesser known Vat-carrying transactions on which you can claim input tax:

• Bank charges
• Flowers for the office/reception area
• Rentals of office equipment – e.g. photocopy machine – you can claim the Vat every month, as per your payment
• Delivery motorcycles
• Promotional gifts – where they are given to clients – the value is NIL in terms of the Vat law
• Medical expenses of employees where the employer foots the bill
• Short-term insurance premium
• Fixed property – even if you paid transfer duty – you can claim the transfer duty back
• Office cleaning material (this includes toilet paper!)
• Domestic airline tickets
• Subscriptions to professional bodies – i.e. if you pay a subscription to a society that regulates your profession, you can claim the Vat back
• Hearses and game viewing vehicles (only from 1/1/2007)
• Staff buses, provided they’re designed to carry more than 16 people (including the driver)

Some better known transactions on which you cannot claim input tax:

• Staff refreshments – coffees, teas, soups
• Staff canteens – where you do not recover the costs from your staff
• Municipal rates – they are zero-rated!
• Car rental
• Your office Christmas function
• Country club memberships
• Holiday homes

2. If you export, make sure you apply the zero-rate of Vat.

The onus is on you to get it right. This means keeping the right documents to prove the zero-rating to SARS.

Checklist – Essential documents to keep when you apply the zero rate of Vat to a direct export:

• The order or contract of sale between you and your foreign client
• Your copy of the zero-rated tax invoice
• Copy of a VAT262 for or VAT266 form, with the original Customs and Excise stamp on
• Customs export documentation – eg. CCA1, SAD 550
• As from 15 March 2006, a copy of the Customs export or removal document (DA74)
• Proof that your foreign client received your goods, e.g. a signed delivery note
• Proof of payment.

Source: Tax Bulletin
For more Tax and Vat tips from some of SA’s top tax experts click here.

AB7 takes place from July 15 to 17 at the Gallagher Convention Centre.

For more information contact: Lineke van der Brugghen on +27 11 783 7250 or admin@exhibitionsafrica.com, or visit: www.exhibitionsafrica.com.

The Southern African International Trade Exhibition (SAITEX) is the continent’s largest multi-sectoral trade exhibition and as such attracts more international support than any other event in Africa. In 2011 SAITEX hosted 785 companies from 35 countries. In its 19th consecutive years of existence it has developed a reputation as Africa’s ‘Clearing Home’ facilitating the annual export and import of millions of dollars worth of general retail and light industrial products from all corners of the globe.

SAITEX takes place from July 15 to 17 at the Gallagher Convention Centre.

For more information contact: Anina Hough on +27 11 783 7250 or saitex@exhibitionsafrica.com, or visit: www.exhibitionsafrica.com.

While the initial focus is on person-to-person payments, FNB CEO Michael Jordaan says the company is looking at activating it for business accounts down the line.

GeoPayments is available to both FNB and non FNB customers. While FNB customers can make payments as well as receive payments, non FNB customers can only receive GeoPayments into an eWallet, which can be created via the app.

GeoPayments is available on the new version of the FNB Banking App for Apple, Android and BlackBerry devices.

The programme is set out in a workbook that contains a combination of knowledge from the experienced Franchising Plus team. Each module in the workbook begins with a brief introduction of the concepts to be covered, but this is where any possible similarity with the ubiquitous “How to … ” books that tell you what to do but not how to actually do it, ends. A series of worksheets literally forces you to evaluate every single aspect of your existing business. Products, markets, customers, competition and available resources all come under scrutiny.

From the first tentative steps…

You will soon come to realise that to franchise your business is a process, not an event. The development of a comprehensive “blueprint to success”, packaged in such a way that previously untrained individuals stand a realistic chance to replicate the success of your business, is only the beginning.

As your future franchisees will be operating under your brand name, you’d need to put the infrastructure in place to provide initial and ongoing support as well as an adequate level of supervision. Should you fail to do that, the reputation of your brand that you have worked so hard to build could be at risk. Your level of dedication to excellence will ultimately determine whether you will find yourself at the helm of a national network that is the leader in its field, quite possibly with real potential for international expansion, or spend most of your time putting out fires.

…. to advanced franchise concepts

Franchise by Numbers™ not only shows you how to assess the “franchiseability” of your business, it will also help you to decide whether, given your specific circumstances, franchising is indeed the optimal expansion mechanism. From then onwards, the programme will guide you every step of the way, helping you to develop a franchise business plan, put together a comprehensive franchise package and determine the profile of your ideal franchisee.

The programme also deals extensively with initial and ongoing franchisee support, including the important role of the field service consultant (FSC). It also offers time-honoured recommendations on how to deal with problem franchisees and generally touches on the challenges that lie ahead.

The next course dates and venues are as follows:

• Centurion: July 2 – 6, 2012
• Cape Town: September 10 – 14, 2012

For more information or booking enquires contact Anita du Toit on 011 454 2235 or anita@franchisingplus.co.za.

The year-long initiative will start with a business forum, followed by mall activation and meetings with stokvel groups, church bodies and schools. The first drive kicked off on May 11 in Mpumalanga, with a business forum to be held this evening at the White River Lodge where entry will be free with limited seating.

The road shows will run from May 11, 2012 to March 2013. They will be run under the theme “Be Proudly South African – Buy Local to Create Jobs”. For each of the country’s provinces, the road shows will kick off with a business forum, followed by mall promotions, expos and meetings with stokvel groups, church bodies, community organisations and schools.

Proudly SA seeks to strongly influence procurement in public and private sectors, to increase local production and stimulate job creation. This is in line with government’s plans to revive the economy so that five million jobs can be created and unemployment decreased to 15% over the next 10 years under the New Growth Path. The campaign fits in with the broader national developmental agenda and the recently signed Local Procurement Accord.

The accord, signed in October 2011, is a pact that seeks to boost local industries and create more jobs through localised procurement. It was signed by government, business, labour unions and community bodies. These role players have committed themselves to increasing the number of goods and services bought locally to 75%. - BuaNews

This is the key finding of the Internet Access in South Africa 2012 study, conducted by World Wide Worx and backed by the howzit MSN online portal.

The headline findings showed that the South African Internet user base had grown from 6.8-million in 2010 to 8.5-million at the end of 2011 – no less than 25% growth. World Wide Worx also forecast that this strong growth would continue during 2012, and the Internet user base would pass the 10-million mark by the end of the year.

Demand for online content likely to explode

“These findings are a powerful signal that the demand for online content in South Africa is likely to explode in the coming years,” says Justin Zehmke, Executive Producer of howzit MSN. “The spotlight will not only be on online media, but also on social networking and electronic services in general. As the market grows and matures, we are likely to see a diversification in the landscape that will create space for successful niche media, a greater choice in information sources and a maturation of online services.”

Says Arthur Goldstuck, managing director of World Wide Worx: “The internet has finally awoken, fully, in South Africa. Penetration is now approaching 20%, and for the first time we can see the mass market embracing digital tools on their phones.”

The study uses multiple methodologies, including primary research, interviews with providers, and market intelligence.

The headline findings revealed that a total of 7.9-million South Africans access the internet on their cellphones. Of these, 2.48-million access it only on their cellphones, and do not have access on the computers. The remaining 6.02-million users access the internet on computers, laptops, and tablet computers. However, 90% of this number – 5.42-million – also access it on their cellphones. This means that almost 8-million South Africans sometimes or regularly access the internet on their phones.

All services offered online will also have to be offered on cellphones

“This has huge implications for media and social networks,” says Zehmke. “It means that, in the coming years, all services offered online will also have to be offered on cellphones.”

While smartphones are the main driver of internet growth, the cost of data use is being driven down by the proliferation of undersea cables connecting sub-Saharan Africa. The study shows that undersea cable capacity to South Africa at the end of 2011 was 2.69 Terabits per second (Tbps), and due to rise to 11.9Tbps by the end of 2012.

“That capacity will double again in 2013,” says Goldstuck. “While the industry position is that it won’t affect prices, such an excess of supply must result in falling prices, which in turn will further drive up demand. The rapid growth we see this year will therefore be maintained through 2013.”

That is the view of Christo Botes, Executive Director at Business Partners Ltd, a specialist risk finance company for SME’s, who says that the actual situation on the ground is far more encouraging than recent studies would suggest.

He suggests that there are a number of factors that may be skewing the negative findings of studies such as the February’s Adcorp Employment Index, which reflects that some 440 000 small businesses closed in SA over the last five years.

“Firstly, when tendering for government contracts at national, provincial and local levels, as well as parastatal companies, it is usually necessary to have a registered company and in the past, businesses also needed to obtain a VAT number. As a result, thousands of companies are registered each year for tender processes, the vast majority of which will be deregistered should they fail to secure the intended contracts.”

Unnecessary entities deregistered

He says that another explanation is that the Companies and Intellectual Property Commission cleaned their register of those companies that did not file their normal statutory returns timeously. “Many of these deregistered companies have not been activated again as they were in any case, not trading.” He says that companies that were registered as shelf companies, but never started trading, have also since been deregistered, mainly because of the cost of compliance in submitting returns. It could also be a result of the New Companies Act and requirements to comply to international accounting standards (IFRS), which has resulted in increased cost of compliance. “As such, many businesses operating multi-company structures have consolidated their operations and de-registered any unnecessary entities.”

Acquisitions skewing the numbers?

He adds that acquisitions could also be playing a part in skewing the numbers, “As part of many acquisitions, the acquiring company will often choose to wind-up the acquired business and form a new entity that will be protected from any claims that might arise from business dealings before the acquisition. It is important that the correct processes had been followed should such steps be taken.”

He says all these issues are exaggerating the SME closure figures.

Room for improvement

Botes says that although the situation isn’t as bad as made out to be, there is definitely room for improvement as SMEs play such an important role in the economy. “The initiatives that both Government and the private sector have implemented so far, such as the Small Enterprise Finance Agency and The Job Fund, could improve the situation, but much more should be done to assist entrepreneurs and SMEs.”

He explains that SMEs need more than just finance to succeed. “They need technical assistance and support in order to grow and flourish into profitable and successful entities. Mentoring and advice to provide skills transfer is also a critical part of the process.”

Botes says that the private sector can play a big role in procurement programmes when it comes to SME growth and assistance. “Big businesses can break down requirements in bite size components and engage with smaller businesses instead of giving the big corporations more business. If SMEs can provide the same product and compete on both price and service levels, they should be considered to fill the necessary contracts. In fact, smaller, owner-managed businesses can often provide services and products at better quality levels and prices than their larger counterparts.”

Incubator models needed

He says he supports proposals that the BEE codes should be amended in order to include incubator models, whereby businesses are able to score points by running incubators for SMEs that house and nurture new businesses. “In these incubators similar SMEs can share knowledge as well as resources, equipment and premises.

“Government’s 2030 objectives state that 90% of all jobs created should be in the SME space. By pushing initiatives in the SME sector, this objective can be fulfilled. By lowering bureaucracy and barriers to entry as well as facilitating training for entrepreneurs from school and tertiary level entrepreneurs and SMEs will develop and grow from strength to strength,” concludes Botes.

Your three options – and the one to choose

There are three ways we can use them:

First option
Your employee owns the device and claims back expenditure incurred in the course of carrying out his/her trade. The disadvantages of this are:

• You should agree to the use of this, preferably in writing should there be a SARS query
• The reimbursable expenses must be substantiated e.g. the submission of a cell phone account
• It must be clear to SARS that expenses claimed are in the production of income

The disadvantages of this are it is clearly an administrative burden on the company and your employee has to bear some cost.

Second option
Your employee gets a cellphone and computer allowance.

This will be taxable in the hands of your employee less the amount he/she can demonstrate is used as part of his/her job. As with the case above, there will be a similar administrative load on both the company and your employee.

Third option
Your company owns the asset and allows your employee the use of the asset.

Sars in 2008, as part of the amendments made to tax legislation, stated that provided the cellphone or computer was “mainly” used in the production of income, the taxable fringe benefit would be shown at zero value i.e. there would be no tax in the hands of the employee. There has been debate about what “mainly” means. In a recent draft note issued by SARS, this has been clarified to be more than 50%.

The aim of this is to simplify administration by the company and employee and reduce the tax burden on the employee (the company can claim the tax deductions). This is a forward thinking move by SARS. Once it has been shown that certain of your employees (or class/es of employees) use these devices more than 50% for business, there is no tax consideration for employees, nor additional administration for your company or employees.

The only other consideration is whether your employee will suffer economic loss because he/she doesn’t own the asset. In the case of cellphones or computers there is no loss to your employee as these are assets that lose market value very quickly due to the pace of technological change.

The bottom line

In summary, provided the “more than 50%” requirement is met, it makes sense for your company to own the cellphone or computer. It reduces administration and tax burdens for both you and your employees.

* This article originally appeared in CA(SA)DotNews and is reproduced with the authority of DotNews and Harry Curtis & Co. Chartered Accountants (SA), tel: 021 762 0255, email: curtisco@iafrica.com and website: www.harrycurtis.co.za.

The first step, says PayGate founder and MD Peter Harvey, is to make a realistic assessment of your vulnerability to online credit card fraud. “80% of merchants who use our payment gateway get targeted at one time or another,” he says, “but some kinds of business are more vulnerable than others. If you’re selling any kind of virtual product like airtime, or something of high value that is easy to resell like electronics, you’re pretty much guaranteed to attract fraudsters.”

On the other hand, in the kind of business that involves a personal relationship with the customer, the chances of being hit by fraud are much lower. “If you’re running a bed and breakfast or selling individual craft items you’re a less tempting target,” says Harvey. “But fraudsters are incredibly inventive people, so you should never be complacent.”

STEP #1
The first step to protecting your business, says Harvey, is to sign up for 3D Secure, the online PIN system introduced by Visa and Mastercard. “This is a no-brainer,” he says. “It’s free to you as the merchant and all you need to do to sign up is tick a box on a form. It’s effective at blocking fraud attempts – and most importantly, it shifts the liability for fraud from you to the bank.”

There is one downside, he notes: “3D Secure introduces a extra step into the payment process and some merchants lost sales, especially in the early days. But customers are getting used to it now, and if you explain the process properly to make it clear this is a security feature, it can become a selling point.”

3D Secure is also not 100% effective, says Harvey. “No system is perfect, so don’t rely on just one form of protection. With 3D Secure, for example, most US banks haven’t signed up for it yet, which means if someone uses a US credit card you don’t get the protection.”

STEP #2
An extra layer of protection comes from fraud and risk screening services offered by many payment gateway providers, says Harvey. “This involves screening every transaction for certain fraud indicators – suspicious transactions can be blocked outright, or flagged for review. It’s effective, and systems are getting better all the time as they learn more about fraud patterns. There is a small cost, but it’s very economical compared to the risk.”

Unfortunately, not all gateway providers offer this service – and it’s also not 100% secure. But, says Harvey, if your gateway has fraud screening you should definitely sign up for it – or if not, consider changing providers.

STEP #3
Another layer of protection comes from good business processes, says Harvey. “The better you know your customer, the lower your chances of falling victim to a fraudster,” he says. “There are several measures you can take to reduce your fraud risk.”

For example, if your product is physical it may be wise to delay shipping for a couple of days – at least for the first transaction by that customer. Similarly, if you’re selling a virtual product like airtime it’s wise to impose a limit for the first few transactions, until you have built up a trust relationship with your client.

STEP# 4
Strong sign-up and registration processes also help, says Harvey. “Ask for as much information as you can. A physical address, a phone number and an ID number,” he says. “If you’re expecting to do repeat transactions of high value with the same customer, ask for a bank statement and/or a utility bill. The idea is to discourage the criminal with a list of stolen credit card numbers, without turning away legitimate customers.”

The bottom line, concludes Harvey, is to acknowledge that fraud is a possibility, and take responsibility for avoiding it. “Sign up for 3D Secure, activate whatever fraud and risk screening your gateway provider offers, and implement some basic safeguards in your business. It’s not hard, and it could save you a fortune.”