The Cobra Effect - when incentives perversely bite back!
"The road to hell is paved with good intentions."
- Saint Bernard of Clairvaux
A "perverse incentive" is a term used in economics to describe an incentive structure that produces unwanted results - especially when the results are the opposite of what was wanted.
These results are also called "Cobra Effects". German economist Horst Siebert coined the term - which came from a story he had heard about during the British Raj. The British Government had been concerned about the number of venomous cobras in Delhi, so they offered payment for every dead snake received. Initially, this worked well, and lots of cobras were killed.
However, the strategy resulted in an unintended consequence - people started breeding cobras for profit!
In response, the Government scrapped the program. In response to the Government's response, the breeders released their snakes, which resulted in a massive increase in the cobra population.
When setting incentives, the incentive of not being bitten by unintended consequences should be incentive enough to do some critical thinking about all possible outcomes.
Be informed, be sharp, bbrief...
Incentivising integrity boosts governance and accountability
Collaboration between government and business is vital to realising economic growth. Government should set up a conducive environment for businesses to operate while businesses ensure that they help grow the economy and employ citizens. This partnership must ensure that socio-economic goals are also met for the benefit of citizens.
We have heard of government initiatives such as Operation Phakisa, Operation Vulindlela and the South African Government and Organised Business Establish Partnership Initiative. These initiatives are key to ensuring smooth collaboration to address socio-economic challenges faces the country.
Collaboration between government and business
Collaboration between government and business is something commonly seen at the global stage with the G20 setting up the B20 in 2010 to ensure that the business voice is heard while trying to address the sustainable development goals...
Per diem tax guidelines - travel allowance compliance
A per diem (from the Latin for per day) is a daily stipend given to business travellers to cover food and incidental expenses while they’re on the road. It’s not, in fact, a perk to make up for the inconvenience of being away from home – or a little extra spending money to splurge on spoils and souvenirs.
As Arlette Manyi, Tax Risk Manager at FirstRand Bank Limited explained at the recent GBTA Southern Africa Conference in Johannesburg, per diems can have unforeseen tax implications if travellers (and employers) don’t tow the line when it comes to their travel and expense policy.
SARS per diem tax guidelines
The South African Revenue Service (SARS) updated both their local and international subsistence allowances in February 2024. While foreign subsistence allowances differ country by country, travel within the Republic of South Africa is pegged at either...
Strategic investments drive 30% client growth in business banking
Capitec’s recent financial results for the six months ending August 31, 2024, highlight its strategic investments that have driven significant client growth in business banking, alongside its broader expansion in digital banking and other key areas.
Capitec’s commitment to digital transformation, product diversification, and client-focused solutions has been central to its success, evidenced by a 36% increase in headline earnings to R6.4 billion and a client base that now exceeds 23 million.
30% Growth in Business Banking Clients
A key area of focus for Capitec has been business banking, where the company has seen a 30% increase in active business clients. This growth was driven by strategic investments and fee adjustments aimed at expanding market share, particularly in the underbanked and SME sectors...
Why Self-Made Businesses Are Choosing Xero for Smarter Accounting
Running a business is no easy feat, and for self-made entrepreneurs, every decision counts. Managing finances effectively can be the difference between thriving and just getting by. That’s where Xero steps in—offering cloud-based accounting software that provides business owners with the tools they need to manage their finances smarter.
From gaining sharper insights into financial business health, to fostering growth through better knowledge, and building a connected ecosystem of apps, Xero is designed to help self-made businesses succeed. Here’s how Xero is empowering business owners to take control of their numbers, and set their businesses on a path to success.
Sharper Insights, Brighter Business
For any business owner, making informed decisions is crucial. Xero provides sharper insights into financial business data, providing a real-time cash flow overview, profits, and expenses...
Green steel production - paving the way for a carbon-neutral future
Steel is one of the most commonly manufactured materials in the world, because it has such a wide variety of uses – steel is everywhere, from construction to vehicles, home goods to robotics.
Steel production is also hugely carbon intensive, representing a significant proportion of global man-made carbon emissions. In the universal quest for Net Zero and carbon neutral, green steel production is critical. The entire value chain of many other ‘green’ products, like electric vehicles (EVs), hinges on the ability to ensure all components are carbon neutral.
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South Africa is well positioned to be a world leader in this space, as we have the natural resources and the capability, but production needs to be ramped up and government should lead the way in driving this change.
Massive carbon intensity
The carbon footprint of steel is huge, and emissions can vary depending on the method of production that is used, as well as the proportion of scrap steel versus virgin steel used in the production process...
Renewable electricity contract amendments - IASBs proposals
Renewable electricity contracts, or power purchase agreements, are in high demand as companies and governments seek sustainable solutions, leading to growth in solar and wind energy purchases to meet net-zero carbon emission targets and reduce environmental impact.?
The International Accounting Standards Board (IASB) published an Exposure Draft in May 2024 proposing narrow-scope amendments to IFRS 9: Financial Instruments and IFRS 7: Financial Instruments: Disclosures, to ensure that financial statements more faithfully reflect the effects that renewable electricity contracts have on an entity.
The comment period for this exposure draft was relatively short and closed in early August 2024. SAICA’s comment letter is available on the IASB website for perusal.
Why is the IASB proposing these amendments?
Contracts for renewable electricity can be structured in many ways. Some contracts are structured as gross settled contracts to purchase or sell renewable electricity – these are commonly referred to as physical power purchase agreements. These arrangements can either take the form of a...
Matric exam printing security - people, process and technology
On Monday, 21 October, the first ?papers in this year’s National Senior Certificate, or Matric, exams will be written. As always, exam security is a major concern. It is reassuring that specialist service providers have been entrusted with the secure printing, storing and transporting of exam papers.
Each of South Africa’s nine provinces has an exam-printing department, which runs the process of outsourcing the production and delivery of papers.
Examination material security
Independent third-party providers print all Grade-12 papers, but several provinces are also looking at centralising and outsourcing exam printing for the lower grades. ?Papers for the lower grades are...
Built environment risk management - strategies for construction projects
In George, thirty-four people died when a partially completed five storey residential building collapsed. This event is tragic, and albeit the worst building disaster in South Africa, is by no means an isolated incident of professional incompetence.
Whenever disasters of this magnitude unfold, questions are rightly asked around why disasters of this magnitude persist in today’s age of technological advancement and education. Are we doomed to repeat history or are we able to distil lessons and learn from them?
The building industry faces a myriad of challenges with well-known companies going into business rescue and some liquidation. It is no secret that developers push for the cheapest designs and engineers are left holding the bag when this gamble falls through. An already distressed built environment is further aggravated by adverse ?insurance claims, which threatens the sustainability of professional indemnity insurance within...
AI-enabled PCs - driving a new era of productivity
The technology landscape is undergoing a seismic shift comparable to the spread of smartphones in the mid-00’s. While we’ve had a constant stream of technological advancements since then, none have had the same transformative impact as the rise of ?Artificial Intelligence (AI ).
?AI isn’t just another tech trend or ‘phase’; it’s a fundamental reshaping of the way we live and work.
For businesses, embracing AI is no longer optional and empowering workforces to adopt it into everyday practices is crucial. But true success hinges on providing the workforce with tools to harness AI’s full potential.
Refreshing PC estates across organisations is essential for achieving this and promises multiple benefits from enhanced productivity and efficiency to ensuring competitive advantage.
Incorporating AI into daily processes
Analysts are predicting that with an AI-enabled PC, workers can benefit from tools that are more responsive to their needs than ever before...
Digital advertising growth trends
Digital advertising in South Africa is on the rise, driven by business-oriented trends. The annual report, conducted in partnership with PwC, seeks to accurately measure the total revenue generated by domestic online media, including mobile advertising.
While we have witnessed how the digital ecosystem has become a lot more creative, driving performance and connecting with audiences to build trust, the power of generative artificial intelligence (AI), retail media and social communities continue to provide opportunities for marketers and business growth alike.
If the digital environment can remain focused on key areas of excellence then we are most likely to see sustainable growth and greater allocation of advertising investment in the years to come.
Digital growth continues as technology advances
While accelerated growth experienced in digital advertising post-pandemic stabilised in 2022, this year’s report shows a remarkable 21.5%...