Praveen needs to scold the government for complacency!
Pravin Gordhan's call for South Africa to resolve its 'labor relations challenges' is timely, if not overdue. His appeal for “concrete action by organized labor, business, civic leaders, and government”, although inclusive, is unlikely to bear any fruit.
Nineteen years into the transition, the entrepreneurial spirit that is essential to creating the growth and jobs we all aspire to has almost died out. Ease of doing business has become very cumbersome. There are a lot of laws that block the system, forcing entrepreneurs to go elsewhere. Approach entrepreneurship the right way and everything else will fall into place.
The harsh reality is that 50% of South Africans live below the poverty line. We are the second most unequal society in the world with a Gini coefficient of over 65. Although well-intentioned, employment equity rules and affirmative action policies are not going to improve these problems. They only ensure that we remain a race-obsessed society, unlike the rest of Africa, where 'race' has little significance today. Africa is pro-growth, not pro-race quotas, which is why their growth rate increases by more than 5% annually, while ours is limited to 2.4%.
Our unemployment rate, with over 4 million people actively looking for work but not finding employment and almost the same number of people unemployed but giving up looking for work, ranks us 174th among countries. We have about 18 million economically active people, but only about 5 million taxpayers and 13 million dependent on welfare assistance. More than 100,000 unemployed people joined the labor force last quarter.
More people are employed in the unproductive government sector while fewer jobs are being created in the productive sector! One in two young people born and now completing school in democratic South Africa is unlikely to ever find gainful employment in the formal sector in their lifetime. This situation is not tenable and unless it improves dramatically, it may escalate into ongoing protests.
The government is, of course, fully aware of these realities, but it keeps hopping from one speculative plan to another; “The ‘RDP’, ‘GEAR’, ‘ASGISA’ ‘New Development Path’, and now the New Development Plan, promise more government intervention. What all these plans have in common is that they are wish lists rather than detailed plans, with set causes and effects that correspond to certain outcomes.
So with these economic realities in mind, can we afford one of the most state intrusive and intrusive business environments found anywhere in the world? A fundamental problem in our economy over the past two decades has been the increasingly destructive role of government interference in the functioning of a free market driven economy.
These intrusions take many forms, but mostly manifest in “good governance” requirements that hinder the smooth functioning of every private company. Affirmative action policies have the potential to turn company directors into criminals for non-compliance. Affirmative action tender policies and procedures have become so complex to decide and control, that they are adding a layer of abuses and costs, which are so onerous and harmful, that the entire structure of the economy is being weakened.
A broader economic culture that is so hostile to entrepreneurship has gained popularity as the most sought-after skill, yet one of the most neglected by these same government policies. Why should a budding entrepreneur take the risk of starting a business venture, especially if he or she is from the so-called 'white' group, which is the group most likely to do so due to being better educated, only to face potential criminalization for non-compliance with one of the affirmative action laws as soon as the business takes off and becomes viable?
Rather, as many of them do, they fill local shortages of scarce skills by applying these skills elsewhere in another country. Just look at how many of our top caliber businessmen are leading international companies and start-up ventures abroad. The cornerstone of our free democratic government is the way in which it has abandoned both the human and infrastructural capital it inherited in 1994.
Our most qualified teachers were laid off, our most qualified medical staff were transferred overseas and replaced with less qualified staff (such as those from Cuba). Our training facilities for artisans and teachers were destroyed, and replaced by cumbersome structures like SETAS, which are not only expensive to run but also do not produce the trained people. And so every year, we fall down in the rankings of competitiveness compared to other countries.
Recent developments, particularly the 25% decline in the value of the Rand, have come at the wrong time and are likely to have unfortunate consequences for the wallets and lifestyles of South Africans and will further exacerbate inequality within society. While it is true that a weak rand is positive for exports, we are still a net importing country.
Our manufacturing sector in particular may benefit, but over the last 20 years the sector's contribution to our GNP has halved from about 26% to about 13%. Furthermore, manufacturing jobs are being lost at an alarming rate, indicating that the manufacturing sector is continuing to decline.
Over the past 3 years we have enjoyed a relatively strong rand, which has provided an ideal opportunity for industrialists to upgrade investment in capital infrastructure, particularly imported plant and machinery. With interest rates at record lows and the Department of Trade and Industry committed to boosting the manufacturing sector, why haven't companies taken advantage of these favorable conditions to expand manufacturing?
Certainly inspired by President Jacob Zuma's “New Growth Path” which he announced in his 'State of the Nation' address last year, industrialists should have been confident to go out and invest. Why did this 'plan' which aimed to create 5 million jobs in infrastructure, agriculture, manufacturing, mineral beneficiation, tourism and green economy by 2020 and reduce unemployment to 15%, fail so spectacularly?
Although agriculture is a “priority”, we are losing skilled farmers at an alarming rate. Investment in the sector is also declining, resulting in it contributing only 3% to our GNP. Though it contributes disproportionately to employment generation, contributing 9% of our workforce. If the state has a role, it should provide support to farmers to address the farm workers demanding huge wage hikes. So unless we change the situation by giving security of tenure to our farmers, All our good plans will not succeed.
We are sitting on the second largest mineral reserves in the world, yet investment in new mines is declining. Why has there been a commodities boom, from which all the 'BRICS' countries have benefited, and other resource-rich countries like Canada and Australia have overtaken us? Irregular government policies and interventions by the apparently capricious allocation of mineral and prospecting rights are partly responsible. Threats of 'nationalisation' by members of the ruling party's tripartite alliance have discouraged potential investors, who are unwilling to take the long-term risks required to invest in mining ventures.
To develop a 'Green Economy' we need to develop a culture of entrepreneurship and possess the requisite high technical skills. Unfortunately, our ratio of engineers to our population is one of the lowest in the world and the continued failure of our education system to produce strong matriculants in the sciences bodes poorly for the future. We lack supportive entrepreneurship and capital formation markets to invest in venture capital projects, which hinders success in this sector.
On balance, even with a weak rand, our ability to compete internationally will be hampered by our high and continually rising electricity costs, our high and continually rising fuel costs, our high and continually rising labor costs, with increases above inflation levels, and our high costs of corporate compliance, which contribute to making businesses less efficient and diverting their attention from their core business. All the time, the government increases the tax burden on its most productive sector and transfers the revenue to its least productive and most wasteful sector. In return for their taxes, taxpayers receive fewer services and benefits and the number of welfare recipients continues to grow.
With the government committed to spending R800 billion on infrastructure, one would think that the plan was based on a good foundation. How have these positive forecasts turned into a heap of rubble? Certainly that leads to hostile government interventions, and when things fail, that's a recipe for more state intervention!
The ruling party, because of its nepotism, appoints loyal functionaries to key jobs in para-statals, which require constant investment of taxpayers' money to remain viable. These appointments in these strategic enterprises are not supported by staff with adequate technical skills to take decisions on tenders and select competent contractors, resulting in halted deliveries. If merit were the only criterion, not only would the level of distribution increase, but there would be more distribution at lower cost and more jobs would be created.
When everything is over, prepare another plan, which is exactly what the Minister in the Presidency: National Planning Commission, Trevor Manuel, did on 19 February 2013. The National Development Plan (NDP) provides a long-term perspective. “The NDP aims to eliminate poverty and reduce inequality by 2030. According to the plan, South Africa can achieve these goals by harnessing the energy of its people, growing an inclusive economy, building capabilities, enhancing state capacity and fostering leadership and partnerships across society.”
The fatal flaw in this new plan, 'enhancing state capabilities', will ensure that we repeat the mistakes of the last two decades.
There is a need for deep rethinking of government strategy. Governments cannot be trusted to create long-term and sustainable jobs, even if they spend the R9 billion earmarked in the 'Jobs Fund'. There is a need for a culture that encourages entrepreneurs and small businesses to re-enter the economy – and this will only happen if the government stops interfering in their affairs and allows them to be rewarded for the risks they take.
Ben Levitas is an economist and industrialist
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