Pravin needs to chide government

Pravin Gordhan’s call on South Africa to resolve its “labour-relations challenges” is timely, if not overdue. His appeal for “concerted action by organised labour, business, civic leaders and the government” although inclusive, is however, unlikely to yield any fruits. In the 19 years of transformation, the spirit of entrepreneurship that is needed to create the growth and jobs that we all aspire to, is all but dead. The ease of doing business has become too burdensome. There are too many laws which clog up the system, making entrepreneurs look elsewhere. Get entrepreneurship right and everything else will follow.

The stark reality is that 50% of South Africans people live below the poverty line. We are the world’s second most unequal society, with a Gini coefficient of over 65. Although well-intentioned, employment-equity regulations and affirmative-action policies, are not going to rectify these problems. They merely ensure that we remain a race obsessed society, unlike the remainder of Africa, where “race” is of little consequence. Africa is pro-growth, not pro-racial quotas, which largely accounts for their growth rates accelerating to more than 5% annually, while we languish at 2.4%.

Our unemployment rate, with more than 4 million people actively looking for work, but not finding employment and almost as many more, unemployed but giving up the search for work, ranks us 174th among the nations. We have about 18 million economically active people, but only about 5 million taxpayers and 13 million people reliant on welfare hand-outs. In the past quarter, 100 000 more unemployed people entered the labour force. More people are employed in the unproductive government sector while fewer jobs are being created in the productive sector. One out of every two youth born in democratic South Africa and now finishing school, are unlikely in their lifetimes to ever find gainful employment in the formal sector. This position is not tenable and unless it improves dramatically, it could turn into on-going rolling protests. The government is of course fully cognisant of these realities, but it lurches from one putative plan to the next: RDP, Gear, Asgisa the New Growth Path, and now the New Development Plan, promising ever more government intervention. The commonality of all these plans, is that they are wish lists, rather than detailed plans, which have scheduled causes and effects which dovetail into certain outcomes.

So considering these economic realities, can we afford to have one of the most state-interventionist and intrusive business environments found anywhere in the world? A fundamental problem in our economy of the last nearly two decades, is the increasingly destructive role of government interference in the workings of a free-market driven economy. These intrusions come in many guises, but mostly manifest in the “good governance” requirements which hinder the smooth running of every private company. Affirmative-action policies, have the potential to turn company directors into criminals for noncompliance. Affirmative-action tender policies and procedures have become so complicated to adjudicate and control, that they are adding a layer of abuse and costs that are so penurious and damaging, that the whole fabric of the economy, is being undermined. A macroeconomic culture, so antithetical to entrepreneurship, has gained currency, which is the skill most required, yet most disregarded, by these very government policies.

Why should a budding entrepreneur risk starting a business venture, particularly if he or she is from the so-called “white” group only to face possible criminalisation for non-compliance with one of the affirmative action laws, as soon as the business takes off and becomes viable? Rather, as so many of them do, compound the local shortage of scarce skills by applying these skills elsewhere in another country. Just observe how many of our top calibre businessmen are heading up international companies and start-up ventures overseas. A cornerstone of our free democratic government, is the manner in which it has jettisoned both the human and infrastructural capital that it inherited in 1994. Our most qualified teachers were retrenched, our most qualified medical staff relocated overseas, and replaced with less qualified staff (like those from Cuba). Our training facilities for artisans and teachers were dismantled, and replaced with cumbersome structures, such as Setas, that have not only been expensive to run but have not produced trained people. And so every year, we sink in the ranking of competitiveness when measured against other countries.

Recent developments, in particular the 25% slide in the value of the rand, are ill-timed and likely to have unfortunate results for the pockets and lifestyles of South Africans and lead to even greater levels of inequality within society. While it is a truism, that a weak rand is positive for exports, we are still a net importing country. Our manufacturing sector in particular, could benefit, but this sector’s contribution to our GNP has over the past 20 years, halved, from about 26% to about 13%. Moreover, jobs in the manufacturing sector are being lost at an alarming rate, which indicates that the decline in manufacturing is continuing. The relatively strong rand that we have enjoyed over the past three years, provided industrialists with an ideal opportunity to upgrade investment in capital infrastructure, particularly imported plant and machinery. With interest rates at record low levels, and a department of trade and industry committed to promote the manufacturing sector, why did companies not avail themselves of these propitious circumstances to expand manufacturing?

Surely bolstered by President Jacob Zuma’s “New Growth Path” which he announced in his State of the Nation address, last year, industrialists should have been imbued with confidence to go out and invest. Why did this “plan” which aimed to create 5 million jobs in infrastructure, agriculture, manufacturing, mineral beneficiation, tourism and the green economy by 2020, and to reduce unemployment to 15%, fail so spectacularly?

Although agriculture is a “priority” we are losing skilled farmers at an alarming rate. Investment in this sector is also down, resulting in it only contributing 3% to our GNP. It however contributes disproportionately to job creation, contributing 9% of our workforce. If the state has a role, it should be offering assistance to farmers to address the huge salary increases farm workers are seeking. So unless we turn the situation around, by giving security of tenure to our farmers, all our well-meaning plans will come to naught.

We sit on the world’s second largest trove of mineral deposits, yet investment in new mines is declining. Why has the commodities boom, which has benefited all the Brics countries, and other resource rich countries such as Canada and Australia passed us by? Erratic government policies and interventions by apparent whimsical allocations of mineral and prospecting rights, are partially responsible. Threats of nationalisation by members of the tripartite alliance of the ruling party, have deterred prospective investors who are disinclined to take the long-term risks that investing in mining ventures require.

For the “green economy” to develop we need to have engendered a culture of entrepreneurship and have the requisite high-tech skills. Unfortunately, our ratio of engineers to our population is among the lowest in the world and the continuing failures of our education system to produce matriculants strong in the sciences bodes ill for the future. We lack a supportive entrepreneurial and capital-formation market well-disposed to invest in venture-capital projects, hinder success in this area.

On balance, even with a weaker rand, our ability to compete internationally will be hampered by, our high and ever-increasing electricity costs, our high and ever-increasing fuel costs, our high and ever-increasing labour costs, with increases above inflationary levels, and our high costs of corporate compliance, which contribute to make businesses less efficient and take their focus off their core business. All the while, government increases the tax load on its most productive sector and transfers the revenue to its least productive and most wasteful sector. In return for their taxes, taxpayers receive ever fewer services and benefits and the ranks of welfare recipients continue to grow.

With a government committed to spending R800 billion on infrastructure, one would think the plan was premised on a good foundation. How have these positive prognostications been reduced to a heap of debris? Precisely because of government’s inimical interventions and its recipe when things fail for ever more state intervention. The ruling party, because of its nepotism, appoints loyal cadres to key jobs in parastatals that need continuous infusions of taxpayers’ money to stay viable. These appointments in these strategic enterprises are not backed up by employees with sufficient technocratic skills to adjudicate tenders and select competent contractors, with the result that delivery stalls. If competence alone were the criteria, not only would levels of delivery be increased, but more would be delivered at a lower cost and more jobs created.

When all seems lost, formulate another plan, which is exactly what Trevor Manuel, Minister in The Presidency: National Planning Commission did on February 19 2013. The National Development Plan (NDP) offers a long-term perspective. “The NDP aims to eliminate poverty and reduce inequality by 2030. According to the plan, South Africa can realise these goals by drawing on the energies of its people, growing an inclusive economy, building capabilities, enhancing the capacity of the state, and promoting leadership and partnerships throughout society.”

The fatal flaw in this new plan, “enhancing the capacities of the state”, will ensure that we repeat the mistakes of the past two decades.

A drastic rethink of government strategy is required. Governments can’t be relied upon to create long-term and sustainable jobs, even if they spend the R9 billion set aside in “the jobs fund”. What is required is a culture that will encourage entrepreneurs and small businesses to re-enter the economy and that will only happen when the government stops meddling in their affairs and allows them to be rewarded for the risks they take.