Cofesa: ‘Please scrap EE race quotas – here’s how this will boost the economy’

In July 2019, Labour Minister Thulas Nxesi announced that the Employment Equity Amendment Bill will regulate the setting of sector-specific employment targets to address the gross under-representation of blacks, women and persons with disabilities. “It has been 20 years since the inception of the Employment Equity Act, however the pace of transformation has been slow,” the bill states. Economist and entrepreneur Dr Lawrence McCrystal and legal expert Advocate Hein van der Walt of the Confederation of Employers of South Africa (Cofesa) have consistently submitted proposals to the South African government. In this open letter they plead with Minister Nxesi to abandon the proposed EE Bill and urgently initiate the labour reforms proposed in their letter. McCrystal and van der Walt propose that Minister Nxesi formulate ‘A post Covid-19 recovery plan’ and originate a vibrant economy by ‘picking the ‘low hanging fruit’ of deregulation, privatisation, commercialisation at zero cost to government. To achieve this new economic dawn, they have drafted 14 proposals, all of which are outlined in this letter. These proposals cover a vast array of reforms ranging from a water “highway” from the Nile river to the Western Cape to letting the sun set on the general application of minimum wages. – Nadya Swart

Dear  Mr Thulas Nxesi

Plea for constructive alternatives instead of EE race quotas on businesses

As an employers’ organisation Cofesa welcomes you in your new role as Minister not only of ‘Labour’, but also of ‘Employment’ and wish you well in this capacity.

In the words of President Mandela:

‘We know it well that none of us acting alone can achieve success. We must therefore act together as a united people, for national reconciliation, for nation building, for the birth of a new world’. ‘Let there be justice for all. Let there be peace for all. Let there be work, bread, water and salt for all. Let each know that for each the body, the mind and the soul have been freed to fulfil themselves’

With you, we look forward to unlock the unlimited human capital resources of the country for enterprises to flourish, add value and create wealth, so concisely illustrated:

“ A bar of iron costs about R250

Made into horseshoes, it’s worth R4,000

Made into needles, it’s worth R50,000

Made into balance-springs for watches, it’s worth R6,000,000

Value is determined by what you are able to make out of something. Each substantial increase above is born out of 2 things: an idea + a skill. 

To formulate ‘A post Covid-19 recovery plan’ and to originate a vibrant economy by ‘picking the ‘low hanging fruit’ of deregulation, privatisation, commercialisation at zero cost to Government that, we calculate based on the World Economic Freedom Index of 2019 for S.A., will generate, over time, between 22m and 30m jobs in S.A. plus more than 50m jobs on the African continent, and regain our lost position in relation to comparable economies. South Korea had a lower per capita GDP than S.A’s in 1960.  Today their per capita GDP is 32 times higher than ours.

The World Economic Freedom Index of 2019, compiled by more than 60 world renown economists, some of whom are Nobel Prize laureates, found that deregulation of businesses in general, and specifically small and medium enterprises will broaden the tax base, generate tax income and lighten government’s burden to provide welfare grants. 

To balance the rights of employees and employers.

To consult widely also outside Nedlac with employers

Thuma mina – To keep your door always open for discussion; an example set by President Ramaphosa’s Thuma mina initiatives

‘A new economic dawn’ Embrace the visions of ANC  leaders on ‘A new economic dawn’ to restructure and reform the economy and to trim down government and government expenditure.

‘ANC’s Reconstruction, Growth And Transformation: Building A New, Inclusive Economy’ discussion document’  Participate in the formulation of the document to create jobs for 10 m plus unemployed people and food for 20 m hungry people suffering under Covid-19.

IMF loans – To qualify we need an inclusive economy aligned with international norms of inclusiveness SA would be required to implement major microeconomic reforms, especially for state-owned enterprises (SOEs) as well as product and labour markets’. and is called  Building a bridge  with improved conditions for private sector-led growth – The IMF’s Article IV report on SA, published in January 2020.07.22

“Fiscal measures must continue to build the bridge over the financial support for workers and SMMEs”, the Managing Director of the International Monetary Fund Kristalina Georgieva recently said, emphasising the need for debt sustainability, financial lifelines and improved conditions for private sector-led growth. Inclusiveness is also the key to qualify for much needed IMF loans.

Inclusiveness: Our plea resonates with the call made in parliament recently by President Ramaphosa for real proposals and solutions for inclusiveness when he was asked whether it is not time to rid the country of policies such as BEE and affirmative action.

Inclusiveness also resonates with the ANC’s Freedom Charter June 25 1955:

‘The rights of the people shall be the same, regardless of race, colour or sex’

‘All people shall have equal rights to trade where they choose, to manufacture and to enter all trades, crafts and professions’.

IMF loans will signify S.A. as a credible international investment destination

The amounts we intend borrowing from the IMF may be relatively small, but qualifying for IMF loans will signify our international status as a credible investment destination for secure for investments, which we seriously need at this time. Treasury’s scenarios showed that more than 7 million jobs could be shed (in addition to the present 10 m unemployed?) as a result of the virus and lockdown that has hugely reduced economic activity. Manufacturing, construction, trade, catering and accommodation, as well as financial and business services will be the worst-affected sectors.

Plea on ‘race quotas’

The new draft bill now explicitly states that the labour minister may set numerical targets for any national economic sector after consultation.

Setting race quotas will not align with ‘The rights of the people shall be the same, regardless of race, colour or sex’ and ‘All people shall have equal rights to trade where they choose, to manufacture and to enter all trades, crafts and professions’, rights entrenched  in The Freedom Charter,  the IMF policies, international norms, nor ‘inclusiveness’, nor with reform initiatives.

Plea: We therefore call on you to abandon the proposed EE Bill and urgently initiate labour reforms as our document here below indicates.

We pledge constructive employers/business/commercial synergy to you in your capacity as  ‘Minister of Employment’

‘Acting together’

‘We will exceed our own expectations’ President Mandela told Springbok captain Francois Pienaar and his team before the Rugby World Cup Final in 1995, our first World Cup winning with 15 points to 12 against New Zealand..

Now Thuma mina calls for an electrifying moment such as when Madiba stepped out in a Springbok jersey.

Let’s follow suit and beat Covid-19 and poverty. Pienaar says Mandela’s backing ‘meant the world’ to him and his team of underdogs.  Rugby pundits had written off their chances of winning the trophy, but the Springboks eventually battled through to the final.  Their opponents were the New Zealand All Blacks, who at the time were the mightiest force in international rugby.  Again, the experts maintained South Africa had no chance of victory.

Your published notice indicating plans to introduce the Employment Equity Amendment Bill to the National Assembly refers

When you first announced the bill in July 2019 you envisioned a number of significant changes to the country’s employment equity laws, including the setting of sector-specific employment targets to address the gross under-representation of black South Africans, women and persons with disabilities.

We note that the new draft bill now explicitly states that the labour minister may set numerical targets for any national economic sector after consulting the National Minimum Wage Commission ‘for the purpose of ensuring the equitable representation of suitably qualified people from designated groups at all occupational levels in the workforce’.

“A notice may set different numerical targets for different occupational levels, sub-sectors or regions within a sector or on the basis of any other relevant factor,” the draft bill states.

“A draft of any notice that the Minister proposes must be published in the Gazette, allowing interested parties at least 30 days to comment thereon.”

The bill also introduces a number of other regulatory changes.

Notably:

An employment equity certificate of compliance will now become a precondition for access to state contracts.

Employers with less than 50 employees will no longer have to report on their employment equity targets, irrespective of their turnover.

Speeding up transformation

An earlier draft version of the bill published at the end of 2018 indicated that the changes were made to speed up transformation in the country.

The bill states that while the public sector has seen significant changes, the private sector continues to lag behind.

“It has been 20 years since the inception of the Employment Equity Act, however the pace of transformation has been slow,” the department said.

“Relative to the demographics of the Economically Active Population (EAP) as released by Stats SA, marginal progress in relation to the equitable representation of the designated groups, in particular Africans, coloureds and persons with disabilities have been made in the middle-to-upper occupational levels, which is repeatedly visible in the statistics contained in all the Commission for Employment Equity (CEE) annual reports.”

In a February 2020 interview, the Department of Labour’s Thembinkosi Mkhaliphi said that there has been limited transformation since the Employment Equity Act was first introduced 21 years ago.

“The law then moved from the premise that there should be no involvement of government enforcing transformation in terms of target setting. It left it to companies themselves to set their own targets and goals,” he said.

Government’s role then was to monitor these targets.

“We realised that over the last 21 years, nothing has happened that should have happened and no real significant change has taken place. There has been very limited change and if we continue to go at the rate that we’re going, it will take another 100 years before we really transform,” he said.

Employers can set their own targets’ to be replaced by ‘now government comes into the picture in setting the target’

Asked whether the sector targets could stifle business, Mkhaliphi said current legislation states that employers can set their own targets and that the introduction of government setting the targets is not new.

“Target setting is not new, except that now government comes into the picture in setting the target. The principle of setting targets is not new, therefore it can’t be said that this is a drastic change that will affect business.”

However, he noted that not everyone will be happy with the proposed changes.  “It’s a give and take. We put the proposal of lessening the burden on small business to sweeten the carrot. It was also debated at the Employment Equity Commission, where business was also represented.”   He dismissed the notion that the bill will inadvertently lead to job losses.

Reconstruction, Growth And Transformation: Building A New, Inclusive Economy’ discussion document

We contributed to the ANC’s discussion document ‘Covid-19 Economic Reform’ to ‘highlight the economic interventions necessary for job creation, growth and investment in the South African economy amid the coronavirus (Covid-19) pandemic’.

We support the concept of a ‘A New Inclusive Economy’  and foresee that synergy will generate unprecedent growth with millions of jobs and ensure food security for our 20 m hungry people and 120 m hungry people on our continent. As employers’ confederation we are committed to the development of human capital, entrepreneurship, fairness, productivity and sustainable jobs.

Picking the ‘low hanging fruit’ will be at zero cost to Government

The World Economic Freedom Index of 2019, compiled by more than 60 world renown economists, some of whom are Nobel Prize laureates, found that deregulation of businesses in general, and specifically small and medium enterprises will broaden the tax base, generate tax income and lighten government’s burden to provide welfare grants. 

Picking the ‘low hanging fruit’ will be at zero cost to Government and, we calculate, could generate, over time, between 22m and 30m jobs in S.A. plus more than 50m jobs on the African continent, and regain our lost position in relation to comparable economies.

South Korea had a lower per capita GDP than S.A’s in 1960.  Today their per capita GDP is 32 times higher than our’s.

• South Africa’s per capita GDP was a third larger than Singapore’s in 1960. Singapore’s is now 7 times higher than that of South Africa.
• Botswana whose growth has outstripped  even that of the Asian ‘tigers’.

South Korea and China looked insignificant before embarking on major reforms. The Covid-19 crisis creates an opportunity to fix an economic strategy that has failed to generate the growth necessary to create a better life for more than a minority. We welcome your efforts.

Reforms needed for inclusiveness and growth

Proposal 1: 

Decline of SMME’s and corporates  

• Registered companies declined from 3,2 million to the present 2 million  From 2015 the number of companies registered at SARS declined from 3,2 million to the present 2 million.
• SMEs have been under particular strain over the last 10 years

– Financial and business services sector:  83 000 fewer companies (37% decline).  (From 222 532 in 2007 to 139 664 in 2016 )

• Retail: 44 972 fewer companies (57% decline)
• Agencies: 11 799 fewer companies (20% decline)
• Wholesale trade:  6 310 fewer companies (28% decline)
• Transport and storage: 3 378 (15% decline) 

Start-ups declined from 250 000 (2001) to 58 000 (2011) and have been declining ever since.

When we had 5, 579,767 small businesses in 2011, they employed an estimated 12 million people countrywide (Source jtb consulting). This has declined substantially since then, primarily because of the Government’s laws and expected future regulations  will make it even worse, which we hope will be avoided.

SMME’s are failing at a rate of 75%, the highest failure rate in the world

A study by SEDA, a subsidiary of the DTI, has reported a failure rate of  75% for SMME’s (according to Dr Rob Davies), with five out of seven new small businesses started in SA, failing within the first  year. Therefore, and contrary to popular belief, SMEs in S.A. are not better creators of sustainable jobs than large companies, which they were SA and are in numerous other developing countries.  The demise of so many smaller firms is not a good outcome, since it contributes not only to concentration in large corporations, but is depriving S.A. of potentially the fastest way to stimulate economic growth and employment. What the Employment Equity Amendment Bill with race quotas is aiming to do is diametrically the opposite of what he, as the Minister of Employment, should be doing.

Despite the economic ’boom’ experienced in the country between 2004 and 2006, the growth of small businesses has stagnated since 2003.  Our remaining SMME’s not only need protection, but we need to see them rapidly growing in numbers.

Loss of entrepreneurs- Diaspora/brain drain More than 400 000 high income professionals plus their families have emigrated since 1994  and millions of remaining individuals are utilising the easing of foreign exchange controls to let their money emigrate. (Thank you for calling for their return). About 3 000 super-rich (those with wealth of  $1million or R15million or more) “migrated” from South Africa over the past 10 years, Andrew Amoils, head of research at New World Wealth, told Fin24 in April 2019.  The monthly loss in tax is estimated to be between R10 bn and R20 bn.

Statutory protection for an elitist few

An analysis by a leading economist, Mr Mike Shussler, of 2019 stats of Statistics SA found that BBBEE and affirmative action benefitted an elitist group, a maximum of between 30 000 possibly only as few as 10 000 people to the detriment of millions of under- and unemployed people. Moreover it distorts the economy. (Beeld 18 November 2019 page 12).

It is notable that before the imposition of affirmative action and black empowerment ESKOM was internationally recognised as one of the five most efficient power producers in the world. Now many large corporations have relocated to elsewhere in the world, leaving skeleton offices behind, to get away from the burdens imposed by affirmative action which made them uncompetitive internationally and to retain their highly skilled expertise.

Professor William Gumede of Wits University wrote late last year: ”The purpose of Black Economic Empower (BEE), said the ANC in 1994, is to remove ‘all the obstacles to the development of black entrepreneurial capacity’ and ‘unleash the full potential of all South Africans to contribute to wealth creation’. In practice, however, BEE has had precisely the opposite effects.  Close to R1 trillion has been transferred in BEE share deals’, said Professor William Gumede of Wits University late last year, but these deals have gone to ‘a handful of politically connected politicians, trade unionists, and public servants”.

The favoured few have done little to expand the economy. Instead, adds Professor Gumede, they have ‘crowded out genuine black entrepreneurs and killed the development of a mass entrepreneurial spirit in black society because all you need to secure a BEE deal…is the right political connections’. BEE preferential procurement in the public sector and state-owned enterprises (SOEs) has also been inordinately damaging. By abrogating normal procurement rules, it helped pave the way for the ‘Zupta’-linked ‘state capture’, estimated to have cost between R500bn and R1.5 trillion.

Proposal 1 

EE reinvented

We submit that over the last 20 years EE, BEE en land reform have reinvented itself, became counter-productive (similar to statutory discrimination under apartheid), and must be abandoned to conform to constitutional and international norms

Embracing modern effective HR practice of recruitment, selection, placement and management to take candidates to their full potential in career paths and as entrepreneurs with tailored  programmes for coaching, mentoring, role models, incubators, interns, communication and networking skills have evolved.

Nurture and incubate talent to release the unlimited dynamics of our human resources

We submit that BEE, affirmative action and ‘land reform’ objectives, can be effectively realised by involving the private sector with the application of human resources management in contrast to costly and out-dated government initiatives to include the previously disadvantaged unemployed graduates. A study by SEDA, a subsidiary of the DTI, has reported a first year failure rate of  75% for small businesses and  Mr Alec Hogg, editor of BizNews, reported in 2011 that the  average cost of one job created by the IDC amounts to R250 000.

The Freedom Charter declares ‘Inclusivity’  as

‘The rights of the people shall be the same, regardless of race, colour or sex’

‘All people shall have equal rights to trade where they choose, to manufacture and to enter all trades, crafts and professions’

The Freedom Charter June 25 1955

Black empowerment discriminates against non-black people, and restrains economic growth. Free from affirmative action, our human capital dynamics will be released.

Proposal 1: Conclusion – Let the sun set on black empowerment 

Proposal 2: Inclusive – Include, involve and embrace the private sector. Like elsewhere in the world, outsource enterprise development and entrepreneurship programmes to the private sector:

Entrust empowerment programmes to chambers of commerce and  industry and associations– to BUSA, SAACI, AgriSa, ROCCI, Cape Chamber of Commerce and Industry, Cofesa etc. who engage volunteers from the commercial and industrial sector as mentors, coaches who are  positioned to replace failed and costly programmes of government directorates and agencies.

Cost of one job R250 000 – A study by SEDA, a subsidiary of the DTI, has reported a first year failure rate of  75% for small businesses while  Mr Alec Hogg reported in 2011 the  average cost of one job created by the IDC amounts to R250 000.

Commerce, trade and industry are best able to (re)formulate workable criteria for simplified funding, incentives and grants and help and sponsor entrepreneurs

Assess risks and opportunities, draw up bankable business plans, based on concepts such as seed capital, intellectual capital, sweat equity, agency agreements, joint ventures, partnerships, synergies, marketing share agreements,  outsourcing sponsorships, networking opportunities, etc.

To formulate viable and sustainable ventures, synchronised with trade and industry..

Proposal 3: Inclusiveness in ownership- Land reform- Transfer of title deeds 

Fast tracking these title deed transfers will generate  R5bn – R10bn in VAT income and potentially create 3m jobs in services and retail. With title deeds in hand, the new owners will access bank loans and bonds to upgrade, repair and extend their houses, buy white goods, cars, etc, thereby stimulate the economy. The Free Market Foundation has, from its own experience, ample evidence to support this contention.

Issuing title deeds will have a Marshall Plan upshot – ‘THE BENEFITS WOULD BE EVEN GREATER THAN THOSE SEEN IN POST-WAR EUROPE’- Cameron, of the JSE commented.

We propose that a new kind of practitioners be recruited from the ranks of the unemployed black graduates for internships from all academic disciplines, including law, engineering, environmental sciences, to form a new body of practitioners, to be trained by 4IR interactive internet programmes to fast track the transfer of title deeds with 4IR IT programmes, Fourth Industrial Revolution dashboards, interactive training, monitoring and management systems. leading the Fourth Industrial Revolution. (Our COFESA programme already empowers 650,000 residents and urban clients such as City of Johannesburg (monitoring performance of 3,000 digital youth enterprises providing services to 650,000 residents) as well as rural clients such as at Ivanplats Mine in Limpopo (monitoring performance of 45 enterprises providing services to 50,000 residents).

This will launch the unemployed graduates as practitioners, to prepare and transfer 800 000- 2,08million new title deeds at  national, provincial and local governments level and ‘boost the economy’.

These practitioners will ease the skills shortage on Provincial and Municipality levels to meet a chain of compliance criteria, fast track the transfer of title deeds and unlock the impediments  identified by the Constitutional Court ruling in 2010- Page 7  as reported in the ‘Investigation of Urban LandMark’.

Proposal 4: Youth awareness programmes – ground level inclusiveness 

Cofesa has pioneered a number of projects  such as orientating learners at  200 rural schools to become entrepreneurs. Afterwards, one of the girls for instance  assembled a team of seamstresses to make and sell their school uniforms. She also retailed items such as shoes, socks and stationery; creating a thriving micro rural enterprise with great prospects.

Some pupils started vegetable gardens, food distribution, services etc. Our chairman, Dr Lawrence McCrystal is part of the Africa Cooperative Action Trust. Over the last 40 years they have empowered thousands of rural people both in S.A. and elsewhere in Africa to start their own vegetable gardens and eventually to advance towards commercial farmers and entrepreneurs through their Sustainable Agriculture Entrepreneur Development Programme. He was the founder chairman of the KwaZulu Development Corporation.

From informal business to the formal

To take informal motor repair businesses from the streets and sidewalks to the formal sector, Cofesa established a MotorMall incubator in Newlands/Westbury. The project also gave hope, alleviated poverty, drug abuse and crime.

Commercial mentoring success stories

At agricultural conferences successful previously disadvantaged farmers credit fellow farmers, neighbours and cooperatives for their farming success, for their advice, assistance, mentorship, financial help, transfer of skills and introducing them to markets.

Communal farmers increased rural wool  production from R1,5 million in 1997 to R383,6 million (2019)  with the help of commercial farmers

Due to this help the communal farmers generated an income and afford school fees.

‘Boer maak ‘n plan’ – KykNet and Landbouweekblad programmes:

These programmes and Landbouweekblad articles reported how fellow farmers assisted emergent farmers to become successful, viable and sustainable.

It will be seen, from the above proposals, that there is a huge pool of goodwill, experience, and skill available to be mobilised to get the economy growing rapidly

Proposal 5: Inclusive manufacturing

Dealing with the IMF report of 2005, Mr Trevor Manuel argued in favour of relaxing employment laws and warned against ‘the entrenchment of a  labour aristocracy and the further marginalisation of outsiders by giving legal protection for large corporations to monopolise markets and for unions to secure protected wages and benefits for an ‘elitist’ group, imposing a major burden on the economy”. The World Bank agreed, and the available evidence bears out that this is exactly what has happened. 

‘Bargaining councils’ increase wage bills by between 18% and 33%.  Abolishing  bargaining councils  will open the economy and enable the establishment of an estimated 200 000 SMME’s with 2m+ jobs.

For inclusiveness, halt the extensions by the Minister of Labour of Main Agreements to non-parties. Bargaining councils levies and regulations increase wage bills by between 18% and 33% opening our market to cheap imported goods causing local factories to close.

• Mr Peter Leon on IMF requirements: ‘Labour legislation needs to be revisited, particularly the extension of so-called bargaining council agreements that set wage and working conditions for all businesses in a sector, including those that are consulted on these agreements. Issues such as these are cited as reasons for SA’s low-growth trap, and the IMF will want its pound of flesh’.– Mr Peter Leon’s on  SA’s lost decade and how to fix it at a June Herbert Smith Freehills presentation; ‘How to start fixing things to secure SA’s future’.
• • Ms Margaret Thatcher  abolished bargaining councils in the 1980’s to turn around the British economy and
  • Mr Jim Bolger of New Zealand, who abolished the nationwide agreements by monolithic union power blocks with ‘compulsory union membership that bred wasteful strikes and scandalous abuses’ . In months Mr Bolger produced startling results, bringing down inflation from 15% to 1,3% and increasing the trade surplus by 500%.

Proposal 6: Inclusiveness in the protection of employers’ rights. They have the rights to law and order  – Let the sun set on prolonged strikes that  cripple the economy and scare away investors  

Enforce Pendulum Arbitration as an alternative practical way of resolving labour disputes quickly and fairly. We need to ensure that legal strikes are both peaceful and of shorter in duration, without causing damage to the economy. Compulsory “Pendulum Arbitration’’, an internationally recognised mechanism, would ensure this ideal.

Proposal 7: Inclusiveness also in fair treatment of employers-  Let the sun set on excessive fines imposed on employers

We could not find similar excessive fines in BRICS countries: 44 firms, some of them listed on the JSE, were criminally prosecuted in 2018 under the Employment Equity Act. The majority were fined R1,5m. Companies face a daunting task of reflecting the country’s demographic profile, calculated as 77% black employees by the Department of Labour: Fines from R1 500 000, with R1 800 000 for a previous contravention and R2 100 000 for further contraventions, or 10% of turnover.

Proposal 8: Inclusiveness also for independent contractors, agents, actors, writers, consultants, engineers etc

Let the sun set on laws that thwart employment creation; laws, inconsistent with international norms, laws that are engineered to permit unions to force affiliation of independent contractors, outsourced workers and temporary employees as members.

Scrap the presumption (Section 200A  of the LRA) that a person (such as an independent contractor) is presumed to be an employee until proven otherwise. This presumption discourages outsourcing and enterprise development and economic growth. Encourage independent contractors, incubators, entrepreneurs and synergize with them. They are the macro employers of tomorrow. Cofesa’s empirical study on the productivity of ‘contractors’ in contrast with ‘employees’ found that contractors are between 50% and 300% more productive than ‘employees’ and are consequently paid accordingly. The ‘cottage industries’ of China, create valuable entry levels to the formal industries. We need to promote similar models.

Proposal 9: Inclusiveness also for interns, the unemployed, the untrained, unskilled, students, learners, persons who ‘shadow’, the disadvantaged

For inclusivity- Let the sun set on the general application of minimum wages

Minimum wages prevent new entrants to the work force and  should not apply to trainees, interns or small businesses, and as in Germany, should not apply for the first six months or perhaps one year for previously unemployed persons. Since December 2018, 34 000 domestic workers have lost their employment.

Proposal 10:Inclusiveness of protection for all against unfair competition

Extend the Competitions Act, No 89 of 1998 to also apply to collective bargaining agreements.  

Proposal 11: Inclusiveness also for the benefit of the continent and regions

In Africa more than 120 million hungry and poor people depend on our leadership to improve their living standards.

Inclusiveness means fast tracking the implementation of the AfCFTA’s (the African Continental Free Trade Agreement), which not only provides access to a continent-wide market of 1.2 billion people worth $2.5 trillion, but also effectively places Africa as the world’s largest free trade zone by population.

Proposal 12: Water “highway” from the Nile river to the Western Cape

The AfCFTA’s now makes possible a water “highway” from the Nile river to the Western Cape which would promote economic development all along the way. The canals could also be navigable for trade, agriculture and tourism.  These plans would generate great economic development for S.A. and other African countries as well as attract foreign investment.

Water development  The Water Commission back in 1970 concluded that SA will, in due time, need to bring water from surrounding countries to help S.A.  That  is where the Lesotho Highlands Scheme started.

Water from the Kunene river to Gauteng The IDC in the 1960’s worked on a plan to bring water from the Kunene river to Gauteng and promote agricultural and related industrial development along the canal through Namibia and Botswana. We could join this, through Angola, to a canal to bring water and hydro power from the Congo river.

Bring surplus water in the Orange River to the Western Cape. We have a plan which would bring surplus water in the Orange River to the Western Cape.

Proposal 13: Inclusiveness for our spare capacity in construction, engineering and other expertise will benefit  all

We have spare capacity in construction, engineering, manufacturing, transport, management, finance, technology, agriculture, nature conservation, tourism, training, etc and other resources that can be used for an ‘African Marshall Plan’ to change the face of the continent. Expertise can also be sourced from overstaffed human resource complements at some State Owned Entities.

Since the completion of the 2010 World Cup, the South African capital project environment has witnessed a steady decline in activity and productivity. With some of the larger construction projects ending, the immediate future for the industry is bleak. This has been complicated further by some prominent construction companies off-shoring their business or going into business rescue and even bankruptcy. The departure of these companies is already causing skills depletion, resulting in the long-term shortage of capacity to deliver on capital project investments.

Proposal 14: Deregulate, privatise and commercialise

Vision –Inclusiveness will enable us to generate over time, between 22m and 30m jobs in S.A. plus more than 50m jobs on the African continent, and regain our lost position  in relation to the following countries

South Korea had a lower per capita GDP than S.A’s in 1960.  Today their per capita GDP is 32 times higher than our’s.

• South Africa’s per capita GDP was a third larger than Singapore’s in 1960. Singapore’s is now 7 times higher than that of South Africa.
• Botswana whose growth has outstripped  even that of the Asian ‘tigers’.

South Korea and China looked insignificant before embarking on major reforms. The Covid-19 crisis creates an opportunity to fix an economic strategy that has failed to generate the growth necessary to create a better life for more than a minority.

Across the board Corona Cash Grants for businesses  –

the UIF-TERS R34bn paid out of R130bn surplus is a drop in the ocean  

A study by SEDA, a subsidiary of the DTI, has reported a first year failure rate of  75% for small businesses while  Mr Alec Hogg reported in 2011 the  average cost of one job created by the IDC amounts to R250 000.

The  high costs of and dismal failure of emergent businesses merit substantial government grants to ensure the recovery  and sustainability of existing businesses.

A precedent has been set to award R35 000 each to small farmers and R200 million relief funding for tourism.

Similarly cash grants across the board should be paid directly to companies in a bid to rescue those in distress, to stimulate the economy and to avoid further job losses initially estimated at potentially 2 million.

Minimum of R500 000 grants  Instead of the DTI and IDC investing in emergent enterprises with a 75% failure rate all existing registered businesses should be awarded a basic minimum grant of R500 000 plus compensation for their loss in turnover.

Only about R34bn has been paid out so far (July 2020) by the UIF, a small proportion of the R130bn surplus held in the UIF that is meant for national disasters such as Covid-19. To make an impact, we appeal to you that a large portion of the surplus, supplemented if possible, from other Government sources, be  paid out as ‘distress grants’ to make an impact.

A large number of our Member Companies are struggling to keep their operations from drowning because they have had no cash inflow while cash has been flowing out to pay salaries, rent, etc. So now they have used up their cash reserves and have minimal cash to get their operations going.

Repayable loans will not solve our economic malaise. It is time consuming and costly to administer by an already bloated government bureaucracy. Grants instead, will directly and immediately stimulate spending with a ripple effect, including to generate tax.

It is within the ambit of the UIF Board to pre-empt an estimated further 2 million job losses linked to Covid-19. (Other sources reported considerably  more job losses). Employers have contributed substantially to the fund and it is morally and logically correct to use the funds to rescue businesses.  While workers contributed 1% of their total earnings, excluding commission, to the UIF, employers contributed a further 1%.

UIF surpluses have also accrued due to many contributors who have emigrated and left their benefits behind, also by contributors such as senior staff and company directors who tend to  abandon their benefits, as well as long deceased people. The fund also accrued an estimated R70 -bn income on investments over the last 10 years.   

Timely distress grants will pro-actively rescue thousands of businesses, including hairdressers and B&B’s , avoiding later reactive costly government enterprise development efforts which, in any event, have a historic failure rate of 75%.

The drastic downsizing of the bloated government sector and its wage bills

Already in 2019, The World Economic Freedom Index,  an index designed by sixty of the world’s top scholars from many disciplines, including three Nobel Laureates, were ‘deeply concerned by our “overly large government for a nation at its stage of development.”

A new business friendly tax regime  and extensive tax relief as a direct stimulus to the economy

Nurture businesses, including SMME’s and micro enterprises.  Reduced tax will be a direct incentive for growth.

The economists of the World Economic Freedom Index found that our very high, top marginal tax rate discourages the initiative and dynamism South Africa needs to build prosperity. South Africa’s top marginal income tax rate at 41 percent is considerably higher than Botswana’s (25 percent), the subSahara African average (33.17 percent), and the world average (28.98 percent). This puts South Africa at a considerable disadvantage compared to its competitors.

Even before Covid-19, president Donald Trump and the UK reduced company tax: We must follow America’s example where President Donald Trump  reduced company tax from 35% to 21% to turn his economy around, the  United Kingdom from 30% to 19%,  and in China’s CIT rate is currently 25%.

• Reduce VAT to 10% or even to 5%. In 2019-’20 VAT contributed R346.2bn to the budget. By reducing  VAT by 5% (R115bn) will directly alleviate poverty and stimulate the economy.
• The most recent increase of VAT to 15% negatively impacted on the economy. No business takes home 15% on turnover without any risk. In fact without any risk, government now profits more from businesses than the businesses themselves. High levels of taxation made Government the most profitable ‘business’ at the cost of economic growth. 15% VAT deters emergent enterprises in the informal sector to advance to the formal sector and register their businesses for VAT.

From 2015 the number of companies registered at SARS declined from 3,2 million to the present 2 million. The increase in VAT directly affected consumer spending and caused the collapse of large clothing retailers.

• • Reduce company tax to 17%. Similarly Mr Mboweni should reduce company tax to a suggested 17%. from an accumulated 42% (the current 28% plus 14% on dividends) and even as high as 52%, to enable entrepreneurs to build capital and pay taxes. The fact that an expected R63,3bn less tax will be collected than budgeted for 2020, signals that the ‘tipping point’ has been reached and that higher tax rates will generate less income.
  • Reduce personal tax to 11%.  Personal tax needs to be reduced from 18% to 11%.
  • Reduce excessive property tax. Excessive property taxes should also be substantially reduced.
  • People have been taxed into poverty.  Economist Mike Schussler has broken down the weighty tax burden placed on individuals in South Africa, showing that we have one of the highest tax rates in the world and hiking these will only serve to further stifle growth. (March 2020).

Broaden the tax base

A small tax base of 574 000 individuals contributes almost 20% of all tax in SA. A constant spiral of worsening fiscal statistics and higher taxes have been feeding a growing sense of despair about the country’s prospects.  The Finance Minister can break that cycle which, hopefully, will boost consumer confidence.

Treasury’s scenarios showed that more than 7 million jobs could be shed (in addition to the present 10 m unemployed?) as a result of the virus and lockdown that has hugely reduced economic activity. Manufacturing, construction, trade, catering and accommodation, as well as financial and business services will be the worst-affected sectors.

Deregulation of business in general, and specifically small and medium enterprises will broaden the tax base, generate tax income and lighten government’s burden to provide welfare grants.  Picking the ‘low hanging fruit’ will be at zero cost to Government and, we calculate, could generate, over time, between 22m and 30m jobs in S.A. plus more than 50m jobs on the African continent, and regain our lost position in relation to comparable economies.

A 121^st ranking for business regulation disastrous for job creation –

The international panel of economists of the World Economic Freedom Index ranks South Africa 121^st on business regulation and noted that few challenges are more important for South Africa than job creation and for that it needs to free its business to create employment. Overly stringent regulation can slow business expansion and weaken profits, which are both the means of further investment and the motivation for further investment. 121^st ranking is a disastrous rank for South Africa and means that red tape is strangling business’s ability to create jobs and prosperity.

Create a deregulated environment for enterprises to flourish – Government’s initiatives to create entrepreneurs has failed and must be aborted.

Despite the economic ’boom’ experienced in the country between 2004 and 2006, the growth of small businesses has stagnated since 2003.  Our remaining SMME’s not only need protection, but we need to see them rapidly growing in numbers.

The Index referred to above noted a big concern regarding burdensome regulations.

Registered companies declined from 3,2 million to the present 2 million  From 2015 the number of companies registered at SARS declined from 3,2 million to the present 2 million. Start-ups declined from 250 000 (2001) to 58 000 (2011) and have been declining ever since.

Loss of entrepreneurs- Diaspora/brain drain: More than 400 000 high income professionals plus their families have emigrated since 1994  and millions of remaining individuals are utilising the easing of foreign exchange controls to let their money emigrate. (Thank you for calling for their return). About 3 000 super-rich (those with wealth of  $1million or R15million or more) “migrated” from South Africa over the past 10 years, Andrew Amoils, head of research at New World Wealth, told Fin24 in April 2019.  The monthly loss in tax is estimated to be between R10bn and R20bn.

Consequently deregulation will make some government  directorates and departments redundant, save costs and enable tax reduction

A new accord with chambers of trade and industry, business and commerce must be formulated for enterprise development.

Empirical evidence proves that governments cannot ‘create’ entrepreneurs. Only businesses, business leaders, enterprises and entrepreneurs can nurture and breed new enterprises.

Failure of government initiatives indicates that it is time to close those directorates, abort those initiatives and save billions. Enter into new accords with chambers of business, trade, industry and commerce for enterprise development.

Initiatives of government directorates, departments and agencies to create enterprises and entrepreneurs have failed. They should be aborted to save billions of Rands and enable tax reduction.

Our overly large government is a ‘deep concern’  – World Economic Freedom Index

• Reduce the size of government for substantial saving.

The international team of economists questions as to whether South Africans are getting value for their tax money. Does their money go to providing a sound, well-functioning legal system and security that promotes well-being, and delivers essential services? Or is much of it wasted or stolen?  they enquired and noted its concern regarding high taxation and our oversized government. Consequently downsizing government will reduce costs and  enable tax reduction.

Austerity calls for urgent action

• Trim down salaries, fringe benefits, opulent lifestyles-  not only that of the 200 000 officials with salaries of more than R1 000 000 annually.
• Cut down on fringe benefits such as international travel, expense accounts, housing, blue light brigades, spending such as for catering, funerals,   workshops etc.
• Move parliament to a central venue in Gauteng to save on travel, accommodation and other expenses.  The Cape has become an   international tourist destination. An increase of tourism incentives for the Cape should compensate for this move.
• Consequently downsizing government will reduce costs and  enable tax reduction

Overly large government spending and taxation can crowd out other economic activity and limit people’s economic freedom, and their ability to power growth and job creation. Nations that have outsized governments relative to the size of their domestic economy are penalised in economic growth and job creation. South Africa’s overall rank in Size of Government is 140^th and its rating is 6.04. The low rating is a cause for deep concern for a nation at its stage of development.

Measured on a GDP per capita basis, the five nations ranked just above South Africa have an average score of 7.03 in the area Size of Government. Coincidentally, this is the same score of the five nations ranked just below South Africa when measured in GDP per capita terms. However, these nations are a full point ahead of South Africa in their EFW score which shows just how large the South African government has become in relation to the size of the economy.

After improving somewhat in Size of Government after Apartheid, South Africa regressed significantly in the 2000s.  Over the last decade, scores have fallen substantially, indicating government growth and weakening economic freedom in South Africa.

The Index found government interference in the economy through government enterprises and investment is far too great and weakens both economic freedom and the dynamism of the private sector.

Deregulate and incentivise for economic growth

Picking ‘low hanging fruit’ will be at zero cost to Government and, we calculate, could generate, over time, between 22m and 30m jobs in S.A. plus more than 50m jobs on the African continent, and regain our lost position  in relation to these countries:  we must deregulate to unleash prosperity.

The 2019  Index scores SA’s failure against

• South Korea had a lower per capita GDP than S.A’s in 1960.  Today their per capita GDP is 32 times higher than our’s.
• South Africa’s per capita GDP was a third larger than Singapore’s in 1960. Singapore’s is now 7 times higher than that of South Africa.
• Botswana whose growth has outstripped  even that of the Asian ‘tigers’.
• Our detailed submissions to President Ramaphosa and Mr Tito Mboweni are relevant
• Renewed call to emulate the success of the automotive industry to counter Covid-19 impact which will cost the state far less and generate more employment per rand of investment than state-driven infrastructure investments which have been proposed.
• Time for an Economic Development Board and Advisory Council     
• Independent Advisory Council focused on a growth strategy 
• We foresee that this boards will be better placed than the National Minimum Wage Commission  to strategically and effectively bring hope for and  address the needs of our 10 million, now possibly 13 m, unemployed, 20 m hungry people in SA and 120 m hungry people on the continent.

We look forward to a game-changer for South Africa.

South Korea and China looked insignificant before embarking on major reforms. The Covid-19 crisis creates an opportunity to fix an economic strategy that has failed to generate the growth necessary to create a better life for more than a minority.

We look forward to an inclusiveness and synergy, for there is huge willingness and good-will in the non-government sectors as game-changers for South Africa.

God bless the brave. Let us embrace inclusiveness and synergy.

Dr Lawrence McCrystal and Adv Hein van der Walt

Cofesa Confederation of Employers of SA

 

Dr Lawrence McCrystal and Adv Hein van der Walt followed up with a letter to Ms Christine Lagarde

Dear Ms Christine Lagarde

Worldwide outcry against racial discrimination does not resonate in South Africa!

While protests over racial injustice continued in the U.S. following the killing of George Floyd by a Minneapolis police officer, we are shocked by our Employment and Labour Department’s notice that race quotas will be imposed on businesses in SA in terms of  the Employment Equity Act   Amendment Bill which will be submitted to the National Assembly.

On our request the name of the Department of Labour has recently been changed to ‘Department of Employment and Labour’ and as an employers’ confederation we look forward to synergise for reforms and job creation.

The notice of impending race quotas is in conflict with President Ramaphosa’s Thuma mina initiatives which calls for ‘inclusiveness’ and his vision, shared by Mr Tito Mboweni and many other ANC  leaders of ‘A new economic dawn’; a  restructured, deregulated, reformed, modern economy with a trimmed  down government service and government spending.

According to media reports the IMF African Department director Abebe Aemro Selassie confirmed that South Africa had requested support under the fund’s Rapid Financing Instrument (RFI) and indicated that a final outcome was likely in the “coming weeks”.

We have expressed our deep concerns to Mr Nxesi on his intended racial quotas- please see letter here below.

Please ensure  that non-racialism remains a precondition for any IMF loans.

Sincerely

Adv Hein van der Walt and Dr Lawrence McCrystal