Forget about ‘brain drain’. Corporate South Africa is leaving the country – warnings

Corporate South AfricaBeyond talk of trying to lure highly skilled foreigners into South Africa to take up positions that can’t be filled and other encouragements to the Proudly South African diaspora to return home, another emigration wave is gathering momentum. Corporate South Africa is increasingly spreading its wings beyond our borders. This is not to be confused with the international trend towards globalisation. It is, caution economist Cees Bruggemans and political analyst Prof Willie Esterhuyse, linked to disenchantment with the ability of the government to adequately play its role in developing an environment that is conducive to doing business. After waiting in vain for growth-oriented plans to be implemented, captains of industry are increasingly deciding to take their chances elsewhere. This will be to the benefit of citizens in other nations, caution the analysts. – JC

By Cees Bruggemans & Prof Willie Esterhuyse*

We may perhaps be forgiven bewilderment when observing the apparently uncontrolled careering of our ship of state and economy.

Businesses, on the other hand, can’t afford to be perplexed by unexplainable contradictions and their consequences. They need certainty. Growth stagnation and an encroaching state invites local operations to be turned into holding ones, to be put on a good care and maintenance basis, redirecting the core of most effort to other, more dynamic, overseas opportunities.

The confused signaling in our political ranks has many facets and faces and carries many implications, but the upshot is higher business costs, much less certainty, low confidence, reduced appetite for risk-taking, less investment expansion and job creation, less household income growth opportunities, growth becalming even as the rhetoric of social partners and politicians becomes ever more grandiose and idiosyncratic.

There is on the one hand the world of plan-making, apparently centrally driven, yet with many interpretations, often in conflict with each other.

And though the plan-making sounds impressive, it is the follow-through that is most crucial. China doesn’t only announce plans, it also reports so many thousands of kilometers of roads, railways waterways having been completed, this aside of hundreds of new mega cities, airports, harbours.

We tend to hear about wind farm completions, and then very small at that.

What detracts yet more is the evidence of growing personal wealth among our spreading political elite, and the suspicions this generates in greater society (and the yet greater eagerness among especially many of the more well connected youngsters, elsewhere known as princelings, to join this happy bandwagon).

These are clashing sensations. The one seems to champion yet greater national effort of which so far precious little evidence. The other shows hints of stupendous private wealth growing in leaps and bounds on still relatively simple public sector pay scales often difficult to tie back to such Croesus-like wealth generation.

There must be a lot of worthwhile consulting going on, yet too frequently it remains mostly a deep mystery on what it delivers, for the economy and deployed labour force are mostly stagnant, and the ranks of the luckless (and their new political representatives) rapidly expanding.

Other noteworthy aspects are instances of saying one thing, especially some of the old guard ministers apparently hobbled, if not fully crippled, by strict ideology, allegedly wanting much economic growth and much more worthwhile employment, yet doing things that achieve exactly the opposite of what is intended.

The other confusing dimension here are mostly new ministers of state often clearly meaning well, and diagnosing correctly what ails, but then also just as clearly determined to toe the party line and its many central directives, and apparently not fully appreciating that some things don’t go together, some things canceling each other out.

Both old and new guard need to realise they aren’t achieving much. But who is going to tell them in their newly prosperous state, in which they no doubt mean well and do well themselves? Bureaucratic assistants sharing their enthusiasm and not grasping the contradictions either? Critics who politically can be safely ignored? Are there no longer honest brokers in the system? Tame lap dogs will only want you to hear what you want to hear, as much on the inside as on the outside.

It is usually a toss-up between knowing which side the bread is buttered and a healthy dose of emotional intelligence not to make career-limiting statements, or lose the little bit of political access still imperially granted.

That the powerful are all powerful is an old fact. But it cannot force success unless accompanied by substantial action.

Whether or not this is happening can only be observed on the ground, where the rubber connects with the road.

Is there a sense of high business confidence, a willingness to risk the balance sheet, incur debt leveraging, invest in new capacities and jobs that may take years to prove fruitful? That kind of “engagement” will unlock higher business spending and higher employment levels and household incomes and confidence levels that will sustain more waves of future expansion.

But if these things are not there, if only we can identify what are mostly defensive rearguard actions while the real business expansion is taking place elsewhere, productive society in a larger sense is sending a signal that it is locally bedding down for a stagnation (or worse) of unknown duration, putting its local assets on a care and maintenance basis, while ardently participating in real growth opportunities where these are plentiful.

Highly skilled individuals have been emigrating from these shores for decades, but during the last 5-10 years it has mainly become a corporate phenomenon. Corporate chiefs have not been shy to tell their shareholders in annual reports, but also through the media, often in great detail with tight timelines, how they plan to reposition and internationalize their business operations in pursuit of growth and to stabilise their future earnings flows while subjecting themselves to less risk than in their traditional home environment.

That what was an isolated instance 60 years ago, and developed a sudden flurry in the early 1990s, has of late become a full-fledged movement with a strong sustainable momentum pointing to logical consequences for the remainder of this decade.

By 2020 only a small minority of our quoted companies, but possibly also smaller businesses, will still be predominantly SA based or even SA owned. The dividend flows home will be rich to the extent these many businesses retain SA owners. But the fruit of their entrepreneurial abilities will have been absorbed by other societies.

What is true of the brain drain of highly educated, highly skilled emigrants is just as much true of corporates internationalizing, enriching the receiving society and impoverishing the home base. This is especially so when the flow is too one-sided, with much fewer incoming global entities of equivalent stature compared to those relocating their core efforts elsewhere.

Our business environment at home has by and large come to a standstill because it is not getting the leadership and example that will give it confidence to risk more than can be strictly motivated to shareholders.

One day this condition may change again, hopefully for the better, and will we see businesses respond positively to such change, in the process also providing more lift to the economy, and society, too.

For now, many are battened down, prepared to wait for a fairer wind at home, while investing their talents in other efforts facing less long-run risk of severe underperformance.

* By Cees Bruggemans, consulting economist, and Prof Willie Esterhuyse, political commentator. More columns by Bruggemans here on BizNews.