South Africa’s economy is in a crisis. The country’s latest GDP figures were a matter of debate as many were shocked by the plunge of 51% – a far worse outcome than initially expected. According to AfricaCheck, the second quarter did shrink by -51% on an annualised basis, but, measured against the previous quarter, GDP actually declined at a substantially less sensationalist 16.4%. The figures are a concern. Unemployment has risen, leaving millions more South Africans struggling to make ends meet. In this contribution, Cofesa says red tape is strangling business’s ability to create jobs and a deregulated economy would generate 70% more investment and reduce poverty. With these numbers, why then isn’t the government looking at deregulating the ailing economy to create a better life for all? – Lindiwe Molekoa
Pick the low hanging fruit of deregulation. It is the only way to get to the other side of the Rubicon…..
Dear President Ramaphosa,
We respond to your Thuma mina calls and as introduction bring like Nathan in 2 Samuel 12 a message from grass roots level:
5 Then David’s anger burned greatly against the man, and he said to Nathan, “As the LORD lives, surely the man who has done this deserves to die. 6 “He must make restitution for the lamb fourfold, because he did this thing and had no compassion.” 2 Samuel 12:5
17 years unemployed before employed by Annie’s Creation – Then the police visits three times
The workers were unemployed for 17 years and more before starting at Annie’s. 90% were the sole support of their families and some have as many as 16 dependents, an average of 7 dependents per worker.
Annie Cawood recruited her staff from the streets of East London, trained them and within four years won several awards. If it was not for the Industrial Council the work force would have been 600.
Her workers are paid accordance with wage Determination 471. Should the Industrial Council regulations be made applicable her wages will have to triple and her factory will be closed down.
Labour cost in Korea for her main competitors amounts to 6% of production costs against our 60 to 70 percent.
After receiving a national ‘Business of the year’ award she was visited on three occasions by the police. Her motto is to ‘get the country working’ and in a county with 6 million unemployed, the more jobs she could create the better.
Note: The Cawoods were summoned to appear at the Magistrates Court. When they presented themselves the magistrate refused to hear the case against righteous people. (The Cofesa archive contains similar case studies covering 30 years).
AMSA’s ongoing escalation of prices, as many as 5 times in one year – Testimony of ‘small’ manufacturer
We started off as a husband and wife team in June 1992 by opening a small business that marketed and supplied … in … product lines only, from a supplier in … Gauteng.
In June 1995 we started our own manufacturing with a staff compliment of … branches were established in … in April 1996 and another in … in March 2000. We grew to becoming a medium to large business in volume of steel work and staff appointments marketing and manufacturing a host of products for the security needs of homes, businesses and wherever needed.
Our tonnage of steel use has made us consider importing our steel for three reasons: the ongoing lack of stock for our requirements when ordering from distributors, whose only supplier is AMSA, the ongoing escalation of prices, as many as 5 times in one year, and the protectionist duties imposed on steel imports making it difficult to do so, to be competitive and have the security of supplies.
I have seen numerous businesses reduce staff, or close down for the same reasons alluded to, as well as the unrealistic demands made by the unions and the accompanying Government labour law regulations.
For the past 5 years I have seen the economy decreasing year by year due to our inept, ill-informed and incompetent Government. The duties imposed need to be withdrawn for good and valid reasons. There is no legal basis for the Government to subsidise private and protected business, especially when the profits or dividends are sent to the major head office located overseas. – another testimony from one of our NEASA’s members in the STEEL INDUSTRY, referring to conducting his business WITH THE DUTIES-SWORD HANGING OVER HIS HEAD.
SMMEs fail at a rate of 71%, the highest failure rate in the world (Before Covid-19)
A study by SEDA a subsidiary of DTI 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, fail within the first years. Therefore and contrary to popular belief, SMEs are not better creators of sustainable jobs than large companies. Nevertheless, the demise of many smaller firms is not a good outcome, since it contributes to concentration at large corporations.
Despite the economic ’boom’ experienced in the country between 2004 and 2006, the growth of small businesses has stagnated between 2003 and 2012. Our 5.6m SMME’s need protection.
SMEs are under particular stress 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%)
- Transport amd storage: 3 378 (-15%)
- Mining (-?) Manufacturing (-?) Households (-?)
Start-ups declined from 250 000 (2001) to 58 000 (2011)
In 2001 approximately 250 000 individuals were engaged in some kind of activity to start their own business. But by 2011 that number had dropped to 58 000. The glimmer of hope is that this isn’t a global phenomenon, according to Adcorp Analytics (2012).- we can turn the situation around.
Diaspora – More than 400 000 high income professionals plus their families 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 about $1m or R14m 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.
Estimated small business owners (Before Covid-19)
5, 579,767 (2011) of which 80% are retailers while more than 20% are service providers. These businesses account for an estimated 12 million jobs in the country (Source jtb consulting).
Cofesa, Neasa and others were not invited to make submissions for the ‘Nedlac economic recovery plan’ coordinated by Mr Martin Kingston.
Instead we wish to submit the following:
Cofesa responds on the 2020 release of the World Economic Freedom Index which rated SA 90th out of 162 countries before Covid-19:
Pick the low hanging fruit of deregulation. It is the only way to get to the other side of the Rubicon…..
While waiting for your announcement of an ‘economic recovery plan’ ten million unemployed and all financially stressed citizens may ask why government does not follow the World Economic Freedom Index and ‘pick the low hanging fruit’ of deregulation to create a better life for all? The low hanging fruit is 22 -million jobs that will be created in time in South Africa and 50 -m on the continent.
Announcing South Africa’s 90th place out of 162 countries at the Free Market Foundation launch, Mr Fred McMahon of the Fraser Institute, member of a panel of more than 60 international renowned economist, some of them Nobel prize laureates, analysed why South Korea had a lower per capita GDP in 1960 than the average for Sub-Saharan Africa and now has a per capita GDP 32 times higher?
And why South Africa’s (with all our minerals and other resources) per capita GDP was a third larger than Singapore’s in 1960. Singapore’s is now 7 times higher than that of South Africa.
Indexed at 90th South Africa even compares very poorly with Botswana, rated at 43. Botswana even outstripped the Asian ‘tigers’.
On this side of the Rubicon the fruits of regulation means economic decline, unemployment and social disruption
‘Like PW Botha, like Margaret Thatcher, Mr Jim Bolger and Michael Gorbachev, FW de Klerk and many other you/we now face a Rubicon challenge with a Hobson’s choice’.
Labour market -Red tape weakens job growth
Our ranking in labour market is 79th out of 162. It is crucial that the labour market be opened up to create employment opportunities for South Africans. You should be able to hire whom you wish and work for whom you wish and not have to wait through needless delays and cut through miles of red tape. The Index states ‘Red tape, restrictions and regulations are weakening job growth and opportunity in South Africa.
Lack of freedom in the labour market excludes many from the dynamism of a growing market economy. It suppresses job growth by making hiring expensive and risky—the variable in which South Africa receives its worst score.
This is particularly true of hiring and firing regulations and minimum wages where South Africa receives its worst scores. At first glance, such regulations may appear to protect jobs and workers, but they prevent job creation and exclude the poorest and most marginalised from the job market. Businesses are reluctant to hire since they cannot reduce their labour force if an employee fails to work out or if sales decline, and the minimum wage can price low skilled workers out of the job market.
- Regulations forcing centralised collective bargaining in South Africa are also a drag on the economy. Unions owe their loyalty to their members, often some of the most privileged workers in South Africa, rather than to workers generally, and thus have incentives to force through contracts that are damaging to workers overall’. This is particularly true of hiring and firing regulations such as minimum wage regulations where South Africa receives its worst scores. At first glance, such regulations may appear to protect jobs and workers, but they prevent job creation and exclude the poor and most marginalised from the job market.
According to their audit, the IMF, Mr Trevor Manuel, FMF, NEASA and Cofesa (to name a few) bargaining councils poses a major constraint; - In short: Bargaining councils
- ‘Cofesa note:
- Employees affiliated to trade unions which are parties to councils declined to only 41 713 (2017) or .07% of our total population of nearly 60m, while 27% of our total potential labour force and 47% of young people are unemployed.
- Bargaining councils’ levies and regulations have increased the wage bills of non-parties by between 18% and 33% thereby opening our markets to cheap imported goods and causing local factories and other businesses to close resulting in a huge loss of jobs. Just this change, which will cost the Government nothing, could generate an estimated 2m jobs.
Stringent regulations stifles business
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. South Africa ranks 121st on business regulation. This is a disastrous rank for South Africa and means that red tape is strangling business’s ability to create jobs and prosperity.
- Less freedom, less investment, less jobs
- Economic freedom strongly promotes investment and productivity. Nations with an economic score below 5 for economic freedom (on a scale from zero to 10, where the higher value indicates a higher value of economic freedom) attracted US$845 in investment per worker over the period 1980 to 2000 and only US$68 per worker in foreign direct investments.
- Nations with an economic score above 7 attracted US$10,871 in investment per worker, including US$3,117 of foreign direct investment.
- 70% Better investment: In other words, investment in economically free nations with scores of above 7 had a positive impact on growth that was 70% greater than investment in nations with poor levels of economic freedom.
- More freedom reduces poverty with 29.7%: Countries with higher levels of economic freedom reduced poverty at a rate of 29.7%, while countries (such as South Africa) reduce poverty by only 7.7% researchers recorded in 2004. (Before Covid-19)
Will large infrastructure projects create jobs?
The findings of the Index indicate to the contrary. Instead infrastructure developments in the hands of a centralist government are bound to fail as SAA, Denel and others. Systemic corruption and fraud need to be replaced by ethics, integrity, healthy competition transparency and merit.
It is reported that government spends R450 000 to create one job. Consequently it will cost an unaffordable R4 500 trillion to create 10 -m jobs with the risk that 75% will fail as before.
Pick the low hanging fruit of deregulation on the other side of the Rubicon and the private sector will create between 22 m to 50 m jobs
We respond to your Thuma mina calls and also share your views on
- ‘that the country’s economy is in a crisis’.
- That it was unfortunate that over the last 25 years government had been less successful in addressing the structural faults in the economy
- We respond to your calls on researcher and academic institutions to advise government, and provide the necessary data to inform government’s planning models.
- We welcome your statement in your State of the Nation Address, “this is a government that is not afraid of new ideas, and of new ways of thinking,” – President Ramaphosa.
- The current administration was open to criticism and challenges as it served the country, you assured.
With expectations rising for an announcement of fundamental economic reform, the challenge is: will you cross the Rubicon or see your challenge to clean-up the ANC through a steady process?
Botha’s Rubicon: Today it is still a major question why Botha refused to give a speech that the world would have considered as a true crossing of the Rubicon. A feared leader. PW Botha was a pragmatist rather than a reformer, he saw his challenge as strengthening the Afrikaner-dominated state through a slow but steady process of deracialisation.
Pedestrian reform or a leap of faith?
In August 1985, while international pressure mounted on South Africa to release Nelson Mandela and it was clearly time to finally rid the Country from the shackles of Apartheid at the at the NP Congress in Durban in PW Botha’s failed to deliver his Rubicon speech. He said: “I believe we are today crossing the Rubicon, In South Africa there can be no turning back. I have a manifesto for the future of our country and we must engage in positive action in the months and years that lie ahead.”
In 1980 Mrs Margaret Thatcher blamed the ‘bargaining councils’ in the U.K. for obstructing economic growth and got rid of the council system. With the councils out of the way, she was able to deal directly with industry leaders and turned the economy around. Without the closed shop system workers were no longer forced to be members of the trade unions and this greatly reduced the political power of the unions.
Britain abolished the bargaining council system in 1980.
New Zealand
In the early 1990s Mr Jim Bolger, Prime Minister abolished the nationwide agreements by monolithic union power blocks with ‘compulsory union membership that bred wasteful strikes and scandalous abuses’. In months this produced startling results, bringing down inflation from 15% to 1,3% and increasing the foreign trade surplus by 500%.
“The fall in average wages predicted by their critics hasn’t materialized. Only through a higher level of economic activity can we get the jobs we need in New Zealand”, Mr Bolger said.
- President FW de Klerk On the 2nd of May 1990, President FW de Klerk publicly announced that Nelson Mandela would be released from prison, and that the ANC, PAC, SACP and other liberation movements would be unbanned.
- An announcement to the nation of the ‘New dawn’ will have similar, visual impact: The business sector awaits a dramatic announcement with comprehensive reforms and fundamental changes, an announcement that will mark a watershed moment in history. You have the leadership, support and stature for this. Your public announcement from the steps of parliament to the nation will signal ‘an economic new dawn’, a watershed moment for our nation to go forward.
Reduce the size of government- 1.3 million
The auditors are deeply concerned by our “overly large government for a nation at its stage of development.”: A public ‘service’ of 1.3 million with pay rising and rising.
While compensation spend has tripled over the last decade, in the same period the number of government employees rose by only 170,000 to 1.3 million.
In comparison the average remuneration across 110 non-agricultural sectors and sub-sectors in 2018/19 was just under R273,000, compared with an average remuneration for government officials of around R393,000.
They question 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 staff numbers, 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 140th and its rating is 6.04.
Reduce tax- Modernise our tax system – Formulate a modern, new business friendly tax regime with general 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%.
Scrap overly protective labour legislation
Let the sun set on black empowerment – Modernise empowerment with scientific mentoring, coaching, incubator, internship practices.
With modern effective HR practices of recruitment, selection, placement and management, candidates advance 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, while black empowerment and land reform became counter-productive (similar to statutory discrimination under apartheid) .
Over the last 20 years we have actively reinvented EE, BEE and land reform. Statutory EE and BEE became counter-productive (similar to statutory discrimination laws under apartheid), and must be abolished to conform to constitutional and international norms.
Modern empowerment programs for employees and entrepreneurs conform with constitutional and international norms.
Modernise – Let the sun set on black empowerment.
‘Race quotas’ are foreign to a modern economy
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 conflicts 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.
Cancel laws that thwart employment creation; laws, inconsistent with international norms, laws that are engineered to permit unions to force independent contractors, outsourced workers and temporary employees to affiliation as members. Embrace independent contractors, agents, actors, writers, consultants, engineers; people working on an outsourced basis, in the economy. 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.
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
Make Pendulum Arbitration compulsory to shorten the duration and lessen the impact of strikes
Enforce Pendulum Arbitration as an alternative practical way of managing and 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 recognized mechanism, would ensure this objective.
Abandon excessive fines imposed on businesses: 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.
Involve the private sector, entrust business-, chambers of commerce and industry and associations
Like elsewhere in the world outsource and 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 keen to replace failed and costly programmes of government directorates and agencies.
Deregulate -Stringent regulations stifles business
South Africa ranks 121st on business regulation. This is a disastrous rank for South Africa and means that red tape is strangling business’s ability to create jobs and prosperity. A deregulated economy generates 70% more investment and reduces poverty with 29.7%.
Modernise the transfer title deeds and land reform with 4IR IT with a Marshall Plan upshot
Fast tracking the transfer of title deeds 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’- Bruce Cameron, of the JSE commented.
Deregulate and transform our economy into a vibrant growing economy in 16 easy steps (Please see)
We salute: ‘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’. Freedom Charter June 25 1955:
God bless the brave
Dr Lawrence McCrystal (Chairman) and Adv Hein van der Walt.
