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Johannes Wessels is director at the Enterprise Observatory of South Africa, as well as a research associate at the University of Stellenbosch. In the piece below, Wessels looks at the current programs in place to help the country avoid junk status and economic decline, but instead finds failings. He questions government’s credibility in selecting the programs needed to jumpstart growth, presenting his four step action plan. His conclusion, the country needs a new game plan as changing the coach won’t suffice. An interesting read. – Stuart Lowman
By Johannes Wessels*
Deputy President Cyril Ramaphosa’s assurance in Polokwane that “Government is doing everything it can to avert a further downgrade by rating agencies” is (unfortunately) the kind of statement that could be considered a threat or a remedy for economic growth.
Ramaphosa highlighted Operation Phakisa and the DTI’s Black Industrialists’ Program as part of “the arsenal” to fight economic decline and to attract investors. Operation Phakisa is aimed at exploiting potential in the marine sector and the Black Industrialists’ Program is aimed at launching black-owned industrial companies of substance. The latter was probably borne out of frustration that the Stalin Organ arsenal blasted billions away at failing small enterprise development schemes: Cooperatives, Ntsika-funded programs, LED initiatives, the Incubation Support Programme, the Isivande Women’s Fund, the SEDA Technology Programme, and at least 19 other national initiatives and a range of provincially funded programs.
Where are the JSE listed companies that have emerged from these initiatives?
Where are the world-changing patents and Intellectual Property that resulted from all this investment?
Couple these failures with the lack of sustainability created through grand schemes (Corridor development / Accelerated Growth Initiative / NDP / New Growth Plan, IDZs and EDZs to name a few) and add in the balance sheet problems of the SAA, Eskom and the Post Office and it is evident that State-led development has a dismal economic success record.
If Operation Phakisa and the Black Industrialists’ Program were to deliver the results in the short time prior to the rating agencies’ next assessment, these programmes will have to render results at an unknown pace. It is hard to see how they can make up the lost ground caused by inter alia an inflexible labour regime and decisions that harmed the tourism industry through new visa regulations (there were warnings before implementation about the negative impact, but Government dismissed these. Even the pleas in late 2014 by Derek Hanekom as responsible Minister for Tourism were not listened to until recently.)
The question is whether Government is really in a position to select the right kind of enterprises for generating growth and employment? There is nothing in the aforementioned examples that gives one confidence. And given Barack Obama’s distrust in South Africa to come in practice to the table on AGOA requirements, mere utterances by the President and Deputy President will not avert a downgrade: an action plan with measurable targets against a timeframe is all that can help at this stage.
Commentators have had a field day with advice on macro-economic and fiscal requirements, not to mention labour regime reform. On the enterprise front EOSA reckons there are several steps that can be included in such an action plan:
- Engagement with the four big banks to determine which of the unlisted medium-sized companies these banks fund need finance to break into overseas markets. Standard Bank’s Head of Commercial Banking, Karl Götte, reckons businesses that fall between SMMEs and large, listed corporates contribute 15% of GDP and generally grow twice as fast as the overall economy. Businesses in this category have turnover of between R300 million and R1.3 billion.
- A program to assist South African wine producers to maximise opportunities in the US market under AGOA by e.g. shifting some of the resources aimed at the Cooperative Incentive Scheme to assisting wine producers to market their wines aggressively in the US. (The same holds for other processed agricultural products). This is if the feet-dragging at DTI to meet the US requirements will not result in Obama slamming this window of opportunity shut.
- Place the remainder of the DTI incentives money into a Public Private Partnership Venture Capital Fund under a Board of Directors comprising retired captains of industry and commerce and the IDC
- Commit to floating South African ports by not later than March 2018. Try the same with SAA (Doubt whether there will be any bidders for the latter).
Government’s private sector policies and strategies over the past decade are as stale as Heyneke Meyer’s rugby coaching approach. A new coach will not suffice. SA needs a new and exciting game plan: forget the Stalin Organ state led approach – free up the opportunities for the entrepreneurs. A bold plan like this will restore confidence, lure foreign investment and expand the productive capacity of South Africa to tap into foreign markets.
- Johannes Wessels is director at the Enterprise Observatory of SA.