This is an edited version of a speech that the former deputy finance minister Mcebisi Jonas gave at the AHi Small Business Chamber's Conference on 5 April 2017. - blogs editor.
In our present circumstances, it is unnecessary to remind this audience, I am sure, that economics and politics are inextricably bound together.
We have been reminded of this in so many ways – the reaction of markets to political decisions, the response of credit rating agencies, the intense speculation about the meaning and nuances of everything that is said by political leaders, by the President, by the Minister of Finance, by the former Minister of Finance...
While there is no need to remind you of the nexus between politics and economics, there is perhaps a need to understand what this actually means.
In politics, it is all too easy for us to fall into the trap of debating, at a point in time, who is in charge; who was in charge; who will be in charge next. And so, the debate tends to centre on the power of the day and who exercises it. This results in binary positions where we take sides and categorise between the good and the bad; who we support and whom we don't. We have fallen into the trap before; and as I speak, we are living through the consequences.
As such, it is fundamentally important that we remember that economic stability and growth – and with it sustainable job creation – cannot be about who the political incumbency happens to be at a point in time; and indeed who future successors are. We must instead focus on the institutional frameworks that we have so carefully constructed as part of our democracy and which are designed to keep us in check by ensuring that the rules of the game and democratic accountability hold firm.
Many of the necessary ingredients are well established in our context – a free and critical media, a strong judiciary, a dispersion of economic ownership despite considerable concentration of wealth, open trade and protected property rights. We also have strong and diversified institutions of worker representation and civil rights protection. And so, as has become clear in recent times, abusive patronage networks face considerable countervailing powers and challenges to their influence. But, as has been demonstrated over the past week, it is not enough just to counter dominant and highly visible networks of influence. The patterns of patronage that erode public service delivery and job creation and interfere with good governance and accountability – and which directly negatively impact on our economy and job creation – are not always dominant and visible.
And so, returning to the nexus between economics and politics, upholding the social contract and growing the economy and creating jobs is not just about responsible exercise of an electoral mandate to govern at a point in time; but about ensuring that we protect and strengthen state institutions and policies so that they contribute to the conditions of a good life more-or-less neutrally vis-à-vis any political group, social class or indeed group of individuals in power. Dare I suggest that in South Africa, and particularly over the past decade, many of our institutions have been forsaken or deliberately weakened for political expediency, and state transformation has become so politicised that we would be forgiven for thinking that economics is all about political power. This risks taking our conceptual framework back to the mercantilist world of the 18th century where prosperity was about who controlled trade and who was licensed to do business.
Yes, we know a great deal about how the exercise of political power can shape economic prospects, contribute to the accumulation of wealth, and impose barriers on entrepreneurship and development. But – let us not fall into the trap of thinking about economics, as like political power, because then transformation will be seen as a zero-sum game where only those who are in charge, and those they in turn favour, will prosper.
Economic development is not – and should never be – a zero-sum game. Indeed, let us vigorously guard against the politicisation of our economy where empowerment becomes about replacing one group of beneficiaries or business partners with another
Economic development is not – and should never be – a zero-sum game. Indeed, let us vigorously guard against the politicisation of our economy where empowerment becomes about replacing one group of beneficiaries or business partners with another – rather it should be about radically increasing levels of economic participation among the majority of citizens who still find themselves excluded from the economic mainstream and diversifying and deepening the economy through building collaborative economic networks and partnerships and investing in new sources of growth. Indeed, this will require exceptional leadership – something I have spoken about on many platforms recently – not only within government; but among all economic stakeholders. We have to move beyond narrow interests and maximum positions and tackle the very real trust deficits that impede us moving South Africa forward.
So we need bold and far-reaching initiatives that will create and reinforce linkages between large and small enterprises, training opportunities, access to markets, mobility and skills development – a national focus on inclusivity in our economy.
The National Development Plan has set the target of reducing unemployment from current levels of 25% to 6% by 2030. To do this we need to create 11 million new jobs nationally by 2030, and at least 1 million jobs in the province.
I believe the majority of these jobs will not come from large formal enterprises, but rather from SMMEs. Currently, however, our SMME sector is not delivering the growth and jobs outcomes we need. South Africa is well behind countries such as Brazil, China and Indonesia in terms of SMME contribution to the gross domestic product of the country. We need to better understand why more South Africans are not starting their own businesses, and what can be done to better support entrepreneurship. I would suggest four factors constrain or enable entrepreneurship.
Firstly, the macro-structure of the economy determines the success or otherwise of our SMMEs. We inherited a highly unequal and concentrated economy that remains – since the 1970s – stuck in a low growth trap. We need to restructure our economy, reduce our dependence on commodities exports and financial inflows as our two core sources of growth, and reduce the costs and ease of doing business. Key to this is increasing levels of investment, which in turn require policy certainty. Investors will not invest in fixed capital where policy uncertainty prevails, and will instead direct capital into liquid financial markets. We also need to address situations where existing cartels are gatekeeping access to markets and opportunities, and give our competition commission teeth to address this.
Secondly, our education and training outcomes have constrained SMME growth. There is a direct link between education and entrepreneurial activity, and the success or growth of an enterprise. The ability to manage and run a business beyond the initial start-up is linked to necessary skills, experience and training. We have invested significantly in education and training, but have not developed the kinds of capabilities required for entrepreneurship at scale.
Progress in creating jobs more rapidly means that we have to think differently about the links between business and our skills training centres and technical and vocational education colleges.
Progress in creating jobs more rapidly means that we have to think differently about the links between business and our skills training centres and technical and vocational education colleges. The business sector has to become much more actively involved in the governance and curriculum design and quality assurance and financing of our colleges. This may involve re-visiting the role of Sector Education and Training Authorities and the way in which skills levy funds are used. I know that the Minister of Higher Education recognises the need for reform of the skills funding environment. The needs of business are very varied, and in some industries training needs change rapidly.
One important way to make progress in skills development and creation of better training opportunities for young people is for local business and industry chambers to work more closely with local colleges and skills centres. The SETAs have not facilitated this because they are nationally and sectorally organised, but in practice the colleges serve local and city needs and so business must use its local organising power to contribute to better functioning colleges and training programmes.
The third factor, which either enables or constrains SMME growth is government support. Government currently provides a range of support including access to state markets, access to finance, non-financial business support, etc. We have also implemented a range of BBBEE measures to support black entrepreneurs and industrialists. Again, we are not seeing the outcomes we had hoped for, especially in terms of productivity and competitiveness. We need to broaden the debate on BBBEE, and how we better connect redistribution outcomes to growth and productivity outcomes. The role and performance of state institutions becomes critical here, and the extent to which they are driven by ethical and professional conduct, as opposed to servicing patronage interests. We also need to be investing more in R&D and innovation. Currently, South Africa spends just over half a percent of GDP on R&D, compared to 4% in Korea and 2% in China. Partnerships with our universities need to be radically expanded.
The fourth factor, which I think enables constrains growth of our SMME sector is the level of organization and activities within the business sector. In a very real sense, the energies and activities of the business sector and business organisations are in many ways more powerful and more important than political leadership, regulatory reforms, and infrastructure investment in unleashing economic and enterprise opportunities.
The energies and activities of the business sector and business organisations are fundamentally important in achieving these goals.
Business organisations have the advantage of numbers, for a start. You also have the advantage of being able to act more flexibly and rapidly than government when opportunities arise. Therefore, the theme you have chosen for this conference is welcome – creating jobs is the business of business, with the support of government, irrespective of the circumstances we find ourselves in.
Let me share a few thoughts on what this means.
One of your great strengths is the way in which the AHi is able to bring large and small business together. We tend to think of this as about supply chain opportunities and trading links. But it is about far more than this. Economists are beginning to talk about "complex networks" – which I am sure business people have understood for decades! – which link local businesses, within clusters or sectors, and which, in their concentration, encourage productivity and competitiveness.
This is why cities and concentrated industrial zones are so much more productive than dispersed economic landscapes.
Franchise business networks are an especially powerful and effective vehicle for promoting market opportunities, training and broadening of participation. Indeed, we are beginning to see franchise operations in townships and communities where they were missing in the past – this is surely a growth opportunity that needs to be accelerated.
Through several of the National Treasury's Jobs Fund projects we are beginning to learn more about how entrepreneurship and skills development can be promoted in both formal franchise networks and less formal patterns of collaboration that are somewhat like franchises in how they operate. If you would like to explore this further, I know that the Jobs Fund team would be delighted to work with you in sharing the lessons of this experience more widely.
Let me also emphasise the importance of strong working relationships between business and municipalities.
Let me also emphasise the importance of strong working relationships between business and municipalities. I have already emphasised the role of cities as concentrated networks of activity, in which productivity can grow as enterprise opportunities expand. But this doesn't happen automatically. It needs mechanisms of engagement between business and city planners, regulatory authorities, industry leaders and property developers.
The commercial and financial aspects of these engagements are not always straightforward, and so work will need to be done on the structure of partnerships and sharing of costs and appropriate vehicles for financing investment. We don't have to reinvent the wheel here – there is international experience on which to draw, and good examples from our own experience.
So – to conclude – politics and economic development are inextricably linked. But the institutions and policies that ensure the longevity of the latter require the voice of business in promoting good governance and holding political leaders to account.
If we are to make progress towards rapidly growing our economy, with jobs and opportunities for all, and a more equal distribution of income and wealth, then the business sector needs to be much more actively involved in local government planning, consultation and partnerships, in collaboration with our education and training institutions, and in supporting the growth of franchise networks and other forms of enterprise cooperation and development.