Analysis: To get ahead, South African economy needs entrepreneurial spirit

By J Brooks Spector 3 February 2014

Nigeria has an undeniable entrepreneurial energy that is easy to see. By contrast, South Africa seems stuck with the idea that entrepreneurial behaviour is something difficult and hard to manage – and virtually impossible to encourage. As the economic news in South Africa continues to throw up sobering numbers and as the educational system sends hundreds of thousands of ill-trained, ill-educated young people out into the world, is it time for a real rethink on this? J. BROOKS SPECTOR, who spent a few months in Lagos, contemplates these questions.

Over the past several weeks, I have attended several conferences and briefings on the state of South Africa’s economic circumstances and the prospects for its future. Sadly, each was more negative than the one that preceded it. Moreover, each of these came along before the recent precipitate slide in the Rand’s value and that sudden, unexpected increase in the SA Reserve Bank’s prime rate that – together – would seem to foretell still more bad news just around the corner.

Consistently, forecasters have been insistent on pointing to the economic fundamentals that must be set right if things are not to go seriously awry economically. These include addressing the current accounts deficit, halting the continuing rise in government spending, dealing with the imbalance between wage earners and social grant recipients, coping with the increasingly urgent need for re-industrialisation, bringing national efforts to improve national infrastructure forward from talk to action, and improving social mobility and the earning potential of low wage workers. All of this must also come with the carrying out a thoroughgoing shakeup of education so as to improve the skills of graduates and others who leave high school – and who, under current circumstances, may never be able to find real work.

But in the midst of this troubling contemplation of the country’s economic future paired with the need to train young people for real jobs, one thing seems to have escaped most discussions. There is also an equally urgent need to nurture an entrepreneurial spirit and behaviour in the new generation that can allow them to create their own work.

Lagos, Nigeria is no one’s idea of heaven on Earth. It is loud, crowded, dirty and seemingly chaotic. But in the absence of any real government social support network, everybody who can, works. Or hustles. Hard. Or goes hungry. Fast.

When I drove to work each day, the traffic was mind-boggling but because this traffic moved so slowly, along side the stationary queued vehicles, thousands of vendors were peddling food, newspapers, cell-phone prepaid cards, lottery scratch cards, hot and cold beverages, and even clothes to the occupants of all those vehicles. On one particular day, without exaggeration, if I had decided I no longer liked what I had chosen to wear that morning, I could have purchased a crisp, new, white shirt, a necktie, socks, shoes and a suit – and had that suit altered before I arrived at the office, if needed. One man, moving along on the side of the road, was carrying a sewing machine carefully balanced on his head and was soliciting tailoring work – on the road.

Now, nobody should make excuses for Nigeria’s appalling lack of a genuine social support network, but the country’s agonies have just as clearly goaded people into seizing any opportunity that presents itself – or any they can make happen for themselves. And, similarly, while nobody in their right mind would suggest the path for South Africa’s salvation should run through one of Lagos’ clogged, overcrowded motorways, nevertheless there is something useful to be mined from this, if we can just winkle it out properly.

In recent years, much of the national conversation in South Africa has revolved around how government should encourage job creation and how businesses can be enticed – or bludgeoned – into generating the millions of jobs needed to soak up all the young school-leavers and aspirant employees coming down the road. But to some degree, this entire focus has been mostly beside the point.

No economist or policy maker has yet explained how the South African economy will – under almost any conceivable regimen – produce the five or six million jobs needed to give people a sense of a better future for this nation. The dilemma is clear. If big industry elects to increase workplace efficiencies to kick-start growth and recover market share internationally, such a choice would probably result in even fewer jobs than at present, rather than more employment as government planners might hope for. And that would mean even more government spending on social grant benefits for the unemployed and those out of hope. Alternatively, if the government goes for vast new public works projects employing hundreds of thousands – or even millions – that cost might well break the budget (with the inevitable ill-effects on the Rand that come from having to raise all that needed money through selling more sovereign debt) or lead, alternatively, to major tax increases that have yet other baleful effects. There’s not too much joy here, any which way one goes.

What’s missing in the mix, here, is the impact of entrepreneurial effort. We’re not talking here about praying for a new crop of the South African version of some nascent Henry Fords, John D Rockefellers, or Wilbur and Orville Wrights. But, there were other choices in the past and there can be others in the future.

South Africa once did have a thriving tradition of black entrepreneurs – back in the 19th and early 20th century. When the Kimberley diamond mines first opened up, it was black farmers who supplied the miners with much of the food they consumed. Meanwhile, independent black carters were the individuals who brought much of the mines’ needed equipment and supplies to the diggings, overland from Cape Town or Durban, and usually by ox wagon, before rail service was routine. (According to family lore, some in this writer’s wife’s own family made their living this way, back in the 1800s.)

Then, when the gold mines opened up, this process was effectively repeated – but on an even larger scale. And within the mining camps themselves, black communities quickly took over and ran the large-scale, industrial-style laundry trade, among other services. As the years went on, it seems one of the background rationales that led to a push for the 1913 Land Act that eventually broke the economic position of successful black farmers in those so-called “black spots”, areas where they had continued to hold land tenure and carried on their agricultural activities until the Land Act. One of South Africa’s racial segregation and then Apartheid’s great sins, therefore, was the destruction of an early black entrepreneurial class. Now, hold that thought for a moment.

In the South African discussion about how to regain sufficient economic growth to absorb the millions looking for work, there has been much attention to the so-called “developmental state” model. This, of course, was first designed and implemented in post-World War II Japan; then adopted in South Korea, Taiwan, Hong Kong and Singapore; then implemented, in part, in places as varied as Thailand, Indonesia and Malaysia; and then, of course, now, pre-eminently, in China.

Much of this discussion has usually focused on the role of big industrial conglomerates, with their close, smoothly operating ties that had them adhere to government finance and economic policy guidance. In some cases, it was those even closer ties in operation between state owned enterprises and the requisite government finance and guidance. It is true that such things did – and do happen.

But what such analysis usually leaves out in the local discussion is the crucial (and lesser known) role of thousands and thousands of small, family-owned enterprises and individual entrepreneurs in this system. Critical to the growth of big, well-known companies such as Sony, Mitsubishi or Panasonic, was a huge penumbra of small companies that were the crucial subcontractors that supplied a multitude of parts, subassemblies, services and logistics. These small businesses took real business risks, and they committed to achieving deliveries in conformity with unforgiving production schedules, but they also took enormous pride in their ability to “deliver the goods”, without fail.

Many of these companies were small, family-owned and operated, multi-generational firms with strong engineering backgrounds. They were skilled in making parts with perfectly measured tolerances, just right for building products that has meant the label, “Made in Japan,” has become synonymous with excellence throughout in the latter half of the 20th century. And such companies were significant job creators and absorbers of the country’s labour in its baby boom years as well. Apprenticeship programs (just as in Germany) produced workers who could produce to extraordinary levels of skill and competence. But these small enterprises took risks. Sometimes they failed – but much more often than not, they reaped great rewards as the overall economy grew rapidly.

Now, back to South Africa’s own current crisis. While it is unlikely that families in Soweto are going to be able to transition immediately into high tech engineering firms, many families do find a way to earn a living by being backyard mechanics and carrying out similar activities. And it is well known that small businesses and individual entrepreneurs provide the majority of new employment in a growing economy – if for no other reason than that there simply will be more such enterprises than there are major companies. A small two-person firm, after all, doubles its employment by adding just two more people. By contrast, it is just as clear to almost everyone that big business (or big government) will not be able to hire all the young people coming into the labour pool every year.

Instead, what seems to be needed is real effort to turn these young people into enthusiastic entrepreneurs and entrepreneur-wannabies, with something of the drive (if not that quiet desperation) of those “suits altered while you wait in traffic” Nigerians on that Lagos roadway. The real trick, going forward, will be to build the teaching and learning of those needed skills right into the fabric of education system, before young people leave school – and the desire to put these skills to use in building businesses for the future. If families no longer have these skills from prior enterprises, the schools will have to step up and teach them instead.

This is also going to take a real national campaign to distribute manufacturing away from the big conglomerates and onto the East Asian style of subcontracting out – with appropriate industrial, ecological and human resources standards suitable for a 21st century nation – increasing parts of the country’s manufacturing. Of course regulatory behaviour will need to change too. A recent survey seemed to indicate that it took much longer and with many more regulatory hurdles to overcome to open a small business in South Africa, versus one in Nigeria!

A further benefit from such a national effort, beyond more employment, growth and social stability, would be increased economic flexibility. Small companies and entrepreneurs can respond quickly to trends in the economy and new, unexpected commercial demands. Connected appropriately by the Internet as with the growing standards of the international supply chain networks in manufacturing, such small enterprises become poised to respond to new demands for products and production from all over the nation (and beyond), rather than have this happen inside one industrial plant.

Instead of that fixed obsession on growth numbers, a new industrial policy for South Africa should also focus on spreading entrepreneurial values, behaviour and flexibility as widely and as deeply as possible into the economy – with the goals of both formal growth and real employment. But that will require a real sense that the need is urgent – and that the nation’s development goals must incorporate such efforts at the heart of the national development plan. Time’s a-wasting. DM

Photo: Balogun market twin central Lagos. REUTERS/Akintunde Akinleye)


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