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SA’s inevitable slide into mediocrity – a bystander perspective

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Robert Vos ran his own company selling bookbinding and related machinery and supplies to the printing and allied industries from 1985 till he retired in 2015. He lives in the Western Cape.

In Tim Cohen’s article on Transactional Analysis, he asks the burning question: ‘Why is the South African economy failing, not just now, as one might expect, but generally?’ The answer to this is complex and there is no single explanation.

To attempt an answer to Tim Cohen’s article on Transactional Analysis (Business Maverick 11 May 2020), we need to ask a question – simply: “What starts a business?” Most businesses start when a person, or group of people, come up with an idea to make money from a feasible notion. In a lot of cases, the core interest in the business model would be a desire to market an idea or product that the originators have a passion for – there would be little purpose in putting energy and capital into an enterprise that does not, in some way, “touch the soul”.

With all the enthusiasm you can muster, you cannot get a business off the ground without a pile of capital. Starting a financial advisory enterprise, such as an investment company, for example, needs a relatively small amount of capital. However, if your passion is manufacturing, you will require a much larger chunk to fund the machinery and time span to bring a product to market. Raising capital is complex and time consuming. You may have the passion, but whoever lends you the money for your ambition will require convincing through logical and reasoned motivations.

Thereafter follow other factors such as finding premises and hiring staff (as few as possible to start with) to get your business up and running.

These are all logical steps to get an enterprise off the ground. What is not so obvious to the casual outsider seeing a business start up and grow is the amount of stress and personal sacrifice that often accompanies this process. Raising capital is very often only possible by signing personal guarantees, backed by putting up your home or personal assets as collateral. The bank or lending institution therefore carries very little of the risk for the reward they get in the form of interest on your loan. Then there is the lease on premises, which you might have to sign and commit to for up to five years.

Most entrepreneurs are aware of these hurdles, and are prepared to take chances to realise a financial dream that will – hopefully – provide them with enough money to support their families, and in so doing, also enjoy the thrill of owning their own business and hopefully one day have enough money to retire.

Which brings me to the point of this article – why is SA’s economy failing?

It is government’s responsibility to create an environment in which businesses have the opportunity to start up and prosper. With freedom to operate and supportive legislation, businesses and the economy will flourish, the country’s citizens will be gainfully employed, and the government will have a steady flow of tax funds to provide the means to look after infrastructure, and provide a social net for those in need.

After 1997, SA embarked on a programme to reverse the destructive laws which held back the black population and enabled the white population to prosper. While most business folk were not particularly fond of laws to reverse the status quo, they realised that the black population had suffered a huge injustice, and had been severely disadvantaged by apartheid. And conversely, that white businesses had benefited unfairly under the apartheid regime.

The challenge on how to remedy this situation successfully was always going to be to ensure that the black population was brought into the mainstream economy as speedily as possible. Without a symbiotic benefit, the diametrically opposite outcome of this was going to be achieved. This is what has happened.

Over many years, numerous successful businesses were built up in South Africa. Capital and wealth grew, and a treasure trove of knowledge and experience, both technical and financial, was amassed. This applied to the private sector, where most businesses succeeded, as well as in the public sector that on the whole ensured that the country’s infrastructure was maintained while our public finances and currency were kept on a sound footing.

The end of apartheid, and the ushering in of a democratic government in 1994, meant that the status quo was going to change – quite rightly, and inevitably so. Most white South Africans saw this as an opportunity for the country to aim for a normal and fair social and business footing. This could only be good for companies and for the economy.

Following the installation of the all-new, democratic government, the Department of Labour established a Ministerial Legal Task Team to draft new labour legislation, and in 1995, the new Labour Relations Act (Act 66) was created, and came into effect in November 1996. The purpose of the act was to introduce fair labour practices by establishing and making provisions for the regulation of basic conditions of employment. Tito Mboweni, SA’s Labour Minister from May 1994 to July 1998 and currently our Minister of Finance, was tasked with introducing this legislation.

Most of the legislation was adopted from the International Labour Organisation (ILO) of which South Africa is a member state. So far, so good – the need to protect the working class from exploitative capitalist bosses definitely had merit. The management of this legislation was entrusted to the Council for Conciliation, Mediation and Arbitration (CCMA), with final oversight by the Labour Court.

From the beginning, laws governing employment were heavily skewed in the favour of workers. This was undoubtedly a reaction to the harsh apartheid laws that had pitted bosses against their employees for so many years. The CCMA invariably ruled in favour of employees, very often with questionable bias. Although decisions could always be taken on review to the Labour Court, the delay in getting a hearing, as well as the costs involved, made taking this route costly and extremely unpleasant.

The status quo heavily favoured workers and generally did not look kindly on employers. This resulted in employers reducing employment numbers, and in many cases introducing mechanisation and automation. Outsourcing workers through labour brokers also became popular as a means to steer as far away as possible from time-consuming and costly labour administration. In many cases, the government also resorted to this method of “employment”, recognising the debilitating and other unintended consequences of their own legislation.

The new administration looked for ways to redistribute the assets and wealth in the country to the black majority, and in 2003, Black Economic Empowerment legislation was passed. The government had already embarked on a massive programme to replace white public sector workers with ANC cadres, and it was time to start on the business sector.

Public companies became easy targets, and deals were done to transfer a percentage of their shares to a select number of black citizens – the majority of whom were ANC members. These were “Sweetheart Deals” that made many of the selected recipients fabulously wealthy, as the repayment terms for the shares were invariably deferred to future dividend pay-outs and profit earnings. These deals helped set the country on a path to become one of the most unequal societies in the world.

Private companies did not escape this form of “indigenisation”, and codes were promulgated to forcefully empower blacks in private businesses. Existing businesses with no, or low, code compliance levels found it almost impossible to sell products and services to government, public companies and indeed to other small businesses.

However, the system of BEE was flawed, in that only a small percentage of blacks benefited from the redistribution of shares in companies, or from their elevation to management positions. The vast majority of the black population became more and more isolated from mainstream business activity. The government recognised this shortfall in their intentions, and in 2007, passed the Broad-Based Black Economic Empowerment legislation to attempt to rectify the situation.

There was never a “sunset” clause put in BBBEE legislation and it is anyone’s guess when the intention to eventually pass ownership of the SA economy completely to the black majority will reach an end date.

Legislation extending BBBEE to key segments of the economy by industry-specific charters was also promulgated. In 2018, for example, Gwede Mantashe, the Minister of Energy and Mineral Resources, introduced a new mining charter.

As suggested earlier in this article, business flourishes best in an environment that allows it to operate freely and with as few restrictions as possible. It takes a lot of courage and capital to start a business or launch a new venture, and if the government of the day puts too many onerous requirements in place to further a particular agenda, it will be one more reason to hinder a start-up.

To force businesses to indirectly pay restitution for the laws that held blacks back more than 25 years ago has proven to be counterproductive, creating an environment of entitlement and mediocrity. This has further encouraged the unfettered power of a militant trade union movement that has seen its membership levels drop dramatically.

By embracing a pact with the SA Communist Party and The Congress of South African Trade Unions in the political arena, the ANC has created a situation where conflicting interests rule. The current stalemate in negotiations over public servants’ wage increases is a typical case in point. A political party that is so uncertain of its popularity at the voting polls that it needs to co-exist with movements that have conflicting interests, will surely be hindered in delivering its mandate when in power.

The political landscape in Africa is complicated, and in a democratic environment, black majority governments are inevitably going to rule. However, the global economy operates according to Western business principles, which are mostly based on capitalist doctrines.

Countries that have tried to run their economies on a purely communist or socialist creed have failed dismally. Both of these doctrines can only survive in a strong capitalist environment, as they both require a strong financial platform to work from – they cannot exist successfully in isolation. The ANC needs to understand this, and embrace it, as unpalatable as it might be to some of its members.

Wealth can only be shared once created. Poverty is spread wider when wealth is depleted. The colonisation of Africa brought with it many problems, but the continent benefited from the wealth of knowledge and financial, and intellectual capital that came with it.

Africa, in the 21st century, has the right to reject all the bad influences western colonisers brought with them, but it would be prudent for African leaders to retain those properties that make it possible for this continent to prosper in the modern world. Embracing only so-called Chinese or Russian benefactors as a panacea for all of Africa’s woes would be foolhardy. In any case, Russia and China are leading world countries when it comes to embracing international capitalist trade systems.

We now know that South Africa’s economy was thoroughly decimated during the rule of ex-president Jacob Zuma. State-Owned Enterprises (SOEs) were used as vehicles for looting and law enforcement agencies that could have brought those committing this plunder to book were hollowed out, rendering them ineffectual. Most of the wealth created since the ANC government came to power was siphoned off, and almost all SOEs are no longer viable. It is in this financially challenging environment that South Africa finds itself today.

The questions that we now need to ask are:

  • Will the country stick to its doctrine of redistributing poverty that the government has created?
  • Will the devastation caused by Covid-19 be opportunistically abused by the ANC to reengineer the economy, and send it into an ever declining spiral?

Or,

  • Will the ANC enthusiastically create the environment required for businesses to prosper, thereby creating new wealth for the country?

African countries have generally adopted the view that they should run their economies the African way, though this has not proved successful when it leads to subsistence farming and roadside trading, neither of which build up sustainable economies. Embracing a Western style of business model as the mainstay of the economy in South Africa is more likely to create jobs, generate taxes sufficiently to raise the level of education SA so desperately needs, and provide the safety net to look after the most vulnerable in our country.

Does the ANC have the courage and pragmatism to embark on this route, or are we forever going to be subjected to the destructive, fractious politics in which they so selfishly indulge? BM/DM

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