Business Update: Issue 15

Business Update: Issue 15

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Progressive Leader - Issue 19

Progressive leader - Issue 19

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Speeches by Minister Jeff Radebe during the PBF Business Program at the National General Council

We are currently facing three interrelated challenges: unemployment, poverty and inequality. Of these inequality is outwardly the most pressing challenge. As South Africans we have the dubious honour of holding the title of being the most unequal country in the world. We have a skewed distribution of income where, for example, the share of total income going to the top 10% earners is between 60 and 65%. This is higher than all major economies in the advanced as well as the developing world. Inequality is bad for growth and development.

Understanding what inequality does to society is very important. Chapter 15 of the National Development Plan, entitled Transforming Society and uniting the Country, provides us with some profound insights about the corrosive effects of inequality. I want to quote this line: "Inequality hardens society into a class system, imprisoning people in the circumstances of their birth. Inequality corrodes trust among fellow citizens, making it seem as if the game is rigged." This is very instructive. We should ask ourselves, what happens when people feel the game is rigged? When they feel the same rules do not apply to all the players? Quite frankly, they see no need to continue playing the game in which the results of who wins and who loses are predetermined.

But they won`t simply walk away from it peacefully. They protest and try to catch the attention of whoever cares to listen. It is no surprise that workers are making higher and higher demands for wages - their experience is that no matter how hard they work, their personal circumstances do not change relative to the boss`s. We also see this in communities where protests are turning violent because they have seen others enjoying a good life while they can`t make ends meet. Students at universities also feel short-changed by the system and they are beginning to demonstrate their unhappiness in various ways - not dissimilar to service delivery protests in communities. Black students in particular, especially those from disadvantaged backgrounds, feel the odds are highly stacked against them.

What we are seeing today playing out on the shop floor, at university campuses and in our communities is not just a phase that is about to pass. I believe, though, that it will pass when those affected see their circumstances change and feel their pain is taken seriously. It therefore calls on all of us to reawaken our own consciousness and the conscience of a nation. It is a call to action. I know that even the keen supporters of the National Development Plan tend to read the parts they believe support what they stand for. I suspect that many business people like the NDP - what it says about economic growth, infrastructure investment, policy certainty easing the regulatory burden, checking corruption and reducing the levels of crime. And there is nothing wrong with that.

However, I also would want to recommend you read Chapter 15 of the NDP. It tells us, for example, that the deep inequalities and the associated low levels of trust have a highly negative impact on economic development and make it harder to forge a social compact that can move South Africa onto a higher developmental trajectory. Put simply: If we want economic growth, if we want development, if we want prosperity for our future, we must seriously address inequality.

What about our own economic performance? Our economy has been performing below its potential for some time now. Our GDP growth rate has averaged 3.7% in the past 10 years, while the annual GDP growth rate has averaged 1.5% in 2014 and 1.3% in the first quarter of this year.

The NDP`s diagnosis of the South African economy tells us that South Africa displays features of a low growth, middle income trap, characterised by lack of competition, a large number of work seekers who cannot enter into the labour market, low savings and a poor skills profile. Many of these features are rooted in the evolution of the economy over the past 150 years. The nett effect is high levels of unemployment and inequality, and low levels of investment.
Since the global downturn of 2008, our domestic economy has performed poorly and recovery has also faltered. Besides low global demand and significantly low commodity prices, our underperformance is also due to a range of domestic factors, such as decades of underinvestment in economic infrastructure, energy and transport constraints, prolonged and often violent striking action, as we have seen in the platinum belt two years ago, rising input prices and a volatile exchange rate, amongst others.

This performance, however, must serve as a sharp reminder of the fundamental developmental as well as transformation challenges we still face in this land. Surely one of the most important actions to get our economy back on track on a sustainable basis is to agree on the measures to significantly reduce inequality, in addition to addressing energy shortages, infrastructure, skills and other constraints.

The pace of delivering services that does not match the expectations of communities, and corruption - or perception of corruption in government procurement - has dampened trust between government and business and citizens. The collusion by business in various sectors, in particular by construction companies leading to the 2010 Soccer World Cup, has also reduced trust between those sectors in government and the rest of society. The revelations of racism in some campuses and the general slow pace of transformation in higher education is challenging trust between the students and universities. The high level of inequality between the wages earned by workers on the shop floor and the executive pay in many industries fuels that sense of feeling cheated.

There is general sense of pessimism about the future, as shown by the recently released developmental indicators. The trust between key stakeholders in society is being put to the test. This raises the important question of how we can hope to run profitable businesses and manage the objectives of development in a society where trust is low. Unless we act swiftly, this may result in the withdrawal of your moral licence to do business by society. This is also true for us as politicians. We cannot assume that our people will continue to support and vote us into power. We must earn that trust on a continuous basis through our own actions because if we don`t do that, they will withdraw that support and send us to the opposition benches.

What will it take for that moral licence to be renewed? Our NDP makes reference to partnerships 89 times, emphasising the importance of working together in our country. It proposes closer relationship and partnership between countries, friends and people with different economic and social integration contributing to higher rates of growth and development. Seeing that we are having this dialogue with business, let me suggest that a starting point towards securing a renewal of that moral licence to do business is to demonstrate a firmer commitment to helping South Africa address the challenges it faces.

As business people you need to find ways to demonstrate you are not only concerned about making profits but that you also care about your workers and those who are unemployed. South Africans want to see their own companies realise obligations to society as well. They need corporate citizens who know that their responsibility to society goes way beyond merely paying taxes. I know that many companies do wonderful work in communities. But I also want to urge you to find a way of pooling your efforts to make the impact bigger and much more visible.

Let me make a reference to a partnerships that I am aware of where the private sector is partnering with government to address these social challenges. In direct response to the call in the NDP for a national partnership to improve learning outcomes, business leaders, under the leadership of Sizwe Nxasana, approached the Department of Basic Education to initiate a partnership. After a six-month process of consultation and mobilisation of other stakeholders, a partnership was established. The Education Collaboration Trust is an organisation that is totally dedicated to strengthening partnerships amongst business, civil society, government and labour in order to achieve the educational goals of the NDP. It strives both to support and rephrase the agenda for reform of basic education. The programmes being offered by this partnership fall into six categories: Professionalisation of the teaching service; supporting courageous leadership; improving government capacity to deliver; improving the resourcing of education; involving parents and communities in education; as well as enhancing support for learners and promoting their wellbeing. The flagship district-based improvement programme of this Trust is being implemented in eight districts of Limpopo, Eastern Cape, North West and Mpumalanga, and has now reached 4,262 schools.

The other example is a partnership to roll out smart ID cards. The Department of Home Affairs has entered into a partnership with banks to fast-track the roll-out of smart ID cards. This means you can now go to any of the participating banks, apply for your smart ID card and collect it from the same bank when it is ready. This will enable the Department of Home Affairs to expand its reach and shorten the period it will take to issue the cards to every South African. The capacity of the Department is such that it will take roughly 38 years to issue the new smart ID cards to all South Africans. Through this partnership that I have just indicated, it will reduce the time to roughly five years. The process of issuing the new cards will help us to clean the national population register, which will also help reduce the risk exposure for banks. From a risk perspective, this is a win-win partnership.

Operation Phakisa: In the districts where we have introduced Operation Phakisa, the process has helped participants to identify areas where they can work together to address developmental challenges and unlock business opportunities, as well as potential for growth and development. The methodology being used in Operation Phakisa fosters the partnership approach to tackling challenges that has been promoted by the NDP. I would encourage greater participation in these processes when they are introduced in your sector. They help different parties find each other. Operation Phakisa alone has identified opportunities in offshore oil and gas, in marine manufacturing and transport, in the manufacture and maintenance of ICT equipment, and in education, amongst others. We will be introducing Operation Phakisa in mining soon and further opportunities will be there in the future.

Business opportunities in the National Development Plan: The NDP sets out a very ambitious development vision supported by infrastructure investment programmes. It sets out to grow economic targets that are necessary to provide opportunities to everyone. As you know, we are not closer to meeting our economic growth targets, as the President highlighted recently. And this, in our view, provides an opportunity for business and government to work closely together to address the bottlenecks that are preventing us from reaching those goals. It is accepted that the private sector needs to play a bigger role in growing the economy and also in the creation of jobs.

To enable everyone to achieve a decent standard of living as it is envisaged in our plan, it requires a resize of our economy measured by GDP to three times its current size by 2030. That`s radical socioeconomic transformation. Just to put this into perspective: The economy now, during two decades of our democratic dispensation, has grown to two and a half times its size. Clearly, we must do much better than in the past 20 years. What this means, practically, is that each company should have a growth strategy of how to triple its size by 2030. As I mentioned, other targets such as a reduction of unemployment, and investment, amongst others, requires equally bold actions on the part of the private sector.

NDP implementation by government: Our government has decided that the current medium-term strategic framework will constitute the first five years` implementation plan of the NDP. The framework focuses on 14 developmental outcomes that mirror the 14 semantic areas mentioned in the NDP. Various proposals and commitments of the NDP have been incorporated into the plans and targets of respective departments, state-owned companies and other public entities, including the other spheres of government, the provinces and local government. Through this mechanism, our government is driving implementation in state institutions. We have also approved a national infrastructure plan whose implementation is coordinated through a presidential infrastructure coordination commission and the 18 strategic infrastructure projects that have been identified and clustered under each of those areas. Government has also introduced, as you are aware, a nine-point plan to accelerate the implementation of the NDP and also to address constraints such as to revitalise agriculture and agro processing, value-chain advancing beneficiation, ensuring we implement the industrial action plan and unblock the potential SMMEs, cooperatives and enterprises in our townships and villages, resolving the energy challenge, stabilising the labour market, scaling up private sector investment, the green economy and other crosscutting issues in terms of reform, R&D, innovation, water and sanitation, and broadband roll-out, amongst others.

In conclusion: As the saying goes, a problem is a business opportunity waiting to be realised. And, therefore, the many challenges facing our country present massive business opportunities. However, the realisation of those opportunities depends on what I call the moral licence to do business. The NDP, as we have indicated, requires that sectors, business included, need to work very hard to regain the trust of all South Africans. The NDP calls on all of us to work together in partnership and to forge a social compact on measures we will take to advance on the challenges that are holding us back. It will not be easy, and will at times require sacrifices to be made. We should approach this task at hand with an open mind and a commitment to change. Time is not on our side - let us get down to work.

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