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PBF report on the Business Breakfast series held at the National General Council of the ANC

Business Breakfast Series, 9-12 October 2015

Executive summary

Following the National General Council of the African National Congress, the Progressive Business Forum (PBF) presented a series of four business breakfasts and four roundtable discussions, at Gallagher Estate, Midrand, the first being on 9 October and the last on 12 October 2015. The breakfasts were facilitated by Daryl Swanepoel, PBF convenor.

The National General Council was a three-day event at which over 2000 delegates from across South Africa gathered at Gallagher Estate. The objective was to reflect on the state of the nation, the state of the economy and the state of the ruling party. The Council concluded with the adoption of a set of policies, a declaration and a way forward for the next years of ANC governance, and the concomitant challenges.

The breakfast series was aimed at sharing these policies with the business community of South Africa, which is the mandate of the PBF, the business programme of the African National Congress. The objective of the PBF is to promote honest, frank and open discussion between South African business and the movement, as the primary policy developer of South Africa.

A particular focus of the breakfast series was the National Development Plan (NDP), created as the ANC government’s economic plan. Development of the NDP began in 2010, with the President’s appointment of the National Planning Committee, consisting of 26 people primarily from outside government. A process of consultation followed, involving community formations, business (through chambers and sector bodies), unions, the non-profit sector, parliament, and development finance institutions. The NDP emerged as an ambitious development vision supported by infrastructure investment programmes, setting out economic growth targets.

The NDP is core to the ANC government’s response to the depressed nature of the South African economy, aiming to balance development and redress by acknowledging the interlinkages between the triple challenges of poverty, inequality and unemployment. The NDP has identified critical success as South Africa’s achievement of a Gross Domestic Product (GDP) of 5%, or a doubling of the GDP capital by 2030. In addition, unemployment is to be reduced from the current 25% to 6% by 2030. This is to be achieved through creating 11 million jobs, largely through small and medium economic enterprises (SMMEs).

The government’s current medium-term strategic framework constitutes the first five years’ implementation of the NDP. This framework focuses on 14 developmental outcomes, proposals and commitments which have already been incorporated into government departments and state-owned companies and entities. A national infrastructure plan of 18 Strategic Infrastructure Projects (SIPs) forms part of these outcomes, the implementation of which falls under the Presidential Infrastructure Coordination Commission (PICC). Government has also introduced a nine-point plan to accelerate the implementation of the NDP.

Through the series of presentations and discussions, the NDP was explored from various perspectives: the Minister of Trade and Industry set out in detail the government programmes directed at the manufacturing sector; the Minister in the Presidency set out what he regarded as some key challenges, particularly the trust deficit in our society, but also gave some examples of successful partnerships between the business community and government; the Minister of Small Business Development gave an overview of the important role of small business, cooperatives, and township enterprises in the economy, and how government can promote these important forms of productive enterprise; and the Minister of Economic Development presented a clear framework as to the economic thinking of the government. The ANC Treasurer General also had the opportunity to give the ANC view on some of the key issues, including the importance of a deeper dialogue between business and labour, as well as the need for integration in the economy of Africa.

The importance of this series of interactions was highlighted by the Treasurer General, under whose purview the PBF falls, as a way for South Africans to join together and discuss solutions to create a bright future for all, and send a message of hope.

Friday 9 October 2015, Business Breakfast hosted by Multichoice

The first of the series was hosted by Multichoice, represented by Nolo Letele, the Executive Chairman, with the keynote speaker being the Minister of Trade and Industry, the Hon. Dr Rob Davies, MP.

Also attending the breakfast were the ANC Treasurer General, Dr Zweli Mkhize; former Treasurer Generals, Mr Mendi Msimang and Dr Mathews Phosa; members of the ANC National Executive Committee; ambassadors; Ministers and Deputy Ministers; members of the PBF, and representatives of the South African and African business community.

1. Introductory address: Nolo Letele, Multichoice

The ANC-led government must be acknowledged for opening trade pathways for South African companies over the past 21 years. As a proudly South African company, Multichoice aligns itself with the Department of Trade and Industry’s (DTI) vision of a dynamic industrial and globally competitive South African economy, characterised by inclusive growth and development, decent employment and equity, built on the full potential of our citizens. This commitment is evident in the local manufacture of the DSTV Explorer Decoder, which has created employment opportunities for the community of East London. This proudly South African product was recently recognised as the 2015 South African Television Product of the Year. In total, Multichoice employs over 10 000 people directly and indirectly in South Africa, while operating in 49 African countries.

2. Summary of ministerial input

From the DTI’s point of view, industrialisation is central to future economic growth in South Africa, in the face of the aftermath of the global economic crisis, which has led to generally depressed conditions in the world economy, with the International Monetary Fund (IMF) downgrading its growth expectations for the world economy in 2016.

However, a second area of impact offers new challenges to global trade, particularly in terms of much reduced prices for primary products. The price of platinum is two-thirds of the 2012 price, while gold is at half, and iron ore at one-third of the price. Overproduction in the steel sector has meant a glut, with low-priced steel being dumped across the world. As the South African economy is based on the production and export of primary mineral commodity, this is a challenge – which is also true of Australia, Canada, Brazil, and many African countries.  It is therefore essential for South Africa to shift places in the global division of labour, from producer and exporter of primary commodities and importer of finished goods, to move up the value chain and begin industrialising, developing a stronger service sector.

In response to these challenges facing the economy, the National Development Plan (NDP) has nine focus areas, amongst others, the energy sector; the agricultural sector, and a higher impact industrial policy action plan. The latter is the focus of the DTI.

Industrial policy works when it is purposefully implemented, and is the product of research consultation relevant to industry performance, where government and business work together. Results are not instantly felt, rather in about five or six years implementing the programme.

Over the past five to six years, results have already seen in the South African economy: while there has been a contraction in mining, there has actually been positive growth in the economy, for instance in agro-processing; metals fabrication; business process services, and the film sector, amongst others.

One success story is in the automotive industry, where the DTI introduced an automotive production development plan, fast-tracking the automotive incentive scheme. Over the past five years, R27.5 billion has been invested in the automotive sector, including significant investment by established original equipment manufacturers. The plan also includes the entry of new original equipment manufacturers. This has led to the local manufacture of minibus taxis, as well as heavy and medium commercial vehicles. In turn, the export of motor products has grown.

Similar successes have been seen in the clothing, textiles, leather and footwear industries, which lost 45 000 jobs between 2000 and 2010 and faced imminent disaster. Instead, an incentive programme was introduced to increase competitiveness in the sector in the area of fast fashion; that is, developing on-trend clothing in South Africa before the imported items arrive, and thus giving South African products a head start.

Perhaps the greatest success is in developing the green economy. South Africa has the largest renewable energy programmes in Africa, with the design thereof being one of the best in the world. Investment in wind and solar power requires localisation, with wind towers and solar equipment being produced locally.

The DTI is intending to prioritise three more sectors for high impact work. The first is the oil and gas sector, working with Operation Phakisa and the Oceans Economy to develop opportunities for the servicing of oil equipment, such as at the industrial development zone in the Saldanha area. A second sector is agro-processing, as linked to the agricultural value chain, which will create jobs and drive agricultural development. The third sector is metals, with the development of a range of metal products capital equipment in engineering activities, linked particularly to an infrastructure programme.

The question is what drives industrial development. The first requirement is industrial finance, with the commercial finance sector unable to provide support for industrial development in South Africa. A first step has been to develop, support, and combine the efforts of development finance institutions. As a result, between April and December 2015, investments worth R7.7 billion provided support to industrial development projects. Furthermore, the DTI offers tax and other incentives for development.

Then, there is infrastructure-driven industrialisation, with R1 trillion being invested in the government’s previous term. For example, development in the railway sector has led to the local production of bus bodies, rather than these all being imported, as was the case for the 2010 World Cup.

A third driver is resource-based industrialisation: in order to deal with the dropping of commodity prices, Operation Phakisa will be rolled out in the mining sector in order to generate new uses for mineral commodities and hence associated industries. One possibility is the establishment of platinum-based special economic zones, where jewellery can be produced, as well as catalytic convertors for the motor industry. This will drive further industrialisation in terms of energy production, such as in small power stations in communities, which is in experimentation.

The fourth driver is advance manufacturing driven, innovation driven industrialisation, while the fifth driver of industrialisation is African regional integration. A priority for integration is the establishment of large free trade areas that reach beyond the existing regional economic communities, such as a SADCC/COMESA African Community Free trade area, and eventually a continental free trade area. SADCC has produced a vision document, which will become an action plan in March 2016. However, the approach to integration has to be driven by the concept of development integration, such as addressing the infrastructure backlogs that hinder the linkage of economies and the promotion of regional trade beyond the existing 14%. Furthermore, growth cannot occur if South Africa simply continues to provide manufactured goods into the African continent. Instead, South Africa needs to support industrial development as well, and allow African manufactured products a place in the South African market.

Policy development on the part of government is also required for the development of industrialisation in South Africa. For example, while manufacturing is a key driver of growth in the economy, the sector remains one of the least transformed in terms of BEE. Companies have benefited from the incentives for meeting levels of BEE; however, the number of black-owned companies involved in the manufacturing sector remain small. A key flagship project is being developed to support black industrialists. Tools will include new BEE codes, which require industry to have a supplier development programme, as well as R1 billion incentives from the DTI and R23 million from the Industrial Development Corporation (IDC).

The policy of localisation has also been established, including a designated list of 16 products to be procured locally, including transformers, powerlines, construction vehicles and materials, and clothing and footwear. These designations have already had an impact in the railway sector, where manufacturing has been stimulated. This policy will be monitored and breaches in compliance dealt with.

However, challenges to industrialisation remain. The question of a depressed global economy has already been mentioned, along with the serious weakness of the steel industry. Within South Africa, the demand for sufficient, affordable electricity continues to grow, with long-term challenges being faced in terms of supply and pricing. Similar challenges are true of water supply. Then, localisation and competitiveness are a challenge, with imported products being cheaper than locally produced items. The regulatory burden also hinders development; however, a stronger one-stop shop for investors is being created, as well as a presidential forum on investment, which will smooth the path for potential investors. Furthermore, there is a lack of coordination and alignment of and support for industrial financing.

Nonetheless, while there are challenges to industrial growth in South Africa, the necessity of South Africa moving up the economic value chain cannot be understated. Policy tools are already in place, and success stories abound. By government working together with business and organised labour, the National Development Plan can grow the economy.

3. Discussion

3.1 Aspects of the NDP

(a) The role of education in the NDP

Enquiry

How does the challenge of education and training in South Africa impact on industrial development?

Response

Training and skills development is crucial to industrial growth, and is one of the areas on which companies will be scored for DTI incentives. This is true of local and international investors, as well as of government, who are supporting skills development programmes.

(b) The Black Industrialist Programme

Enquiries

  • Will substantial state procurement drive the Black Industrialist Programme, while another 50% of the procurement will be driven by market forces? Does the state have the ability to back up these programmes?
  • How will government induce the private sector, particularly private sector financial institutions, to participate in and contribute to this programme?
  • Will this programme be available for projects on a small, local level?

Response

The policy framework for this programme is yet to be approved. However, the intention is that this programme is going to be focussed on industrialists only, not suppliers or other intermediaries in manufacturing. The plan is to have a filtering and then a high-level assessment of promising proposals and projects, the best of which can then be fast-tracked, whether in terms of access to financial, technical or other support. A number of levers can be deployed to support this programme, including pledges from at least two government agencies, but also private funding.

The DTI does not have the capacity to deal with matters on a local level. Instead, this programme will be driven from a municipal and provincial level through industrial development zones. The idea is to find people who are passionate about their ideas and projects, and then take them a step forward.

There are other existing programmes, for example the manufacturing competitiveness enhancing programme, through which industrialists can access incentives. There are also innovation programmes, where research is transformed into commercially viable projects. These incentivising programmes are continuously being reviewed and improved to provide the greatest support for industry itself, not for intermediaries.

(c)  The automotive sector

Enquiries

  • Alongside incentives for the automotive sector, has the government considered a value chain impact in terms of influencing sourcing patterns, as well as the level of transformation?
  • Is the government considering a Sector Charter for the automotive sector?

Response

The biggest area of job creation in the automotive sector is component manufacturing; however, for this area to grow, more investment is needed in original equipment manufacturer (OEM). Without OEMs, there can be no component manufacture: the two are interlinked on the value chain. However, there are a further six sub-sectors that are linked in the automotive sector, which employs at least 300 000 people.

Support is already offered to companies that create jobs and high levels of localisation. These incentives are aimed to broaden the base of component manufacturing, which has already been noted as a focus of job creation.

A Sector Charter has been mooted. However, existing legislation in the BEE Act of 2014 has regularised questions of BEE recognition, with the automotive industry being given two years to reach BEE level 4 before the incentive support programme kicks in.

3.2 Foreign trade

Enquiries

  • Will the proposed Private Security Amendment Bill breach the law on international trade?
  • What, if any, plans are there to invest in Mozambique?

Response

The Bill will have no influence on whether South Africa remains part of the Africa Growth and Opportunity Act; instead, the focus will be on the three meats, where a quota for poultry has already been agreed. Negotiations continue regarding fruit exports, particularly to China.

In terms of the Trading Services agreement at the World Trade Organisation (WTO), South Africa has made a commitment to be open to foreign investment, and any new negotiations will probably result in compensation being offered. The bilateral investment treaties have already lapsed, but as there is existing investment, they will have to become a forum for discussion.

South Africa supports investment in Africa, and significant investment has already been made in Mozambique in the gas and oil sectors, and the agricultural sector. Further cooperation in terms of oil and gas projects is already planned. That said, co-investment between public institutions and other investors, particularly foreign direct investments, is important, and the role of development finance institutions and corporations in leveraging this is central.

4. Conclusion

While the NDP targets various economic sectors. The DTI sees the growth of industrialisation of the economy as having a particular potential to grow South Africa’s footing in Africa as well as globally. With the decline in growth in the export of primary products, it is essential for South Africa to move up the value chain, to the production, manufacture and service industries. To this end, the DTI has in place various policies and programmes to develop industry in South Africa, and resultant successes have already been seen in the automotive, clothing and textile, renewable energy, and agro-processing sectors.

New policies and programmes are continually being developed, including the establishment of an integrated free trade region in Southern Africa, as well as the mooted Black Industrialist Programme, which aims to transform the industrial sector in South Africa.

Saturday 10 October 2015, Business Breakfast hosted by Mphaphuli Consulting

The second breakfast was hosted by Mphaphuli Consulting, represented by Lufuno Mphaphuli, with the keynote speaker being the Minister in the Presidency, the Hon. Jeff Radebe, who is also the head of the ANC’s policy unit.

Also attending the breakfast were the ANC Treasurer General, Dr Zweli Mkhize, and his wife; His Worship, the Lord Mayor of London, Alderman Alan Yarrow; Her Excellency, The British High Commissioner, Judith MacGregor, CMG, LVO; the Rt. Hon. Baroness Patricia Scotland, the British Trade Envoy; the Minister of Tourism, the Hon. Derek Hanekom; members of the ANC National Executive Committee; members of the PBF, and representatives of the South African and African business community, including the Black Business Council, Investment Solutions, and AgriSA.

1. Introductory address: His Worship, the Lord Mayor of London, Alderman Alan Yarrow

The relationship between South Africa and the United Kingdom (UK) is very strong, based on a history of collaboration and partnership. For contemporary and current reasons, this relationship appears to be growing ever stronger.
Over 300 South African companies currently operate in the UK, with South African investment up by 17%. There is also increasing UK investment in South Africa, with direct investment of about £72 billion making the UK one of, if not the largest investors. Through the National Development Plan (NDP), this investment can continue.
The NDP paints a bold vision for South Africa’s economic trajectory. At the centre of this must be effective and progressive partnerships formed between public and private sector, with business playing a crucial and leading role in driving the economy forward. However, the principles of the NDP are not merely economic in nature. Instead they provide a framework in ensuring the transformation of the South African society to one in which the challenges of poverty, unemployment and inequality are meaningfully addressed. South Africa cannot afford to achieve growth in a vacuum: it must strive for growth that simultaneously empowers and incorporates those who have been excluded from the economy.
The UK is committed to partnering with the South African public and with the private sector in the NDP initiative, particularly in the key areas of energy and infrastructure. There is much evidence that this can be done, through leveraging UK support in terms of finance, delivery, education and training, and extensive experience in areas such as public-private partnerships (PPPs), and through a mutually beneficial relationship of support.
2. Summary of ministerial input
South Africa is facing three interrelated challenges of unemployment, poverty and inequality. Of these, inequality is outwardly the most pressing challenge: South Africa has the dubious honour of being the most unequal country in the world. In terms of income distribution, for example, around 65% of South African income goes to the top 10% of income earners, which is higher than all major economies in the advanced as well as the developing world.
The fact that inequality is bad for growth and development has been recognised in the NDP. Chapter 15, entitled Transforming Society and uniting the Country, provides an insight into the corrosive effects of inequality: “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.” Unfortunately, the low levels of trust engendered by inequality has a negative impact on economic development, as a social compact cannot be forged to move South Africa forward. This means that if South Africa wants economic growth and prosperity for the future, inequality first needs to be addressed.
The current state of the economy speaks into the failure of equality. South Africa’s GDP growth rate 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 2015. The NDP’s diagnosis of the South African economy tells us that South Africa displays features of low growth, the middle income trap, a 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.
The global downturn of 2008 has only exacerbated these problems. However, low global demand and significantly low commodity prices apart, domestic factors, such as decades of underinvestment in economic infrastructure, energy and transport constraints, prolonged and often violent strike action, rising input prices, and a volatile exchange rate are also responsible. Frustration with the economy and the slow pace of transformation can be seen in the protests around labour disputes, service-delivery, and university access, which will only be resolved when disadvantaged South Africans see their pain acknowledged and their circumstances changing.
It is a priority to get South Africa’s economy back on a sustainable basis, which must begin with agreement on the measures to significantly reduce inequality in addition to addressing energy shortages, infrastructure, skills and other constraints. Unfortunately, there is a general level of pessimism about South Africa’s future, and trust between business and society is being put to the test. Trust can only be earned through visible action, through businesses demonstrating care for workers and also the unemployed; through social integration; through partnerships between business and government, between South Africa and other countries; and through a firm commitment to help South Africa address the challenges it faces.
The thrust of the NDP is to create opportunities for partnerships between business and government to grow the economy, increase investment, and create jobs. The NDP makes reference to partnerships 89 times, emphasising the importance of different actors in our country working together.
Successful partnerships have already been created in various sectors, for example in addressing the social challenge of improving learning outcomes via the National Education Collaboration Trust. This organisation is dedicated to strengthening partnerships between 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: professionalization 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, which has now reach 4262 schools.
Another example is a partnership between the Department of Home Affairs and banks to fast-track the roll out of smart ID cards. This will enable the Department of Home Affairs to expand its reach and shorten the period to issue the cards to every South African from 38 years to five years. The process of issuing the new cards will help 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 fosters the partnership approach to tackling challenges identified by the NDP by helping participants to identify areas where they can work together to address development challenges and unlock business opportunities, as well as potential for growth and development. Operation Phakisa has identified partnership opportunities in offshore oil and gas; marine manufacturing and transport; the manufacture and maintenance of ICT equipment; and education, with a programme for mining to come.
The attitude South African business needs to take is that the many challenges facing our country present massive business opportunities. However, the realisation of those opportunities depends requires that all sectors, business included, need to work very hard to regain the trust of all South Africans. The NDP calls on South Africans to work together in partnership to overcome social and economic challenges.
3. Discussion
3.1 Policy and legislation
Enquiries

  • Has government undertaken any impact assessment on the proposed Private Security Regulation Act, and what are the findings?
  • What is the government’s response to the concerns around the new visa act?
  • Has the National Youth Policy 2020 been approved?

Response
The Private Security Bill is yet to be signed into law. In July 2015, Cabinet approved that as of October 2015 all policies and legislation be subject to a socioeconomic assessment (SEAS). Going forward, no Bill will come before Cabinet unless it has been subjected to the SEAS.  
In terms of the new visa requirements, it has been become clear that despite the best intentions, there have been unintended consequences. The President has appointed a core group of ministers to investigate the issue.
The National Youth Policy (NYP) 2020, which focuses on measures needed to support youth development in our country, has been approved. This is important as 60% of South Africa’s population consists of young people, who also form the biggest proportion of the unemployed. Deputy Minister in the Presidency, Buti Manamela, working very closely with the National Youth Development Agency, oversees the NYP 2020.
3.2 The role of local government
Enquiry
How can business and local government work together effectively in the face of bureaucracy and a lack of commitment on the part of the latter?
Response
Unfortunately, local government has not been a major focus of the ANC government. However, the President together with Minister of Finance, Pravin Gordhan, have launched a “Back to Basics” programme, aimed at the renewal of local government. The intention is to reignite the energy of local government so that the focus can return to serving the citizens of South Africa. One aspect is the skills audit, so that appropriately qualified people can be appointed to serve at a local government level.

 

3.3 The role of the agricultural sector
Enquiry
How important is the agricultural sector for economic growth in South Africa?
Response
The agricultural sector is one of the priorities of government. In the 2015 State of the Nation Address, the first point was the issue of agriculture and agro-processing, and the support of emerging farmers in South Africa. Government values the partnership with AgriSA and looks forward to future cooperation. As part of the NDP, Operation Phakisa has identified aquaculture as a critical component of growth, with 24 projects already designated for implementation.
3.4 The relationship between the City of Johannesburg and the City of London
Enquiry
To what extent can the relationship between these cities be used as a platform for further dialogue?
Response
There is a very close association between the City of London and Johannesburg, with a commitment to support the development of South Africa. There is close cooperation in the financial sector in particular. London is the world’s largest international financial centre, handling 44% of the foreign exchange trade in the world, totalling $9 trillion. This is because of the rule of law, the understanding of law and contracts, something which is understood very well in South Africa. Commercial contracts and English law are exactly the same, so there is a huge amount of symbiotic relationship between the two.
Furthermore, the growth of the small, medium and micro-enterprises (SMME) sector is important to the relationship. About 95% of businesses in the UK are SMMEs; this is also the sector of the economy which increases employment. However, SMMEs are a vulnerable sector of the economy, exploited by large companies and even by government in terms of a lag in payment. This puts cash flow under pressure, which can destroy SMMEs. There needs to be very strong leadership, starting with government, to make sure that the cash flow goes through the economy so that the SMME sector does not get starved of cash.

4. Conclusion
Through the NDP, the ANC government is committed to growing the South African economy in all sectors. One important foundation of this growth is the eradication of inequality and the building of a trust relationship between different economic groups in South Africa. A central relationship is that between government and the business sector, as about 70 to 80% of the South African economy is in the hands of the private sector. 

 


Sunday 11 October 2015, Business Breakfast hosted by Velani Unlimited
The third breakfast of the series was hosted by Velani Unlimited, represented by Eddie Majozi, Chairman of Velani Unlimited and Freedom Hadebe, CEO. A presentation by the ANC Treasurer General, Dr Zweli Mkhize was followed by the keynote speaker, the Minister of Small Business Development, the Hon. Dr Lindiwe Zulu, MP.
Also attending the breakfast were; the former Treasurer General, Dr Mathews Phosa; the Ambassador of the European Union; the Ambassador of Mauritius, other members of the diplomatic community; members of the ANC National Executive Committee; Ministers and Deputy Ministers; Members of Parliament; Prof Edith Vries, Director General in the Department of Small Business Development; members of the PBF, and representatives of the South African and African business community, including Standard Bank and AgriSA.
1. Introductory address: Freedom Hadebe
Velani Unlimited has grown from an idea to changing people’s lives, with community engagement and transformation central to their approach. The company is involved in construction of schools, low cost housing, clinics, and hospitals; in water, sanitation, waste management and contract cleaning, with a focus on restoring people’s dignity; and in the medical sector, aiming to save people’s lives. Through a flagship recruitment and employment process, communities remain empowered once Velani projects have been completed there.
It is through companies with passion for business and community partnering with government that solutions can be found to the challenges of South Africa’s economy and opportunities for transformation grasped.
2. Summary of the Treasurer General’s input
South Africans need to unite to face the current difficult economic challenges. The answers to these challenges lie within government, the political sphere, the business sphere, and civil society. Unfortunately, there is a spirit of pessimism and negativity in South Africa, a dismissal of the opportunities before us. This can be overcome through communication based on trust and good faith, as well as good governance, the fight against corruption, and a desire to build the country together.
A recent analysis of the National Development Plan (NDP) and concomitant research by Mackenzie International revealed that there is a global interest and excitement about South Africa. The research question was whether 5% economic growth by 2030 is possible. Their study highlighted the “Big Five” areas which are major opportunities, some of which are highlighted below.
The first of the Big Five was the industrial and manufacturing sector, which already includes some of the leading manufacturing companies that supply global clients. This is a good foundation on which it will be possible to create a further 600 000 jobs, growing to 1.5 million jobs by 2030. Government and business together need to identify growth areas in companies and products to achieve this opportunity for job creation. One existing programme already created for this purpose is Operation Phakisa.
Another focus is infrastructure, which is essential for economic growth particularly through an increase in intra-African trade. Trade is currently at 11-12%, but with infrastructure development, it will reach 27%. The building of infrastructure will also create 600 000 jobs. With the opening of trade in Africa, services including financial and tourism services, can expand across the continent, creating a further 460 000 jobs.
A third Big Five is natural gas. Not only have gas reserves been discovered in the Karoo, but also in the Romvuma Basin in Mozambique. This speaks into a possible solution to the power challenges facing South Africa and opportunities for electricity generation, and a potential 400 000 jobs.
For each of these initiatives, and the whole NDP, to be successful, the public and private sectors need to work together to build an enabling environment.
3. Summary of ministerial input
The creation of the Department of Small Business Development in 2014 is a response to the need to grow SMMEs which are basic to the NDP’s vision of economic growth. The Department focuses on providing financial and non-financial support to the SMMEs through its programmes and entities, including those inherited from the Department of Trade and Industry, in order to fulfil the vision of a customised SMME development and support ecosystem. The support of the private sector, including big business, business chambers and sector bodies, is vital to the success of these interventions.
The Department is unapologetic in its support of the informal sector, including micro-enterprises, which deserves to receive support equal to its contribution to the GDP, which is in the region of 5%. For this sector to succeed, infrastructure and resources are essential, with work being done on a provincial and local level. The Department has developed the National Informal Business Upliftment Strategy (NIBUS), which is being rolled out nationally, with Gauteng and KwaZulu-Natal at the forefront. NIBUS calls for a progressive legal and regulatory regime for informal traders; intergovernmental coordination; enterprise development and promotion for informal business; stakeholder management between communities and informal business; knowledge management, and capacity building. This consolidation of state resources will avoid duplication of inefficient functions and allow resources to reach local and provincial structures, particularly those in townships and rural economies, which are the coalface of access to SMMEs.
Apart from reviewing and redesigning programmes to increase their impact, and creating a unit to oversee special projects, the Department is also working with National Treasury to review the Preferential Procurement Policy Act, with a view to creating dispensation for 30% of state procurement to be set aside for SMMEs. This procurement is essential for the growth of this sector, which is going to produce young black industrialists who can participate in the entire value chain. One area of growth would be the Renewable Energy Programme, as well as in agriculture, where SMMEs and local businesses have an important role to play.
The NDP targets will continually be reviewed to ensure that growth in the SMME sector continues. In the meantime, success stories must be told to serve as examples of what South Africans can achieve by working together.
4. Discussion
4.1 The regulatory environment
Enquiries

  • How is the Department aiming to bring down the cost of creating business and creating a conducive space for the informal and SMME sectors?
  • What work is being done by the Department to smooth the regulatory environment for SMMEs to enable them to contribute to NDP targets?

Response
The Department is currently engaging with informal and small businesses to understand their experience first-hand. Workshops are planned on a municipal level to discuss by-laws and regulations that need to be changed, as well as administrative and enforcement issues that hinder SSMEs and informal businesses in particular.
The Department is also currently looking at the relevant national regulations, particularly the Small Business Act, and proposing necessary changes. However, improvements and changes to regulations require a parliamentary process which takes time.
The intention is also to provide incentives to SMMEs to work within growing economic sectors. This is the purview of the DTI, and both departments are cooperating in this regard.

4.2 Education, training and youth development
Enquiries

  • How much of a priority is skills development in the informal sector, and what interventions are being developed?
  • What plans does government have to offer training in the smaller towns and rural areas so that youth are not lost to cities, but can rather create jobs where they are?
  • What is the relationship between the National Youth Development Agency (NYDA) and the development of young black industrialists?

Response
Small business opportunities are often taken up without waiting for skills or training to be provided. However, it is also important that training in entrepreneurship needs to be introduced at schools and other higher education institutions. This is not to ignore the need for accredited training programmes and platforms to be developed to meet specific SMME needs in different sectors, such as artisan trades, including carpentry or welding.
4.3 The role of big business
Enquiry
What means are being used to prevent big companies proving barriers to small business growth?
Response
The process of revising regulations is important here as the regulatory environment is more conducive to big business so small businesses are squeezed out at the cost of complying with regulations.
However, the building of trust between government and business is also essential for cooperation in growing the SMME sector. The private sector is active in enterprise development programmes, but needs further commitment to sharing skills, resources and opportunities with small business to allow them to grow. In fact, big business needs to champion local SMMEs to enable them to develop into formal, respected businesses of their own. South Africa’s economic challenges are the responsibility of all, just as job creation and economic growth will improve the lives of all South Africans.

 

5. Conclusion
The NDP aims to double the GDP capital of South Africa by 2030. This massive economic growth can only be achieved through the creation of some 11 million jobs, most of which are anticipated to emerge from SMMEs. The Department of Small Business Development was created specifically to achieve the emergence of an informal and small business powerhouse. A conducive environment, however, will require adaptation of regulatory legislation; increased education and training; financial incentives; resourcing and support for SMMEs; and the buy-in of the private sector.


Monday 12 October 2015, Business Breakfast hosted by Maphaphuli Consulting
The fourth breakfast of the series was hosted by Maphaphuli Consulting, represented by Lufuno Mphaphuli, with the keynote speaker being the Minister of Economic Development, the Hon. Ebrahim Patel, MP.
Also attending the breakfast were the Minister of Trade and Industry, the Hon. Dr Rob Davies, MP; the Minister of Small Business Development, the Hon. Dr Lindiwe Zulu, MP; the High Commissioner of Sri Lanka; members of the ANC National Executive Committee; representatives of the Presidential Infrastructure Coordinating Commission (PICC); members of the PBF, and representatives of the South African and African business community, including the Black Business Council and Nedbank.
2. Summary of ministerial input
South Africa, as part of the global economy, is experiencing a recession, as evidenced by key performance indicators. For example, the daily level of GDP generated is R10 million, with the year-on-year growth up by 1.2%. However, the quarter-to-quarter figures are a better indicator, with a decline in GDP of 1.3%, which is evidence of the global slowdown. Employment is another indicator. Although over half a million new jobs were created between April and June 2014, the labour force grew by about 640 000. This shows that the newcomers to the labour market cannot be absorbed. Energy remains a challenge to South Africa, with less energy being produced than what is required, despite 7.5 million homes being electrified since 1994. The level of energy generated needs to increase seriously, through the construction of new power stations and the renewable energy project.
The National Development Plan (NDP) aims to change this situation via an economic strategy which can be summarised through six “Is”: industrialisation, infrastructure, innovation, investment, inclusion, and integration. This strategy will only succeed, however, through partnerships, such as between private sector and public sector, between big business and SMMEs, and between African economies. So, for instance, South Africa needs the private sector and public sector to contribute to agreed outcomes for economic growth. The government’s contribution to the partnership would include creating political stability, for example, in terms of an effective and predictable democratic process, as well as the protection of key rights – to property, to personal freedom, and the rights of workers. Stability also comes through stable institutions, including the parliament and the judiciary, but also through the consent of the government. Without this consent, the institutional arrangements will not produce stability, nor will the government be able to articulate and deliver on the aspirations of citizens, to economic opportunities and to social services.
A second contribution government makes to the partnership is economic governance. This includes a sustainable macro-economic environment with fiscal sustainability and monetary stability. It also includes critical economic infrastructure, such as transport logistics, energy, water, and ICT; and social infrastructure, for instance, skills development. The sustainable micro-economic framework is also important, in terms of policy on competition, SMME development, labour relationships, and incentives to encourage the participation of the private sector.
The private sector’s contribution to such a partnership would include long-term investment, creating and identifying entrepreneurship opportunities, and the necessary competition to stimulate innovation. A third contribution would be transformation of the way the economy is structured at the level of demographics, that is shareholders, management and suppliers, and in the output of the economy from a producer of commodities to adding value to those. A final private sector contribution is workplace partnership.
This spirit of partnership will then underpin the six “Is”. For example, partnership is at the base of African integration, where South Africa will no longer look to Europe as its biggest market for manufactured goods, but to Africa. Currently, more than 250 000 jobs are directly dependent on exports to Africa. A partnership between state and private sector would allow a coherent and coordinated effort to develop the African market in a so-called African strategy. The private sector has already done a great deal in this regard. The state’s contribution will be to conclude an agreement on a free trade area involving 26 countries and 600 million consumers which will stretch from Egypt to East Africa to South Africa, with West Africa a later stage in creating a continent-wide free trade area.
Partnership is also necessary for developing infrastructure such as transport. The state’s contribution to this partnership includes industrial funding, including via the Industrial Development Corporation (IDC) which has invested R60 billion in South Africa over the past five years. This investment is not in the form of grants to failing companies, but sustainable business ventures. Contributions from the private sector have meant that parts for new locomotives, buses and minibuses are all produced in South Africa. A new IDC programme is being rolled out to promote black industrialists in particular sectors, amongst others, the agro-processing, automotive, textiles and clothing, tourism and transport sectors. This will encourage South Africans to get involved in expanding and diversifying the supply chain, which will in turn increase the levels of economic dynamism and growth, and create new markets and opportunities.
In terms of investment in South Africa, the state also invests on a human level: social grants play a great role in creating a domestic market ready to consume South African products. The private sector needs to come alongside as a partner to utilise this market, rather than arguing against sustainability. Economic citizenship can then develop.
Partnerships are also important in institutions of innovation, particularly in the research capacity of universities, which offer opportunities for the private sector – both local and international – to register patents. Without entrepreneurial skill to market these innovations, the useful knowledge will not be economically usable. These institutions also provide skilled labour, which gives the private sector an opportunity to develop knowledge into practice, through the discipline and culture of a workplace environment.
There are many successful partnerships between public and private sectors, but the aim is to deepen and expand these partnerships. The state is willing to contribute more resources than ever before, in order to create a better life for the South African people as a whole.
3. Discussion
3.1 Energy
Enquiries

  • Does the government have the capacity to execute the vision of the NDP, particularly in terms of sustainable power generation?
  • What is the government’s approach to using gas in power generation?

Response
It is true that the ANC government was weak in long-term planning for energy and has paid the price for poor planning and implementation capability. Reforms started in 2010, with the establishment of the PICC, the mandate of which is infrastructure planning across three levels of government. The construction of the Medupi, Kusile and Ingula power stations are a first step to addressing the energy crisis as they will add 10 000 kW of energy to the grid. Partnership with the private sector has been essential in moving towards sustainable power.
With the discovery of both gas and shale gas deposits, gas has become a vital part of the energy plan, with regulatory changes being made to facilitate this. What is important is to make sure that South African companies are able to take advantage of the opportunities in exploiting the gas. Building gas infrastructure will provide a significant boost to energy production.
3.2 Black economic inclusion
Enquiries

  • What is the government’s plan to move away from the unsustainable social grant system?
  • What is the state going to do to more meaningfully accelerate the rate of black inclusion in the economy?
  • Will the Black Industrialists programme create an environment conducive to SMMEs who are unable to meet the requirements for IDC funding?

Response
Social grants, on the one hand, are necessary to support and sustain the elderly and children from poor communities. On the other hand, the social grant system as an inducement to remain unemployed is not desirable.
The most effective poverty relief strategy is not a grant, but job creation and entrepreneurial opportunity in order to grow the economy as a whole. The government is rolling out programmes to foster both, such as the expanded public works and community work programmes. The short-term employment breaks the cycle of unemployment. At the same time, the government is putting a growing sum into skills and vocational training in the DVET colleges.
To fulfil the vision of the NDP, the government is putting resources into promoting industrial activities which will provide further jobs. The IDC has increased its funding levels to black South African business and created the new R23 million fund. IDC funding is not aimed at SMMEs: that is the purview of the associated Small Enterprise Finance Agency (SEFA), which has made new loans to the value of R1 billion in the past two years.
3.3 Partnerships between state and private sector
Enquiries

  • If the government is committed to partnering with private sector and especially with SMMEs, how can the continued late payments to business be explained?
  • How can the business community work with the state to provide a platform for economic upliftment through learnerships?
  • What is the role of ICT in economic integration?

Response
The national policy is strictly 30-day payment; unfortunately there are government departments on all levels that are guilty of late payment and the resultant damage to small businesses. The Auditor-General is tracking late payments and building in consequences.
The business community has an important role to play in economic upliftment, particularly through providing opportunities for people to break out of the poverty cycle. The National Skills Accord allows for internships or apprenticeships where part-time learners are paid a lower rate until they are qualified. This is to avoid exploitation of interns who work full-time for intern rates. It is now necessary for business and labour to put this into practice as full workplace partners.
Transformation of the very narrow ICT space in South Africa is necessary to be able to provide access to available broadband. Regionally, the plan is to create an open services market, including for ICT, in the SADC countries. This will increase opportunity but also competition.
4. Conclusion
The NDP strategy of change, summed up as industrialisation, infrastructure, innovation, investment, inclusion, and integration, will only succeed, through partnerships, such as between private sector and public sector, between big business and SMMEs, and between African economies. The ANC government has renewed its commitment to these partnerships and aims to improve its contribution especially in terms of energy supply


National Development Plan (NDP) Roundtable discussions
Along with the business breakfasts, four roundtable discussions focussing on the NDP were presented and facilitated by Deloitte.
Friday, 9 October 2015
Roundtable 1: Regulatory impact on investment
The first roundtable discussion, facilitated by Dr Martyn Davies, Managing Director: Emerging Markets and Africa, Frontier Advisory at Deloitte, was focussed on regulatory impact on investment, in the context of the NDP.
Members of the panel included Khanyisile Kweyama, CEO: Business Unity South Africa; Edward Kieswetter, CEO: Alexander Forbes; Simon Freemantle, Senior Political Economist, Standard Bank, and Ralph Mupita, CEO: Old Mutual Emerging Markets.

Discussion

The roundtable discussion was located in the need for an enabling regulatory environment to be created in order to encourage and drive investment in the South African economy. Furthermore, the environment needs to be confidence-creating, transparent and efficient. Capital will always flow to places and projects that offer predictable returns. This is the “political economy” of development – how the state governs and creates a regulatory environment that is designed for rapid and inclusive growth.

The discussion focussed on how the regulatory environment in South Africa can be streamlined to maximize investment and capital formation. On the one hand, regulation is necessary and unavoidable. The government has the right to legislate and expects compliance in order to develop and improve the lives of South Africans. Such legislation has been developed through rigorous legislative processes, and government has a track record of producing acceptable, even world-class legislation.
Government also expects business to comply, and undertake their own rights and obligations. On the other hand, business feels that the existing regulations are overly intrusive, and can be accused of circumventing regulation, creating a culture of retaliation against regulation, general uncertainty, or even a so-called investment strike. This speaks to the trust deficit between business and government.

Any changes or adaptations to the regulatory environment must take place in the context of the NDP as an overarching policy, within which the government is committed to a growing, emerging economy with a focus on diversification and investment into Africa. A starting point is properly defining investment risk and how this can encourage business to invest in South Africa, with its challenges of skills development, education, and unemployment.
Saturday, 10 October 2015
Roundtable 2: Infrastructure
The second roundtable discussion, facilitated by J-P Labuschagne, Infrastructure and Capital Projects Lead at Deloitte, was focussed on infrastructure funding in the context of the NDP.
Members of the panel included Kostas Rontiris, CEO of SMEC; Vuyani Jarana, CEO of Vodacom Business and board member of Vodacom South Africa; and Faizel Motlakar, CEO of Motlakar Group 5.
1. Introduction
The roundtable was located in the context of infrastructure having been identified as a critical driver of economic growth and social upliftment in the country. However, despite the programme of investment in public infrastructure, which is aimed at stimulating investment, public sector involvement has been slow. The objective of the discussion was to consider, if the state is to play a catalytic role to increase levels of private sector investment what that role looks like and what can be done to stimulate private sector investment.
2. Input from panellists
South Africa’s economy faces many challenges, both on a global and national level. The development of infrastructure is basic to the economy, as the building of infrastructure generates employment immediately and a growth in the economy in the long-term.
2.1 The role of the private sector in infrastructure development
Originally, infrastructure was the responsibility of the state, but modern trends show that private sector involvement in infrastructure development is essential.
Private sector involvement in infrastructure projects, particularly in terms of finance, has been shown to improve economic efficiency, generate growth, and reduce the financial burden to the government. For a start, this means that government budget can be allocated to other parts of the economy, rather than infrastructure alone. In terms of the operation of the infrastructure, the private sector maintains the asset better throughout the life cycle, because the better the asset is maintained, the more money comes from the investment.
The contribution from the private sector to the country’s infrastructure development strategy is critical to the delivery of the state’s infrastructure projects. The major government plan for infrastructure falls under the NDP, including the 10 Strategic Integrated Projects (SIPs) which flow from the Presidential Infrastructure Coordinating Commission (PICC). The government has estimated that funding SIPs will cost about R3.6 trillion, with R500 billion being identified as requiring investment from the public sector.
The private sector is also required to have confidence in South Africa’s economy and be willing to invest in projects for the sake of growing South Africa.
2.2 The role of the state in increasing private sector investment in infrastructure
First, the state needs to provide a predictable and stable environment is order to get private sector investment in the economy. The challenges around power supply are the most destabilising influence on the environment: without a predictable energy supply, industry cannot function, be it in manufacturing, commodities, production or processing. Similarly, there will be no private sector investment in infrastructure development unless there is a consistent and available source of energy to allow for sustainable development.
Furthermore, the state needs to provide worthwhile opportunities to the private sector to invest, that is, return on investment. This includes allowing the private sector to come alongside traditional government infrastructure providers, such as Eskom, for example, and help to meet the excessive demands for energy, including by building sub-stations and power stations. The private sector can see the market possibilities, but an opportunity needs to be provided. Infrastructure development is not only about supplying and delivering, it is also about the government’s responsibility to stimulate demand for investment on both a local and global level.
In addition, the state needs to create a fiscally stable environment. A challenge to infrastructure projects in South Africa is the lack of enforcement of user payment. When the private sector gets involved in financing, they want a return on their money, which must come from the user, i.e. the user pay principle. Recent examples in the Western Cape and Gauteng, however, indicate that a culture of non-payment is acceptable. More seriously, the question of global rating and the rising cost of debt is making South Africa look unattractive to foreign investors.
However, the state’s role is also one of partnership. Government needs private sector commitment to economic upliftment and invest directly in infrastructure. Government therefore plays a role in regulating and governing private sector input to encourage black economic inclusion. These regulations can, however, be interpreted by the private sector as institutional barriers to investment, a stumbling block to a predictable economic environment.
2.3 Public-private partnerships
South Africa has a successful and healthy Public Private Partnerships (PPP) system run by National Treasury, which has delivered a number of projects to the advantage of both private sector and government, including water and sanitation, railway, and renewable energy projects. Unfortunately, regulated as PPPs are, there has been a mixed track record. The PPP system, with its lengthy processes, is not always attractive to private sector investment.
Furthermore, not every infrastructure project can be a PPP. It is essential that South Africa be open to local and international investment outside the PPP process, and create mechanisms to make this possible.
2.4 Challenges to private sector involvement
A basic challenge to successful partnerships between private and public sectors is that the general investment atmosphere in South Africa is one of mistrust, whether between government and private sector, government and civil society, or the private sector and disadvantaged South Africans. In order to ensure long-term sustainability and seamless maintenance of infrastructure through private investment and involvement, it is essential to forge strategic collaborations and an accountable relationship between public and private sectors, based on a common alignment of goals in relation to the overarching national poverty alleviation plans and the NDP, including its sector-specific infrastructure development objectives. This will help both parties to synthesise their strengths and share collective experience through a transparent and inclusive dialogue about what the state and the private sector can offer, with questions of delivery and constraints, including joint deliverables, as well as the mobilisation and management of available resources open to discussion. Importantly, a commitment to growing this trust is a responsibility of both private and public sectors.
3. Discussion
3.1 Infrastructure priorities
Enquiries

  • Is there a particular sector that has the greatest attraction for private sector involvement?
  • Are there certain kinds of infrastructure that government should drive, rather than the private sector?
  • Is there access to a plan for infrastructure projects so that private sector can identify opportunities?

Response
Any infrastructure that is market driven or demand driven will appeal to the private sector, as they will achieve a better return on investment, hence the development of shopping malls, for instance. Another example is the ICT and broadband sector, an innovative sector almost entirely led by private investment. With the growth in a desire for access to communication, this sector becomes “easy pickings” for the private sector. However, the government needs to take responsibility by introducing effective policy and regulation around access appropriate to the digital world economies, as well as by investing in putting in fibre. There needs to be more capacity to approve applications to put in fibre, as this directly impacts on capital movement across the globe, with South Africa missing out.
Traditionally government-driven infrastructure is less appealing to the private sector in terms of return on investment, but private sector involvement should be encouraged through promises of subsidy, and the emphasis on partnering to benefit South Africa and grow the economy as a whole. For example, power generation is a priority for growing the South African economy, so both private sector and government should actively take responsibility and choose to invest in the energy sector. Similarly, rail infrastructure is another growing area of investment in Africa as a whole, where both government and private sector investment are necessary.
Sectors that can thrive without major capital investment by government must be identified and nurtured. This means that the private sector needs to be innovative and take the lead where necessary, without waiting for the state.
However, at the same time, there is no centralised plan available for the private sector to look at opportunities for infrastructure development in South Africa. One source of information about plans for infrastructure development is the national government, for example, in the NDP and the SIPs, as coordinated by the PICC. Then, there are departmental strategic plans as well. On local levels, each municipality is supposed to have an Infrastructure Development Plan (IDP) which is devised through a council process with the community.
3.2 Communication challenges
Enquiries

  • How effective is the communication between private sector and government around infrastructure development?
  • How can communication between government departments be improved to facilitate megaprojects?

 

Response
Communication is key to successful infrastructure development. Unfortunately there is a lack of communication between government on all levels and the private sector.
Often this can be a result of poor inter and intragovernmental communication, particularly across different levels of government. There is a need to advocate good governance, good decision making and strong policies around decision making, particularly at local government level, as this is where a lot of project construction and operation will take place. The role of local government in facilitating the practical, on the ground implementation of megaprojects is underestimated, as local authorities are responsible for local permits, permission and support. On the one hand, upper tiers of government tend not to recognise the role and involvement of several implementing authorities, and so communication failure occurs between national or provincial government and those on the ground. Communication needs to be streamlined to achieve a coordinated effort. On the other hand, local government is not always competent in development and administrative capacities, nor do they have funds to achieve the business plans required of them.
3.3 The role of PPPs
Enquiries

  • Are PPPs the best option to develop infrastructure?
  • What is the impact of the regulatory environment on projects?
  • Do current procurement policies work for large infrastructure projects?

Response
In certain sectors, PPPs are the best option, for instance in the energy sector, toll roads, and water generation. In each of these cases, there is an end-user who pays for the service or utility, which means they are demand-driven and appeal to the private sector.
However, there are other models which allow private finance to be applied to a particular asset with earmarked funding to service and repay the financing; there is an existing model with banks investing. Then there are social projects, which traditionally lend themselves to state funding via taxpayers’ money. Unfortunately, these projects can sometimes be better handled through the private sector: there is poor maintenance of public infrastructure, particularly of schools. These lend themselves to projects on a local level; however, local government development officers are not always able to devise bankable projects that appeal to private sector investment.
For PPPS to be successful, a clear and balanced regulatory environment is crucial. Proper incentive schemes can attract foreign investment. Other regulations are around procurement. Procurement systems are in place to safeguard the interests of government in awarding and implementing projects. A further element are BEE regulations with their purpose of growing black industrialists, driving localisation, and creating a more inclusive economy. Unfortunately, these regulations are often seen as a matter of expensive compliance, and not embraced in the spirit in which they were created.
The private sector tend to see the technical hurdles set out by regulations as a hindrance to creating large infrastructure projects both in terms of time and investment. Overseas, the policy is for strategic projects of national importance to be negotiated outside the regulatory environment of procurement to reduce the regulatory burden on private sector investments and the state, enabling innovation and a better relationship between both. The lack of a community of trust, however, makes this a challenge to implement in South Africa.
4. Conclusion
For the government’s infrastructure development plan to succeed, it is necessary for the private sector to become active partners in investing in, funding, and even building and maintaining key infrastructure. Both parties need to contribute to the success of such a partnership, but there appears to be a lack of basic trust between government, labour and the private sector. This can only be achieved through open and honest discussion of the trade-offs, sacrifices and opportunities involved, and a commitment to tackling South Africa’s economic challenges as a nation.
Roundtable 3: The labour market
The third roundtable discussion, facilitated by Dr Kgosi Maepa, Director: Public Sector Solutions, Deloitte, was focussed on the labour market in the context of the NDP.
Members of the panel included Nelson Sebati, Head: Empowerment Advisory, Mindworx; Lerato Molabatsi, Executive Vice President: Communication and Public Affairs, Lonmin; and Elize van der Westhuizen, Senior Manager: Labour Relations, AgriSA.
1. Introduction
South Africa currently has the challenge of a 25% unemployment rate. Many of these are unemployed youth, who struggle to find work as a result of lack of education or skills development at high school, which means lack of access to tertiary education for formal training. Women and youth in the rural areas remain the most affected.
The NDP has an objective of reducing this figure to 6% by 2030. There are many negative and positive factors that influence this achievement. Government has proposed a combination of interventions outlined in the NDP (macroeconomic policy, industrial strategy, infrastructure development and skills development). It is also looking at the introduction of a national minimum wage as one of the key mechanisms to reduce income inequality. One question is how to balance fair compensation for employees with the need to be competitive in the international market. Another is how labour can absorb the unemployed (especially youth) in South Africa. In other words, how can unemployment be reduced in South Africa?
2. Input from panellists
2.1 Unemployment and inequality
One important aspect of discussion about unemployment and labour is how labour policies affect people, whether they are employed or unemployed. In the agricultural sector, for example, there is a sectoral determination that determines the minimum level of wage that needs to be paid, as well as conditions of employment. This minimum wage was increased by 52% in 2013, which improved workers’ lives on the one hand, but created a financial burden on farmers on the other, which led to mechanisation and outsourcing, and ultimately retrenchment of around 65 000 people.
A response from AgriSA was to develop a project on empowering women, which was piloted in the Northern Cape. Twenty women went on a six-month training course n entrepreneurship, not only in the agricultural sector. One result of empowering these women was dignity, which unemployed people lack. Another was that businesses and jobs were created, giving the entire community a boost. This project shows that the rural unemployed, in particular, need to be upskilled and empowered. What it also shows is the need for policies to be developed that talk to the needs of the rural unemployed, for example, what small, medium and micro-enterprises (SMMEs) need to develop into big businesses. In fact, the regulatory burden on small farmers and new farmers is huge. However, the current labour legislation, including the Small Business Act, does not meet these needs.
The NDP discusses rural development in Chapter 6, and there is a Presidential project helping with to navigate these burdens, as well as giving guidance on labour disputes. However, more entrepreneurial and development programmes need to be rolled out so that jobs are created in the rural areas, so that people do not have to move to cities to find work.
2.2 Transformation
By 1994, the majority of South Africans had been reduced to semi-skilled and unskilled labourers on the fringe of any meaningful and productive economic activity. This pool has not been absorbed by the labour market, leaving many youth unemployed today, largely due to the so-called generational deficit, where a next generation has not been educated as job creators or innovators.
The ANC government’s response has been to create a transformation policy to address this challenge. This is the BEE framework, which aims to align economic factors and policies to transform the unemployed into skilled, employed people. The first leg of the framework is the BEE scorecard, which itself has five elements. First, there is the foundation of transformation, socioeconomic development, where companies must invest in activities or programmes to accelerate the access of rural, disadvantaged, disabled and young people into the mainstream economy.
The next layer is called enterprise supply and development, which moves from mere participation in the economy to further training in entrepreneurial development programmes. An important aspect of this is also preferential procurement, to support fledgling businesses. Skills development is an associated step. Transformation need not only occur through entrepreneurial activity, but also through corporates which must invest in the upliftment, training and development of underprivileged people both through the support of SMMEs on big projects, as well as via fast-tracking, for example. As more people achieve positions of authority, they can bring influence to bear as well, by creating an enabling environment for further upliftment and training.
Transformation therefore tackles unemployment not only by creating jobs and expanding the skills base, but also by creating job creators, who will in turn give greater access to the economy and move away from the social grants system.
2.3 Legislation around strike action
Strike action in South Africa is common, with strikes becoming longer and ever more violent. The recent strikes in the platinum sector lasted for five months. The effect on the economy was a loss of R27 billion, while around 360 000 people were affected through loss of income, loss of business, hunger, and other suffering. The tension between miners and community members remains, as once migrant workers now live in mining “towns” which themselves offer challenges of health and housing.
The legislation aims to protect both the workers and the employers, but does have its weaknesses. For example, the strike certificates issued by the CCMA have no expiry date. This leads to uncontrolled labour unrest, which damages the economy and the lives of the strikers, who remain unpaid. It then has a ripple effect into the entire community and supply chain, including SMMEs which cannot deal with the loss of income. Also, the legislation does not protect those who do not want to strike.
However, much of the legislation around transformation is in line with the NDP, and the development of a more symbiotic relationship, a partnership, between labour and capital is the objective.
3. Discussion
3.1 Labour legislation and minimum wage
Enquiries

  • Should SMMEs be subject to the same level of policies as big business, as far as national minimum wage is concerned?
  • How can the legislation on national minimum wage contribute to decreasing unemployment?

Response
There is a need to look at how the impact of legislation on SMMEs can be minimised in terms of administrative burden, and how they can be supported particularly in the first two critical years of business. Legislation makes it onerous to start a business, but the Department of Small Business is taking steps to make this easier, including through reducing the bureaucracy of registering a business, through funding programmes for small projects, and through access to markets.
However, legislation around basic human rights and conditions of employment cannot and should not be avoided. The minimum wage legislation can be seen as necessary for the average wage to be increased to reduce inequality and force companies to expand and reduce unemployment.
The Employment Equity legislation also introduces impaired salary differentiation, which looks at how people doing the same job should be earning a similar maximum salary. This is in opposition to market forces, where companies offer more than a maximum salary to attract the skilled workers they need. It also reduces people’s appetite for risk and a desire to compete, and hence has been challenged.
3.2 Strike action
Enquiries

  • How is the Lonmin corporate social investment drive attempting to heal the wounds after the strike?
  • How can government approach labour unrest differently, with changes in legislation, in order to minimise the negative ripple effect on the economy and on the people involved?

Response
Following the tragedy at Marikana, Lonmin has created an education trust for children of the deceased, in the hope that they will return to work in the community as adults. Many of the widows have also taken up the opportunity to work for Lonmin as well.
Corporate social investment cannot simply be a matter of ticking boxes. Instead, it must be sustainable and meet the expressed needs of the community. Lonmin therefore invests in the local economic development space, particularly in a supply development programme which aims to add people to the supply chain of the mine, in terms of contracts for building, equipment and diesel, in addition to the existing small catering and other contracts.
Lonmin continues to make significant investments in education: since 2012, R35 million has been invested and over 22 500 learners have been impacted. The building of Mount Ayliff School in the Eastern Cape, where many workers come from, is an example. Corporate social investment must empower communities, so there is also a move to increasing BEE shareholders, by paying an annuity to communities for bursaries, etc., and by giving preferential procurement.
4. Conclusion
Overcoming South Africa’s unemployment challenge requires input on many levels and from different partners. On the one hand, the challenge of lack of skills and a vast pool of unemployable workers calls for investment in skills training and education, and the development of new sectors to absorb these skilled workers. On the other hand, legislation around labour also needs revision, both to reduce the administrative burden on SMMEs, but also to control the labour unrest that damages the South African economy. This transformation can only be achieved by a partnership between government and the private sector, and a commitment to reducing unemployment through drastic action.
Sunday 11 October 2015
Roundtable 4: Education and skills development, and small business development
The fourth and final roundtable discussion, facilitated by Nkululeko Oliphant, Director: Public Sector, and Peter Present, Director: Public Sector and Education Lead, both at Deloitte, focussed on education and skills development, as well as on small business development.
Members of the panel included Pule Mokoena, Executive Head for Policy and Research: Black Business Council; Thabang Chiloane, Divisional Executive: Nedbank, and Jay Ramundall, CEO: Richfield Graduate Institute of Technology.

1. Introduction

An educated society is a progressive society, and South Africa must recognise and embrace education as a central tool for sustainable growth and change. Education is the cornerstone of innovation, creativity, and entrepreneurship, all of which are necessary in a transforming economy.

1.1 The current state of education in South Africa

The current challenges to education in South Africa must be seen in their historical context. As early as 1848, the decision was taken to develop different curricula for black and white South Africans: South Africa therefore faces a legacy of inequality that dates over 150 years back.

Today, although more students have had access to education in the last 20 years than ever before, South Africa’s basic education system is not providing the quality of education that is required for learners to move onto developing the skills required by the marketplace. 

The education sector covers 24 000 schools, staffed by over 400 000 teachers. These are not evenly distributed across the company, with rural, historically disadvantaged provinces such as the Eastern Cape or KwaZulu-Natal experiencing the greatest problems. Furthermore, only 6000 of the total are high schools: structurally, the sector does not facilitate learners from Grade 0 to Grade 12.

Other challenges include human resources, where, because of poor skills levels of teachers, both experienced and student teachers are underprepared both in terms of content and teaching methods, particularly in maths and science. Furthermore, many teachers are ageing but not enough young teachers are being produced. Lack of learning materials remains a challenge both for basic content and supplementary information. In addition, the unionisation of teaching as a profession has negatively affected the culture of teaching.

The dropout rate is cause for concern. Although most learners have access to schools from Grade 1 to 9, learners need to be retained in the FET phase, Grades 10 to 12. This is again a historically based problem, dating back to the 1960s. However, even those who continue to the FET phase face the challenges of being poorly prepared for Grade 12, with South Africa ranking badly as far as languages, science and maths are concerned. Thus there is a further loss of students, as they cannot perform well at tertiary level and join the ranks of the unemployed youth.

Education and skills development are addressed in the NDP’s Schooling 2030 vision, which highlights four focus areas: improving literacy, numeracy/mathematics and science outcomes; increasing the number of learners eligible to study science and maths-based degrees at university; retaining learners; and enabling the use of infrastructure and ICT in teaching. In the past, the greatest focus was on the FET phase, particularly Grade 12; however, it is clear that the foundations need to be worked on, particularly in terms of literacy and numeracy in the lower grades, with the three phases ending in Grades 3, 6, and 9.

One area being investigated is giving learners more control of their own learning through the use of ICT. However, the widening digital divide in South Africa prevents all learners, particularly those in rural areas, from having access to information and technology. Furthermore, ICT becomes even more of a challenge in schools which have poor infrastructure and support structures where even basic equipment is lacking.

The private sector has a role to play in basic education. Collaboration between business and government is necessary to make a difference in basic education, whether through ICT, transport, school feeding schemes, and teacher training, or through lobbying and presenting to the ANC government to develop policy.

1.2 The role of ICT

There is a definite place for ICT in education and that deploying technology in education can be a game changer and leveller: for example, a tablet can be used anywhere at any time.

However, simply using a device, such as a PC or tablet, is not enough to improvement skills development, be it at basic or higher education level. Instead, in a project that has issued 40 000 tablets so far, a five-part holistic solution was developed by the Richfield Graduate Institute of Technology. These elements include the tablet itself; a learner management system to support the tablet; content; a shift in focus from educator to accountable learner; and a reduction in reliance on paper and a contribution to a green environment.

In the first year of implementing this system, the success rate improved from 78 to 92%. A culture of ownership was developed, as students regarded the tablets as their own and took care of them, reducing the element of negligence. Furthermore, learning materials were preloaded on the tablets, as well as videos of lectures.

The greatest challenge was the many students who have no access to electricity at home. Charging booths were thus created at both campuses to power devices so that they could be used at home. A further challenge is the cost of the tablets themselves, which is currently R2000.

However, for government to push ICT technology, whether in the school environment or in broader society, initiative is needed and the role of the private sector is essential. For example, if business and government could synchronise their efforts, the cost of tablets could be reduced, and this value could then be passed on to learners. Another pressing issue is that of broadening access to and cost of broadband. This will help to create a learning environment at home as well, as ICT can be shared with the family as well. Again, private sector has the chance of getting involved in providing connectivity, creating access, and reducing costs.

At the same time, it is useless to pump infrastructure into schools if the educators themselves are abdicating responsibility for poor teaching by expecting learners to use technology instead. Instead, teachers and unions need to accept that technology integration into the curriculum will lead to improvement in job satisfaction and in learners’ results.

1.3 Skills development and training

Skills development is an essential part of building the economy. This is true of South Africa, as well as other developing African countries, such as Mozambique. Government has identified scarce skills and is working with business to develop these skills via a number of agencies to assist young people. However, these agencies are becoming overwhelmed by the scale of the demand. These agencies need to be made more effective, possibly by the private sector playing a greater role in providing skills training. 

In particular, skills training has an essential role to play in developing SMMEs. SMMEs are an important sector of our economy, with their role and impact often going unnoticed. The government has recognised their importance, creating a Ministry of Small Business Development.

According to the discussion document of the NGC taking place:

We must continue to encourage the creation of new businesses, cooperatives and the expansion of small business, by reducing the costs of compliance with government regulations, making it easier for companies to ‘do business’ with government, making sure that government pays its invoices on time and strengthening the role of our development finance institutions.

Government encourages private sector involvement in skills development, including via the skills levies and internship programmes.  The growth of entrepreneurial skills is also key to building a nation not simply of workers, but of innovators and business owners. One example of how the private sector is involved with the Ministry of Small Business Development is in the development of a National Mentorship Movement, which aims to link 100 000 mentors from business to a million mentees. This programme is focussed on those starting or having created SMMEs, with the objective of creating two million jobs. The mentorships will work via a single platform which will match mentors, who wish to give back and support the growth of South Africa’s economy, with mentees electronically. Built into the programme is a quality control system which measures both the quality of mentorship provided as well as the success of the mentorship relationship and the impact on the mentees.

3. Discussion
3.1 The role of government
Enquiries

  • What role can government play in ensuring children get a place at school and remain in school?
  • To what extent does the government apply the policy of school being compulsory until age 15 or 16, as in the South African Schools Act?
  • What is the government’s response to the failure of universities to produce enough teachers?
  • Are there plans to increase the number of teacher training institutions?

Response
A first consideration is what the main reasons are for students to drop out. There are both social and educational issues involved, but the main problem is that learners do not find learning exciting. This may be because of content, learner challenges or poor teaching. Rather than face the difficulties of learning, learners drop out. Government has a responsibility to produce quality teachers, who are passionate and willing to engage with their learners, which can contribute to keeping learners in school.

There is definitely a need to relook at training institutions, including nursing institutions, and to raise the status of such occupations. Both are basic to society, yet have been made unattractive in terms of social status and remuneration.

A suggestion for immediate impact would be getting graduates to do mandatory community service in schools, or private sector personnel volunteering their time. Another way that the private sector can get involved in developing teachers is by supporting the management of schools themselves, including administration and learning materials acquisition. As parents as well, members of the private sector can get involved at their children’s schools and in the educational life of their children.

However, the private sector cannot open teacher training colleges or universities – the education environment is restrictive in South Africa, unlike in Botswana where there is a private university.

3.2 ICT in education

Enquiry

  • How great a temptation to theft is the use of tablets at schools and colleges?
  • How can the private sector get involved in ICT education?
  • Should technology be a major issue or is education losing track of imparting basic values, literacy and numeracy?

 

Response
At Richfield, the system issues the tablet to students as a free learning aid. This is not to say that they replace classroom learning or allow teachers to renege on responsibility for teaching.

In Richfield’s case, there is two-year manufacturer’s warrantee. Tablets are replaced only once if theft, loss, or negligence occur, and students have taken their ownership responsibilities seriously. Currently, tablets cost about R2000 to replace.

The private sector has an important role to play, including lobbying for broadband. Direct donations of computer centres, with equipment and tutors is another possibility, as well as twinning of schools.

4. Conclusion

The objective of the round table was to explore six questions around education and skills development, with discussion including the role of ICT in education; the key skills needed to accelerate small business development; the need to make skills development initiatives more effective; and the roles government and business can play in terms of skills development and the growth of SMMEs as a vehicle for reducing unemployment, poverty and inequality.

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