Why isn't Gauteng creating jobs?

Budget Speech, Gauteng Legislature: Econ Dev: 10 July 2011

Madam Speaker, Honourable Premier, Members, visitors and guests.

The national priority today is jobs.

Since the Department of Economic Development is the Department in the Gauteng Provincial Government most directly responsible for jobs, a measurement of the DED’s performance should provide a clear indicator of how well we are doing in facilitating the creation of jobs in this province.

So how well is the DED doing?

Some progress has indeed been made:

1. Much of the corruption and tenderpreneurship in the DED and the Agencies its funds has been cleaned out. An obvious example is the cancellation of the motorsports deals. That saved the taxpayers of this province R800 million rand – almost as much as the entire budget for the whole of the DED and its Agencies this year. It cost us over R100 million to get out of the contracts, but it was worth it. It's still too soon for a clean bill of health, but it is much better than when we started in 2009.

2. The reorganisation of the DED and its Agencies, a long overdue task, has begun, even though the transformation process has taken far too long, which has severely impacted on the department's ability to deliver the services required of it – just when it was needed most, in the worst economic recession since 1994.

3. The linkages between the motor industry and its downstream suppliers in this province is looking healthy, and forms the mainstay of this province’s manufacturing base.

4. The Gauteng Gambling industry remains well regulated and orderly.

5. There are encouraging green shoots of innovation around Sports Tourism, biogas, Township Enterprise Hubs, the proposed Maize Triangle scheme, and inner city revival, as well as the promising sounding if yet to be launched Youth Employment Programme.

On the other hand, there remain areas of serious concern around this department which have not yet been resolved.

1. The first is bureaucrats second-guessing the market: For instance the mooted Asambe steel mill on the East Rand, which, if approved, will be competing head on with existing, very competitive steel plants already in existence. Also, the Foundries initiative: in the East Rand Foundries are struggling to cope with the steep increases in electricity prices, and are laying off staff. Where is the demand for new foundries and more training? What is the business case for these ventures?

2. Second is the lack of coordinated, joined-up government. This impacts negatively on the DED's central mission of facilitating business-led economic growth and job creation . The toll roads fiasco is but the latest of many examples.

3. A third concern is that of labour inflexibility. Without labour flexibility, the IDZ will not work. For IDZs to succeed that must work on the lines of, for instance, Dubai. If you can't or won't match the incentives Dubai offers, the IDZ at ORT will not succeed. It a waste of money and it will end in tears. Go large or go home, as the saying goes.

4. Next is the failure to walk away from failing projects. I would suggest that we abandon provincial projects that are dead in the water, such as the stalled Dinokeng project. Rather use that money better elsewhere, for instance in training tourist police, or guides, or developing a world class Sports Centre on the West Rand.

5. A fifth concern is that there is not enough focus on SMMEs. These are where the jobs are. Plus, it costs far less to create jobs through SMMEs than through multimillion experiments in gigantic new projects. But in Gauteng, the DED and its Agencies are failing to advance the SMME sector. This is perhaps the biggest and most urgent problem facing this province.
Take the key SMME and Cooperatives support agency, the Gauteng Enterprise Propeller. The fact is that GEP is not working properly, even by its own modest standards. It is not just the official GEP reports that show this. A recent FIS by the Portfolio Committee found the following: · Many SMMEs that GEP claims to have supported don’t exist.
· Several SMMEs started on the basis of government procurement, and given GEP loans on the basis of those contracts, have been left high, dry and deeply in debt as the recession forced government cutbacks.
· GEP officials do not adequately understand the industry sectors that the SMMEs they support have to work in.
· As an organisation GEP is slow, inflexible and reactive. By the time help comes, it's often too late. The element of sustainability in small business start ups is severely neglected.

6. A further concern is that we are not encouraging exports. The Agency primarily tasked with this, the Gauteng Economic Development Agency, is all over the place and is not doing its job properly. Yet South Africa is a leading global trading economy.

7. Then there is the strange neglect of Local Economic Development ( LED). Successful LED lies at the heart of restoring the viability of the crisis-ridden Local Government sphere in Gauteng. Yet LED seems in this province to remain the poor cousin, even though it falls under the ailing GEDA within the DED’s ambit. LED must be revitalised and energised.

8. Finally, there is no sign of a conducive environment for business being created in Gauteng. Red tape continues to impede economic growth in this province, combined with a sluggish DED. Regulation of harmful practices is one thing; stifling growth with pointless rules and costly compliance procedures in the face of an unsympathetic bureaucracy is entirely another. Yet where rules are needed, they are either not enforced properly, or are riven with corruption. The shambles that is liquor regulation is one example – it's still a mess, halfway through this government's term of office. When will it be fixed? Other impediments range from slow or questionable EIAs, to unaccountable, lazy officials. Nor is the DED itself exempt from these failings. Let me quote from the findings of the multiparty Portfolio Committee on the Fourth quarterly Report of the DED, 2011:
· The DED "gailed to implement performance policies and M&E frameworks";
· The DED showed "non-adherence to prescribed supply chain management policies";
· The DED failed to meet its targets on Youth Employment, on SMMEs, and on Co-Ops,
· Dinokeng and the Cradle of Mankind failed to reach 45% ( almost half) of their targets,
· Consumer Protection failed to reach 50% of its target, and
· The Liquor Board failed to achieve an IT system to reduce the huge backlog in license applications and reapplications, a failure that, as in the case of drivers' licensing in Gauteng, inevitably breeds corruption and costs jobs.
· Nor were the sector strategies as prioritised in IPAP 2 reached, and the DED completely ignored the revised APP submitted in January this year.

And this is just a selection.

Obviously under such conditions the DA cannot support this Budget Vote.

So what then can be done to restore Gauteng's leadership role in economic growth and job creation in South Africa, as the self proclaimed "engine" of the country's economic growth?
Here are a few ideas:

1. Less is more
The DED and its Agencies have too many projects going all at once, and too few resources to sustain them. Rather reduce and prioritise projects. In addition, cluster sectors rather than pursuing them all in silos. And at home, cluster those GOG departments that impact on Economic Development, Infrastructure, Transport, Finance, Agriculture and Planning.

2. Include cost-benefit analysis in selecting priorities
For instance, South Africa is making progress in finding cost-per-job statistics – how many jobs you create for X rands. Unsurprisingly, it emerges that SMME development produces far more jobs per rand invested than megaprojects do.

3. Appoint good managers for the right reasons
The history of economic development in the GPG over the past seventeen years has shown over and over again that appointing bad managers costs jobs. Appoint good leaders able to lead and half the battle is won.

4. Make internet connectivity a provincial priority
Research shows that speedy and affordable internet access on its own creates jobs and raises economic growth. Don't continue to let countries like Kenya outpace us in this regard. And use the private sector, if necessary via PPPs.

5. Eliminate red tape
Ask businesses to fund a researcher plus a website just to look into red tape and ways of unlocking unnecessary obstacles to economic growth in the province. Consult and encourage input from business chambers in the province direct to the provincial cabinet on cutting red tape, and then cut it.

6. Benchmark
Compare the costs and time frames of infrastructure and service provision between Gauteng and the other eight provinces in South Africa, then set our benchmarks accordingly. We may be surprised at our own inefficiency, and we don't need to reinvent the wheel – we can learn from others.

7. Slash turnaround times
Include in the performance measurement for the DED and the Agencies a requirement for turnaround response times of 24 hours, and monitor this aggressively. It will change attitudes and greatly improve efficiency – and encourage investors now put off by long decision-making times.

8. Prioritise SMME development: the role of GEP
GEP needs to move closer to its customer base, including franchising its activities to municipal level. It must differentiate products, rather than apply a one-size-fits-all approach. It must pay special attention to informal sector SMEs that are on the verge of entering the formal sector, because that is where the job creation potential is. GEP must reassess the training it offers on the basis of its real value to SMMEs. GEP must focus as much on sustainability as on start ups, and be measured accordingly. It must pay more attention to assistance with diversifying markets. True empowerment liberates the individual . GEP must therefore invest more in making SMMEs competitive in their markets, public or private, not confine the markets for black-owned SMEs to the public sector only.GEP must obtain more sector-specific expertise, including using mentors from the private sector. It needs to push for school level entrepreneurship training.

9. Better finance for emerging entrepreneurs
The DED must find more creative ways of involving the banks directly in its activities where finance is an issue. For instance, bank representatives should be part and parcel of the tendering process, to find ways of releasing activation finance for successful tenderers, using the contract itself as collateral. Banks must be represented on the GEP board or its equivalent.

10. Maximise state tenders
The DED must contact unsuccessful contractors and find out what they are doing wrong. This of course requires a transparent tendering process, including information on the successful tenders. But unsuccessful tenderers can be a useful source of potential entrepreneurs, and improve competitiveness and broaden government's supplier base. Don't ignore losers – they have shown initiative by trying in the first place.

11. Link LED to SMMEs
LED should prioritise local SMMEs. This means capacitating LED officials with technical expertise, and requiring them to work more closely with their local chambers of commerce and other resources – even Rotary Clubs! It means aligning LED plans with SMME development.

12. Leverage off BBBEE
The revised broad-based black economic empowerment codes now allow for enterprise development as a key component which business can use to offset their BEE requirements. Potential millions of rands are available in this format for SMME development and economic growth. The DED and its Agencies need to understand this, and find ways of using it towards the growth agenda in Gauteng, where many big businesses have their headquarters, after all.

13. Fill the skills gap
You cannot have economic growth on the scale we need without an accompanying major effort to provide the skills industry sectors are so short of in Gauteng. The lack of suitable skills severely impedes investment and growth. The DED must make tailored skills development, in close consultation with business sectors, a provincial priority. And the government in general should promote artisan and technical training as the guaranteed route to a job, and as a worthy alternative to university-based study, which is excessively glamorised as the better choice, yet produces unemployable graduates with the wrong skills sets.

If government in Gauteng really wants to make a difference on jobs, all the opportunity in the world is already there. But it will not happen if we continue to have business as usual .