SLEEPING WITH AN ELEPHANT: Why Bad Government is Bad for Business
Everyone loves small businesses, and for all the right reasons. Few people look to big corporations to provide jobs any more. Instead, small and medium sized enterprises (SMEs) are regarded as the way to go, from Seoul to Seattle. South Africa is no exception. Government here sings the praise of SMEs, and there are literally a host of public sector interventions of various kinds to support them. Unfortunately, in South Africa (and indeed in the US and elsewhere), in practice government can be very bad for business.
List the state intervention over the past sixteen years and government's commitment to enterprise development is amply attested. The roll call of acronyms of SME support agencies bears this out. Who remembers Namac and Ntsika Enterprises? Then there is SAWEN, Seda, Khula, Khula Direct, GEP (for Gauteng), Umsombomvu(now the National Youth Development Agency), and agencies in all the other provinces. Metros have their own initiatives too.
This is not surprising, for SMEs account for the majority of new jobs created, and are an obvious route for black entrepreneurs to enter the mainstream. State procurement policies emphasise subcontracting to SMEs, and the B-BBEE Codes emphasise enterprise development as a key component.
Yet we are by no means swamped with new enterprises, as several internationally benchmarked surveys, such as those run by GEM, have shown. On the contrary, if anything would -be entrepreneurs are confused about who does what where and why. Too often they are provided with inappropriate business "plans" that amount to little more than suicide notes, or they are let down mid project by dilatory payments or a lack of "joined up interventions", all designed by bureaucrats with no business experience ( and little sympathy for profit making capitalism). As the state interventions grow, so the failures mount, certainly in proportion to the time, energy and resources committed. Why is this so?
An answer is provided by government itself, in this case by a survey commissioned by the Gauteng Department of Economic Development (GDEP), and circulated in draft form. ("Costs, Constraints and Opportunities of Doing Business in Gauteng: Results of a Business Survey, SBP Consultants, Draft, Sept. 2009). While the initiative is a commendable one for the GPG, the news it contains is that government can be dangerous for an entrepreneur's health.
The survey of 516 SMEs across Gauteng focused on their perceptions of the key challenges to their growth. Of the top 10 problems identified by all the businesses surveyed, medium or small, all but one (market conditions) are directly related to government ineptitude.
Nor will the remaining nine challenges come as much of a surprise to those with an interest in SMEs in this country. They are inadequate and costly transport infrastructure (wait until the toll roads on the Joburg-Pretoria route hit Gauteng in 2011), unreliable and costly telecommunications and energy supply (i.e. electricity), crime and the costs of averting crime, and a lack of appropriate skills suited to business needs (whatever Mr. Jimmy Manyi says).
Corruption and government inefficiency rank as key problems as well, as do poor and opaque tendering processes (55%). Indeed, government emerges with little credit from those it says it serves.
Look at the list of key challenges to survival and growth put forward by the SMEs themselves;
1. Government leadership (local and provincial is "poor or very poor" (64% of those interviewed).
2. Access to information about regulations is not easy, comprising a "major or severe constraint" on doing business for 45% of respondents
3. Integration of provincial and local government strategies "poor or very poor" (54%).
4. Service delivery "poor or very poor" (50%).
5. Corruption "a major or very severe obstacle to doing business " (70%).
6. Overly rigid spatial development frameworks ( important for construction and property development) that are "designed for social engineering rather than to support economic development", along with slow Environmental Impact Assessment processes, trade zoning approvals, poor enforcement of existing regulations, thereby prejudicing those who do operate within the law, and, especially for the tourist industry, slow and incompetent licensing approvals. Call centres that don't work, provincial planners that don't plan, civil servants unfit for purpose, billing systems that collapse frequently, clearance certificates that cause long, costly and unpredictable delays are other common gripes.
7. Inefficient government exacts a huge toll on entrepreneurship – 40% describe it as "a major or very severe obstacle to doing business"
8. Obtaining municipal permits, which can take up to six months, is a problem for businesses, stretching their cash flows to breaking point.
9. Compliance with municipal by laws is difficult, slow and inefficient, leading some to go ahead regardless, while others are penalised for waiting patiently: "...the results indicate a very unsatisfactory working relationship between the industry (property) and the municipal and provincial departments responsible for these approvals".
In sum, without good government, all the state initiatives come to naught. Despite all the talk of "one stop shops", the Sedas and GEPs open offices only to fail to reach their market in ways that the market itself needs. Top-down, bureaucratic "solutions" administered by people with no predilection or aptitude for business in the first place all too often lead to dead ends - over half respondents bemoan " the attitudes of provincial and local government towards facilitating business activity and/or investment".
These obstacles to entrepreneurship are besides all the constraints not measured by this survey. They include high taxes (especially administered prices), and poor or entirely absent regulatory impact assessments of new policies or penalties– see the harmful impact of new carbon taxes on business road (rail having all but collapsed) transport logistics. There are all sorts of unintended negative consequences for job creation and private sector led wealth creation .
Labour market regulations also threaten to become even more restrictive and costly. Just recently the Adcorp Employment Index put the cost of SA's new labour laws at R8400 per annum per employee ("Falling job rate slows" The Times, 13/7/2010). Then there all the compliance costs, in time and money, imposed by SARS and by BEE requirements, which have become a de facto tax on business.
If government really wants to make a difference in favour of SMEs, it should start by first doing its job effectively and efficiently; second, by creating a conducive environment for business ( regulations, processes, red tape, etc.); and third by reducing the costs of doing business , including bearing SMEs in mind when new taxes are mooted. Money diverted to the exchequer for ineffective state "support" for SMEs would be much better spent by the SMEs themselves.
Reducing crime (42%) would also help – it hits small businesses especially hard, and imposes extra costs in the form of insurance payments and private security hired. Eliminating corruption must include serious consequences for the corrupt, not sideways promotions or golden handshakes intended to avert more scandal.
For the rest, however, the best thing that government in Gauteng can probably do for enterprise development is to get its own house in order and then get out of the way. Until this happens, SMEs should beware of getting into bed with the government elephant. It will roll over on you when you least expect it.
Monday, March 26, 2012
Wednesday, March 7, 2012
Three Strikes and You're Out: Gauteng's missed job opportunities
(Note: Gavin's Speech delivered in response to the Premier's 2012 State of the Province Address)
Madam Speaker
Madam Premier
Honourable Members
We are past the mid-term of this administration. In less than two years we will be facing the voters again. What will we tell them, as their representatives in this House?
It is the first and foremost duty of every honourable Member in this legislature to hold the executive to account and to scrutinise any legislation that comes before us. That is the entire point of having provincial legislatures. It applies to all of us. Everything else we do is secondary.
So if we scrutinise how far we have come since 2009, and how far we still have to go, what conclusions can we reach? Regrettably, although there have been some achievements, it is difficult to avoid the conclusion that we could have done so much better.
I say this especially from the position of oversight over the Department of Economic Development and the all-important issues of economic growth and job creation. Here, with only a few exceptions, the Provincial Government has failed the people of Gauteng in their hour of need.
Let me give you an example of what I mean. In her State of the Province Address for 2012, the Honourable premier claimed that, and I quote:
"By the end of December 2011, the provincial government had exceeded its job creation targets, with 281 686 jobs created".
Wonderful, you might think; at least this goes some way to alleviating the job losses in South Africa's economic heartland. But closer scrutiny reveals something else.
The Premier went on to explain that of these 281,686 jobs, only 5,629 were new permanent jobs. Yes, 5,629. Almost all the rest were temporary, low-paid Expanded Public Works jobs of a few weeks duration. While the EPWP does important charity work, and the DA supports it, an EPWP job is not a job as we understand it. It's not permanent; it pays a daily wage that would make a COSATU member weep; and it’s a far cry from the very recent calls for "decent work" from this same government.
The fact is that more than 276,000 of the jobs created were not sustainable. Let us face this honestly and upfront, and tell the people the truth.
Now we are told that the Gauteng government will create one million new jobs by the end of the year, created by 100,000 youth entrepreneurs at a rate of 10 new jobs per entrepreneur. This kind of simplistic arithmetic is very worrying. For one thing, you don't create an entrepreneur by training one. That is one reason why the Gauteng Enterprise Propeller, the GEP, falls short. (There are other reasons as well, but I have raised these in other debates.)
And even assuming we do manage to find 100,000 new youth entrepreneurs, this does not translate into 100,000 new 10-man businesses. The failure rate for business start ups generally in the first year of operation is 50%. Yes, fifty per cent. After that, as statistics show us, the fall out continues. And this sort of basic information is not a secret – lots of research has been done. Nor does one entrepreneur equal ten jobs, unless you attended one of our poorer government schools. So one wonders who has been advising the MEC on these matters, and what planet of ignorance they are from.
Even for those entrepreneurs who do manage to survive in Gauteng, there's more bad news. The latest figures from the Finance Department show that despite promises year after year after year to fix the problem, the GPG still only manages to pay 75% of suppliers within 30 days. This destroys cash flow, and with it the very BEE companies whose sustainability and growth depends on doing business with government.
I have another dispiriting observation.
Our present MEC for Economic Development has promised to create an environment more conducive to doing business and thus to creating jobs. This means removing unnecessary and obstructive red tape, and reducing the costs of doing business in South Africa.
Yet this year the Gauteng government has been complicit (to put it mildly) in one of the biggest of all new impositions on business, the tolling of an urban road. And the DED was not even consulted on the matter until after the fact.
Here’s another promise that is unlikely to be delivered on: The Premier has promised access for 95% of Gauteng to broadband by 2014. But it does not bode well that we have been waiting since 2009 for Gauteng Online – which is still not working, as we all know, despite questionable expenditure that runs into billions of rands.
My last observation for today regarding this government’s self-inflicted obstacles to job creation is that of the moratorium on liquor licenses, imposed since August last year, with incalculable cost in terms of jobs not created in Gauteng (the Spur chain of restaurants alone estimated jobs forgone at 600).
However, given that the liquor regulation system in Gauteng was in a shambles, rife with corruption and an estimated 10,000 fraudulent liquor licenses issued, we were prepared to accept the moratorium for the sake of clean governance. After all, we do commend our Premier for the strides she has made in addressing corruption in the province.
In this case, a new Liquor Board would be appointed, along with a new Chairman. All well and good – that is, until we find out that the new Chairman appointed by our MEC for Economic Development is Mr Bally Chuene. And who is Mr Chuene? Well, if I am correct, he is the same person who is currently in court on charges of fraud amounting to R400,000. And when that's decided, there is another fraud charge pending to the amount of R200 million. So what was the point of the moratorium? I rest my case.
Ladies and gentlemen, at least part of our failure to deliver jobs in Gauteng is this government's ideological resistance to more private sector participation. Why is there such a resistance to using private sector resources and skills, including proper project management skills? Why are we not harnessing the power of Public Private Partnerships, or PPPs ? Instead, PPS are becoming like rhinos in Gauteng – increasingly scarce. And the resulting loss is all ours.
I believe me, ladies and gentlemen, when I say that I take no pleasure in all of this. We are all in the same boat, government and opposition. If the boat leaks where you are sitting, I am just as concerned as you are, because it will affect all of us. We all want Gauteng to win. But wanting is not enough. Doing is everything, and we are not doing enough, and where we are doing things we are too often getting it tragically wrong.
"Tell no lies, claim no easy victories" said Amilcar Cabral. Yet this government continues to claim easy victories. But what message are we sending our people? Who do we think we are fooling?
The real tragedy is that despite good intentions, between these intentions and their implementation this government is failing.
Yet it could all be so different, with the right approach and effective, competent, transparent government. We have inflicted these wounds on ourselves, and that is the real tragedy here.
It could all have been so much different.
Thank you Madam Speaker.
Madam Speaker
Madam Premier
Honourable Members
We are past the mid-term of this administration. In less than two years we will be facing the voters again. What will we tell them, as their representatives in this House?
It is the first and foremost duty of every honourable Member in this legislature to hold the executive to account and to scrutinise any legislation that comes before us. That is the entire point of having provincial legislatures. It applies to all of us. Everything else we do is secondary.
So if we scrutinise how far we have come since 2009, and how far we still have to go, what conclusions can we reach? Regrettably, although there have been some achievements, it is difficult to avoid the conclusion that we could have done so much better.
I say this especially from the position of oversight over the Department of Economic Development and the all-important issues of economic growth and job creation. Here, with only a few exceptions, the Provincial Government has failed the people of Gauteng in their hour of need.
Let me give you an example of what I mean. In her State of the Province Address for 2012, the Honourable premier claimed that, and I quote:
"By the end of December 2011, the provincial government had exceeded its job creation targets, with 281 686 jobs created".
Wonderful, you might think; at least this goes some way to alleviating the job losses in South Africa's economic heartland. But closer scrutiny reveals something else.
The Premier went on to explain that of these 281,686 jobs, only 5,629 were new permanent jobs. Yes, 5,629. Almost all the rest were temporary, low-paid Expanded Public Works jobs of a few weeks duration. While the EPWP does important charity work, and the DA supports it, an EPWP job is not a job as we understand it. It's not permanent; it pays a daily wage that would make a COSATU member weep; and it’s a far cry from the very recent calls for "decent work" from this same government.
The fact is that more than 276,000 of the jobs created were not sustainable. Let us face this honestly and upfront, and tell the people the truth.
Now we are told that the Gauteng government will create one million new jobs by the end of the year, created by 100,000 youth entrepreneurs at a rate of 10 new jobs per entrepreneur. This kind of simplistic arithmetic is very worrying. For one thing, you don't create an entrepreneur by training one. That is one reason why the Gauteng Enterprise Propeller, the GEP, falls short. (There are other reasons as well, but I have raised these in other debates.)
And even assuming we do manage to find 100,000 new youth entrepreneurs, this does not translate into 100,000 new 10-man businesses. The failure rate for business start ups generally in the first year of operation is 50%. Yes, fifty per cent. After that, as statistics show us, the fall out continues. And this sort of basic information is not a secret – lots of research has been done. Nor does one entrepreneur equal ten jobs, unless you attended one of our poorer government schools. So one wonders who has been advising the MEC on these matters, and what planet of ignorance they are from.
Even for those entrepreneurs who do manage to survive in Gauteng, there's more bad news. The latest figures from the Finance Department show that despite promises year after year after year to fix the problem, the GPG still only manages to pay 75% of suppliers within 30 days. This destroys cash flow, and with it the very BEE companies whose sustainability and growth depends on doing business with government.
I have another dispiriting observation.
Our present MEC for Economic Development has promised to create an environment more conducive to doing business and thus to creating jobs. This means removing unnecessary and obstructive red tape, and reducing the costs of doing business in South Africa.
Yet this year the Gauteng government has been complicit (to put it mildly) in one of the biggest of all new impositions on business, the tolling of an urban road. And the DED was not even consulted on the matter until after the fact.
Here’s another promise that is unlikely to be delivered on: The Premier has promised access for 95% of Gauteng to broadband by 2014. But it does not bode well that we have been waiting since 2009 for Gauteng Online – which is still not working, as we all know, despite questionable expenditure that runs into billions of rands.
My last observation for today regarding this government’s self-inflicted obstacles to job creation is that of the moratorium on liquor licenses, imposed since August last year, with incalculable cost in terms of jobs not created in Gauteng (the Spur chain of restaurants alone estimated jobs forgone at 600).
However, given that the liquor regulation system in Gauteng was in a shambles, rife with corruption and an estimated 10,000 fraudulent liquor licenses issued, we were prepared to accept the moratorium for the sake of clean governance. After all, we do commend our Premier for the strides she has made in addressing corruption in the province.
In this case, a new Liquor Board would be appointed, along with a new Chairman. All well and good – that is, until we find out that the new Chairman appointed by our MEC for Economic Development is Mr Bally Chuene. And who is Mr Chuene? Well, if I am correct, he is the same person who is currently in court on charges of fraud amounting to R400,000. And when that's decided, there is another fraud charge pending to the amount of R200 million. So what was the point of the moratorium? I rest my case.
Ladies and gentlemen, at least part of our failure to deliver jobs in Gauteng is this government's ideological resistance to more private sector participation. Why is there such a resistance to using private sector resources and skills, including proper project management skills? Why are we not harnessing the power of Public Private Partnerships, or PPPs ? Instead, PPS are becoming like rhinos in Gauteng – increasingly scarce. And the resulting loss is all ours.
I believe me, ladies and gentlemen, when I say that I take no pleasure in all of this. We are all in the same boat, government and opposition. If the boat leaks where you are sitting, I am just as concerned as you are, because it will affect all of us. We all want Gauteng to win. But wanting is not enough. Doing is everything, and we are not doing enough, and where we are doing things we are too often getting it tragically wrong.
"Tell no lies, claim no easy victories" said Amilcar Cabral. Yet this government continues to claim easy victories. But what message are we sending our people? Who do we think we are fooling?
The real tragedy is that despite good intentions, between these intentions and their implementation this government is failing.
Yet it could all be so different, with the right approach and effective, competent, transparent government. We have inflicted these wounds on ourselves, and that is the real tragedy here.
It could all have been so much different.
Thank you Madam Speaker.
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