BEWARE OF BRICS !

Published in abridged format in the Financial Mail, end December 2012.

South Africa’s accession to the Brics grouping of nations is seen as one of the highlights of post apartheid diplomacy. Brics  is an acronym for Brazil, Russia, India, China and South Africa. In fact however, South Africa seems to have little to gain in the longer run from the Brics nations, or from diverting resources and time away from our traditional trading partners the UK, the EU and the US in favour of Brics, or indeed in choosing Brics rather than some other groupings of developing nations now out there.

Yes we need to diversify our international markets, but we must at all times measure our national interest in doing so.

Membership of Brics allows South Africa to box far above its weight on the international stage, as well as providing an outlet for anti western sentiments amongst the ANC elites. But a closer analysis reveals a much sadder story, with South Africa within Brics playing a cat’s-paw role for China, at that country’s beck and call.

 The imbalances and contradictions of our membership are glaring. South Africa’s entire economy is only as big as China’s sixth largest province. South Africa’s economy is one quarter of the size of the weakest of the Brics economies, Russia. As for our population it is a minnow compared with the vest consumer markets of the Leviathans of India and China.

Some diplomats say that China favoured South Africa’s inclusion in Brics because it can rely on South Africa to take China’s side in Africa trade. Just ask the Dalai Lama. Brics may just be a convenient synonym for those few ANC leaders still embarrassed enough by Chinese human rights and democratic record not just to say South Africa-Chinese trade. Because that is what Brics means in practice for SA-Brics trading relations.

Brics does have one major advantage – to use its combined weight to counterbalance trade pressures and demands from the West. On the other hand, for reasons that will become obvious, Brics does not constitute a formal economic bloc. As a new centre for the world economy to rival the EU and the US – forget it.

The Brics economies are all deemed to be at a similar stage of economic development although South Africa is more of a symbolic add- on than a major player in the alliance. Many see it as opposed to the western dominated G7 (Japan, US. UK. Germany. France. Italy. Canada). Brics is seen as evidence of the rising ability of developing nations to become a major player in the global economy, exceeding that of the West. And yes, this is in fact what is happening. But it is not confined to Brics. The G20 group of economies (of which the Brics countries are a part), are set to overtake the size of the combined G7 economies by 2050.

Brics countries comprise 40% of the world’s population. What’s not to like? The size of the Brics middle class by 2025 will be about 200 million people. China is already the world’s second largest economy after the US. It could overtake the US as early as 2040. Brazil is the world’s sixth largest economy.

You have to take these countries seriously as individual states.

But as a group there is little that actually binds the Brics together as a coherent whole. This is something that South Africa needs to bear in mind.

The only economy of the five that is still growing at a rapid rate is China. It is not always in the other Brics countries interests that this is so.

 Also their economies are differently structured. Russia and China are essentially state run economies, and some in the ANC Alliance would like to emulate this. But Brazil and India are much closer to the free market system.

The currencies of the Brics are much more volatile than the USD. Brazil’s real has declined by 15% against the USD this year. Several Brics countries have used their boom times money for social welfare rather than growth – Brazil and Russia (and South Africa) being some examples. These means that in these countries growth is hindered by inadequate infrastructure – like South Africa. Brazil’s economic growth rate fell from 7.5% in 2010 to 2.7% in 2011.

India is crippled by crony capitalism. Only China invested in infrastructure – but China has no national pension scheme. ? Uncertainty over India’s economic policies and poor governance have recently led Fitch Ratings to downgrade India to its lowest investment grade ratings, echoed by Standard and Poor. So beware of straight line growth projections. India is facing an economic crisis with factory output shrinking 3-5% by March 2012.

Then there is the matter of longer term social stability, applying especially to Russia and China. Russian democracy under Putin is increasingly hollowed out and its population is becoming restive.

The Chinese economy is bigger than that of all the other Brics put together. But the question as to how long China can continue to suppress the desire for democracy on the part of its booming middle class, and whether or not that transition can be made via some sort of Arab Spring or a Syrian style revolt, remains a moot one.

China’s GDP has shrunk from a stunning 10% pa to 8.9% this year. China has to keep double digit growth to prevent popular unrest in a country with only a vestigial social welfare system.

China faces the additional problem of the consequence of social engineering, where the population will grow old before it grows rich, and the problems of excess young men due to infanticide of girl children widely practiced in that country.

Nor is intra -Brics trade that high. For China, trade with Russia is at a paltry 2%. Frictions between China and India will also grow, including serious border disputes already violated by China in the past. There are also conflicts between the two over water resources.

Finally, the Brics countries are heavily dependent on US and European consumption for growth.

There are also other groupings attracting more investor interest now than the Brics nations. Chief amongst them are the more informally linked, but just as fast growing MIST countries – Mexico, Indonesia, South Korea and Turkey. It is also possible that Nigeria (but not South Africa –our population is too small) could join their ranks soon. MIST is already attracting FDI away from Brics as more market -friendly, socially stable and business-friendly.

Some investors prefer the CIVETS: Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.

The truth is that the average wealth per person in the G7 countries will continue to far outpace that of the Brics economies into the foreseeable future. The G7 countries still maintain their lead in growth in per capita income. The thing is not to confuse overall size (where China will win, with 1.2 billion people) with per capita wealth where the west is still far ahead and likely to remain so for the rest of this century.

But if you are a futurist looking at the changing global economy, remember this; that Hong Kong and Singapore will soon be among the world’s top five most influential economies. In sum, for those in South Africa who see Brics as the solution, it may be time to think again.

By Dr Gavin Lewis, DA MPL, Gauteng.

Business Day , 29/11/12

It is not incumbent upon all of us to know anything about history, but I must protest at Dr Thami Mazwai’s lack of knowledge. He approvingly cites China’s industrisation launch from 1952  as a model South Africa should follow. I presume he means Chairman Mao’s Great Leap Forward, which happened during this period, failed utterly and left millions dead.  It was one of the great catastrophes of the twentieth century. Only after Mao’s death was that country able to produce the double digit growth levels  of recent years, under Deng Xiao Peng.  It is no model for anyone except ideological psychopaths.

Dr Gavin Lewis

DA MPL Gauteng Legislature

"No skyfall after Mangaung"

Thank you for your sensible editorial comment, “Mangling Mangaung” ( FM  16/11/12-21/11/12), especially when you point out that we need to relax about Mangaung itself. I am getting tired of people talking  about by Mangaung in apocalyptic terms. In reality we will just have more of the same corruption and incompetence afterwards. The world will not come to an end, nor will South Africa’s future be irreparably damaged if Zuma is re-elected. It is the system that’s not working, not the thoroughly interchangeable politicians. It is ever the tendency of widely publicised  “thought leaders” (whatever that means) to grant themselves the arrogance to cry “après moi la deluge”. That is just self importance taken to extremes.  We should not allow politicians in all their pomposity to assure us that the sky is falling. South Africans fought apartheid for forty years. Seventeen years of ANC rule is a mere bagatelle by comparison. Yes we will inflict lots of damage on ourselves, most of it unnecessary. Yes Zuma will be as bad as he was before Mangaung. But that is no call to throw up our hands in despair. We will fight on , and justice will prevail. Nobody said it would be easy.

Dr Gavin Lewis

DA MPL Gauteng Legislature

The failure of migrant labour

Article in Fimancial Mail, 1/11/12

I read with interest the comment in your Editorial (FM, 26/10 – 31/10) regarding the implications of Marikana , and the need for the mining industry to  consider reforming the current migrant labour system.  It seems to me that the existing model of mining in South Africa is indeed unsustainable .

 

There is a need to relook at the migrant labour system to try and find alternatives to the long periods way from home in an all-male environment – perhaps shorter three months on, one month off work, so that mineworkers can tend to their rural families.

 

This would also alleviate them setting up second temporary homes around the mines themselves, resulting in unserviced and ultimately squalid shack settlements. Then there is the burden of sustaining two households instead of one on a limited income.

 

This in turn encourages an unhealthy reliance on money lenders. and to deep despair. One can only speculate as to how such factors fuel the rage of illegally striking miners and the high death toll.

Dr Gavin Lewis

DA MPL Gauteng Legislature
Spokesman: Economic Development
Deputy Spokesman: Finance

SA is not an island

Published in Business Day 28/9/12

Your Editorial, “ An Appalling and Hypocritical Call”, BD 26/9/12, refers. You rightly highlight the growing tendency of the DTI under Minister Rob Davies, to let multilateral agreements with other countries lapse. This is a trend  which I have been watching for some time, and to the list of culprits I would add Minister of Economic Development Ebrahim Patel. Just as the latter has seen fit to ride roughshod over the independence of our Competition authorities ( see Jack Lewis’s book on the topic),so too the one of the key purposes of these two gentlemen in to gain a hand over the nature and content of foreign direct investment .  The DTI's policy statement on the topic last year is to reconcile FDI “with the sovereign right of the South African Government to pursue developmental public policy objectives”. Now “ developmental” can mean whatever you want it to mean, but in today’s utterly leaderless South Africa, in Cabinet its one man, one economic policy.

 

South Africa is not an island in the global economy. Just because their behind the scenes manoeuvring  will remove the restrictions on meddling with signed and sealed business deals, which Patel and Davies no doubt hope will protect them from international retribution does not mean it will in fact be so. This will severely damage South Africa’s already damaged South Africa’s post- Marikana, post Malema,  investment prospects. It’s a sort of Socialism In One Country idea, which assumes everyone else is stupid and that  the Berlin Wall did not fall. It  operates on the assumption that that Messrs Patel and Davies feel foreign investors should  know their place, and if not, who needs FDI anyway. This arrogance is misplaced, and it is a luxury we cannot afford. It will end in tears, but  as usual, it is ordinary South Africans who will play the price. You have been warned

 

Dr Gavin Lewis

DA MPL Gauteng Legislature

Letter in FM, 28/9/12

Your article on industrial policy, "Bound by Heavy Chains “ refers.  The Soviets and a little later, Chairman Mao ,were always obsessed by heavy industry, seeing it as the real heart of manufacturing and as a reflection of state power. One of the other  legacies in both areas was and is ecological devastation not   yet  seen on a similar scale anywhere else in the world. Ultimately, this fixation helped cause the demise of the Soviet bloc, a collapse only averted in China by Deng Xiao Peng’s sweeping, consumer oriented market  economy ( i.e. quasi-capitalist)reforms.

This legacy lives on in the zeitgeist afflicting the first generation of post apartheid planners at senior levels in government, despite policies that profess to achieve the ooposite. The New Growth Path has precious little to say about SMEs and other job intensive sectors that need state support where necessary, which are where the jobs are. But under trade and industry minister Davies and  economic develoment minister Ebrahim Patel, expect no deviation from past  dead orthodoxies under a leaderless ANC government .

No, things look like they will have to get a lot worse before they start getting better. The question is whether the institutions that sustain our new democracy can withstand the strain they are being increasingly placed under before the new brooms arrive to sweep clean.

Dr Gavin Lewis

DA MPL Gauteng Legislature
Spokesman: Economic Development

THE "NEW" ANC IS THE SAME AS THE "OLD" ANC

(Published in Business Day 19/9/12)

I read with wry amusement Gauteng ANC chairman Paul Mashatile’s comments to the Black Management Forum that under the “ new”leadership to be elected at Mangaung there would be lots of nationalisation, and that the new broom would also solve corruption by forming an “ integrity committee”.

Is this the same Mashatile who during his reign as Premier of Gauteng became known as the head of the “ Alex Mafia” of tenderpreneurs ? Who left us with the legacy of the R8 billion Formula one scam exposed by the DA? Whose other legacies of dodgy dealings, inept management and the worst kinds if cadre deployment we are still trying to clean up in the Gauteng Legislature years later ?

That Mashatile?

And as for the strategic nationalisation he expounds, we can have a pretty good guess who that will benefit. And when it comes to the integrity commission, the ANC has already tried that ruse in the GPL: what it means in practice is that corrupt and/or inept MECs can be given shelter from the media storm that ensues when their antics are finally revealed for all to see, and the ill informed “ sub judice” rule can be trotted to stifle debate and oversight.

No sir, the “new” ANC Mr Mashatile envisages looks uncannily like to the old one to us sheep in Animal Farm.

Dr Gavin Lewis

DA MPL Gauteng Legislature

Marikana

It seems to me that there are three relatively simple reasons behind the Marikana tragedy. They are the role of the unions, the police, and the strikers themselves.

 

 First the unions, in this case the COSATU affiliate the National Union of Mineworkers, whose leadership has clearly failed to keep in touch with their own constituency. Politics, like nature, abhors a vacuum, which many are rushing to fill.

 

 Second, the police were clearly not adequately kitted out for riot control, and overall leadership at the time of the event appeared confused. This means unnecessary shootings.

 

Third, why are strikers permitted to come to strikes bearing arms, in this case mainly spears and new looking pangas? These are fearsome weapons, and I for one would rather be shot than hacked to death. It is absolute nonsense to classify these are “traditional “ weapons. Strikers should not be allowed to be armed, finish and klaar.

 

Dr Gavin Lewis

DA MPL Gauteng Legislature

Business is no Messiah

Gavin Lewis; Article in Business Day, 2011

BUSINESS IS NO MESSIAH

Can business be a trusted leader, or even a strong ally, in the broader fight by civil society in speaking truth to power? This debate is one that frequently emerges in the "Why doesn't business speak louder" schools of thought that permeate newspaper letter pages. This is especially so in   times of when drastic populist remedies are floated, such as the ANC Youth League recent nationalisation proposals.

 In fact we probably expect too much of business in South Africa. Nor is there much clarity in what we understand by "business". For instance:

1.       What do we mean by organised business?  Is it Business Unity SA, comprising mostly medium sized businesses? Or "big"(i.e. multinational type) business? Or is it crony capitalists, who are not so much about business as they are but about exacting rents via the state from business and society in general. Some black business forums are not about business in the conventional sense at all, as the SA Communist Party's Jeremy Cronin pointed out recently. They look to the state, not to the market for sustenance. They   represent (not surprisingly), a majority of public service officials or quasi-officials in black professional and business bodies. On the other hand, formal institutions for business to consult government tend to focus on technocratic, not overtly political, issues.  The National Economic and Development Labour Council (NEDLAC), is supposed to be a bargaining place on practical matters for business and labour, with a largely fictional civil society participation.

2.       With whose mandate do the "captains of industry "speak? For their shareholders? For their Boards? And how risks averse are those shareholders and boards, interested as they are mostly in profits (despite the ANCYL's ignorance about who "owns" the mines – answer: major pension funds whose beneficiaries are mostly black).

3.       Who do the business organisations represent? Certainly not small businesses, which simply do not have the cushions that big business does in agreeing to more onerous compliance procedures or sector wide wage agreements. Who speaks for them, and amongst those that claim that they do, how many have a mandate they can tie their members to?  Answer: None.

4.       Also, do not mistake the interests of business with those of the market. The two are not always the same thing. Bigger businesses, just like big government, can absorb very great efficiency costs and actually pre-empt the price signalling functioning of the market. An example are the "temporary sole suppliers" that still dot the South African business landscape, many of them leftovers from the apartheid era siege economy. Pro market and pro business are not necessarily always the same thing.

5.       Then there is the issue of effectiveness when business does speak. The medium is too often the message when business talks. While the negotiating partners on the side of government and labour change fairly regularly, many spokesmen for business, however courageous, are the same people who have been speaking for business for a decade or more. People on the other side of the debate have tuned them out long ago.  They have stopped listening. They believe they have heard it all before, and they are not convinced that business "cares".  We also need new voices and new ways of messaging.

Business does have a right to make its interests clear. Indeed, it must do so if it is to grow and prosper. The broader society benefits because in that process of growth, business creates jobs, which increases per capita wealth , empowers individuals to look after themselves without a nanny state, and strengthens their buying power, stimulating local service and consumer goods industries. Taxation permitting, it also  allows households to save, which in turn  provides funds governments can borrow against instead of relying fickle and expensive foreign capital to finance the economic infrastructure that enables further economic growth.

But beyond that it is difficult to expect too much more from business, except, importantly, in funding alternative civil society  and other voices ,and properly thought out corporate social investment and development projects, as well as conforming to the wider sustainability ethos. Beyond that it is too big an ask to expect business to do what we are not prepared to do ourselves through our own engagement and participation, as voters and citizens in a still free South Africa.

The truth of the matter is that in South Africa several business voices, from both English and Afrikaner capital, have shown considerable courage in putting forward views in support of the broader democracy we are so painfully building. There is a long history of business-government engagement that goes back to the apartheid era, where business organisations engaged with the National Party government especially in the 1980s and, for that matter, with the ANC in exile. That these engagements had an impact is clear, but how much of an impact is less easy to measure. Such engagements must and will continue, but they are not the normal business of business.   Businesspeople are, after all, South Africans just like the rest of us, with all our imperfections. It is in the last resort up to individual South African and those civil society institutions that are totally independent of the state, to continue the fight to broaden and entrench our democracy. As Bob Marley more succinctly put it in his famous Redemption Song, it is 'none but ourselves" that can free our own minds and "emancipate us from mental slavery.

Letter in Financial Mail

So Commission and Employment Equity chair Ms Mpho Nkeli is an enthusiast for demographic representativity in the jobs field. Perhaps she does not know that  the last country to seriously attempt this was Nazi Germany, The problem ( amongst many others) was how to identify those Jews who pretended to be of Aryan stock. South Africa finds itself in a similar predicament. What to do about " Coloureds" , for instance. Is, say, the well known and highly respected Professor Jonathan Jansen ( my apologies to him) of the Free State University African or Coloured ? He says he is neither, that he is black, and he is indeed very dark skinned. But his surname is Afrikaans. You’d have to call him in to test just  how "African"  he really is. Perhaps Ms Nkeli can find some of those Verwoerdian SA Bureau Of Racial Affairs operatives and bring them out of hiding to assist identifying where African ends and Coloured begins, or even where white ends and Coloured begins.  One thing is sure, we will one day  look back on this era with feelings of the same disgust we now feel for apartheid era racism.  You will never achieve the goals of non racialism  through these kinds of neo Nazi racism. Or is this the better life for all we were promised once, long ago ?

Dr Gavin Lewis

DA MPL Gauteng Legislature

From Business Day

Your Third Umpire ( BD, 29/6/12) rightly flags President Zuma’s somewhat amusing use of the term “inaccurate facts” used to criticise the ANC. I can trump that statement, with a senior ANC member accusing me during a debate in the Gauteng Provincial Legislature of using “sarcastic facts” to criticise the party. Perhaps we should just abandon the facts entirely ?

Dr Gavin Lewis

DA MPL Gauteng Legislature

Published in Sunday Times, Business Times, 22/7/12

Industrial Policy: Who Needs It?

Dr Gavin Lewis

For anyone interested in the future trajectory of the South African economy, and of the prospects for growth and employment, and indeed on favoured sectors for investment in the future, a knowledge of this country’s industrial policy is essential. This policy can be found in the Industrial Action Plans  (IPAP), of which there have been several renditions, perhaps the best known being IPAP 2. The problem is that IPAP 2 is a very long and very complicated document. Too long, and too complicated. But understanding it is critical, because it affects both our current and future economic policies in detail.

Some countries do not regard a specific industrial policy as essential. The current UK government prides itself on not having a formal industrial policy, preferring to let the private sector take the lead – to the consternation of the Business Secretary, Vince Cable, who wants a ‘joined-up’ growth and development strategy. In the UK that means picking sector winners and assisting them with tax breaks, framing procurement policies, ramping up infrastructure investment and focusing on exports – a post-crisis industrial plan, in short.

So what does our IPAP say? It concludes that central to the poor performance of the SA economy is a fall in production, as opposed to consumption, and that this translates into a poor manufacturing performance. Since manufacturing contributes 54% to production, reviving manufacturing, and with it “decent” jobs, is the key but not the only focus of our industrial policy. This approach includes a new thrust into green industries, rural development, the Expanded Public Works Programme (EPWP) and infrastructure investment.

A central element of IPAPs is access to discretionary finance, to fund developmental projects (e.g. infrastructure) that are not currently attractive enough for voluntary private sector investment by offering such prospects loans at reduced interest rates, or backed by state guarantees. Here they run headlong into the fiefdoms of the Department of Finance and National Treasury. So IPAP 2 is  not explicit as to additional sources of long term concessionary finance for disbursement by the Industrial Development Corporation (IDC) , other than to hint that this could come from state assets such as workmen’s compensation funds (or retirement funds?) or – as more recently mooted by minister of economic development and currently interventionist-in-chief Ebrahim Patel – through development bonds.

 Central place in the IPAP 2 goes to the IDC, the state-owned development finance institution which received R102 billion for this purpose in 2011, with the Development Bank of South Africa (DBSA) in a supportive capacity: “…the public role of industrial financing is to channel capital into productive [as opposed to consumption] investments which directly and indirectly generate decent jobs and value addition,” says IPAP 2. Raising funding through the full or partial privatisation of State Owned Companies (SOCs) is however no longer considered an option, reflecting the dominance of leftist influences in the current government. This matters because it rules out raising finance for infrastructure from the partial or full sale of SOCs, as Brazil is doing with considerable success

A further source of such assistance open to the state is leveraging off public and, where possible, private purchases. The model here is the National Industrial Participation Programme (NIPP)  whereby in return for major state orders from abroad for weapons such as civilian aircraft, ICT systems, nuclear power plants, etc, above a certain minim incurs reinvestment obligations as part of offset programmes by those from whom the purchases are made (the ‘obligors’).

The existing seven industrial sectors prioritised by IPAP 2 include automotive, plastics and pharmaceuticals, clothing, textiles and shoes, bio fuels, forestry products, tourism/cultural industries, and business process outsourcing (BPOs). More recently attention has been gained by the oils and gas rig repair sectors and the boat building industry.

Conspicuous by its absence both historically and given China’s insatiable demands for commodities, is one area which forms the backbone of the SA economy, namely mining. Its absence speaks volumes about picking winners and creating jobs. IPAP 2 added new sectors here – metals fabrication, capital and transport equipment, green industries, in particular solar panels, and agro-processing; but not IT services, engineering, legal and medical services. It retains three additional high potential sectors – nuclear, advanced materials and aerospace.

In the end what this aggressive industrial policy – at least in theory- portends is that bureaucrats, not the market, decide where and how resources will be channelled. And unless your bureaucrats are world class in their fields, you are in trouble. This is especially the case when, as in South Africa, the industrial policy emphasis is on big industrial investments, whereas the job creating benefits of small business, universally acknowledged, get hardly a mention and the binding constraints of poor rail, port and energy infrastructure still loom so large as reasons for our poor economic performance.

There are no guarantees of success in devising industrial policies. There are many examples of failures of industrial policy. One is the failure to rescue Britain’s motor industry, which no longer exists. Who remembers British Leyland now? All too often, government bureaucrats fund so called ‘zombie industries’ long after they have ceased to become viable.  Propping up failing businesses that can never be sustainable is a waste of resources. But politics intervenes, and in the case of the ANC industrial policy is distorted to meet essential political imperatives rather than economic ones. BEE crony capitalism and the policy veto exercised by organised labour are also formidable constraints. Instead, the IPAPs exclude some options for ideological rather than for business reasons.

 Similarly, political imperatives often preclude long term planning and the patience needed for long term investments to bear fruit. Election cycles are shorter than economic ones. A case in point is the abandonment of the Pebble Bed Modular Reactors (and the scarce skills it retained) despite the hundreds of millions invested in it on the eve of IPAP 2 which posited the nuclear industry as a high potential future sector for the SA economy.

An associated danger of sector specific and company specific industrial policy worldwide is that of capture of the benefits by a small group of political insiders – crony capitalists. This is an obvious threat in South Africa.

On the other hand there is a growing consensus that the “essence of economic development is structural transformation, the rise of new industries to replace traditional ones,” (The Economist, 17/7/10 ) and that the acceptable face of contemporary industrial policy is where it seeks to temporarily support brand new or infant domestic industries.

Success or failure then depends on a tailored, rather than a shotgun approach; sector specific strategies rather than one-size-fits-all; successful implementation by a competent state; a strict focus on costs, including opportunity costs; and performance measurement, usually by monitoring export performance which is difficult to fake. It also means having an exit strategy for state-owned enterprises such as SAA and Denel, instead of maintaining them at a permanent cost to the taxpayer.

But all of this has to happen after certain pre-conditions are met, prominent amongst them a prior emphasis on strengthening entrepreneurialism instead of suffocating it. A first priority should be to build and maintain public goods that underpin business – getting the basics right, like efficiently run ports, transport infrastructure and communications network. In addition, slashing unnecessary red tape for business pays proven dividends. In none of these is the ANC government distinguishing itself.

It is worth remembering the words of David Lewis (formerly of the Competition Tribunal) that when it comes to industrial policy you “have to be very selective and very focused in your interventions, and you want to leave as much as you can to competitive forces” (Business Times 17/06/12). He should know.

The key issue instead is to focus on those businesses that are already emerging and growing, and to assist them to grow faster without second-guessing by bureaucrats who have no personal practical knowledge of business and the market. In sum, industrial policy must always be market driven for success. In our case the jury is still out.

Letter published in Business Day 17/7/12

I enjoyed Mzukisi Qobo’s insightful article on the need to close down Nedlac (13/7/2012). Not only is Nedlac as undemocratic as he describes, and the “civil society” component as risible as he suggests, but there us another problem with this pathetic institution. It is a place where big business and big labour negotiate and the losers are the rest of us. Not least among the losers is small business interests, which are regularly sacrificed  in the form of new and binding regulations that SMEs just cannot afford. Nedlac costs us jobs, creativity and economic dynamism. Its demise is long overdue.It has become part of the problem, not part of the solution.

Dr Gavin Lewis

DA spokesperson on Economic Development in Gauteng Province.

Letter published in Financial Mail
by Gavin Lewis

SA FILM INDUSTRY CAN LEARN FROM NIGERIA

Your lead article (6-11 July 2012 – “SA’s Film Industry”  refers. Amidst all the bleating for room at the teat of state support, none of those interviewed seemed aware of the phenomenon that is Nollywood, Nigeria’s booming US $200 million (R1.6 billion) a year film industry . It is the third largest in the world, and operates entirely without state support. Operating on shoe string budgets, filming in rented locations and not state of the art film facilities, often with hand held cameras, and focussing on topics of relevance to ordinary  Nigerians, thing they want to see and are willing to pay to see ( now there’s a revolutionary thought) , and is growing exponentially amongst the diaspora (and sometimes MNet ! ). Nollywood employs thousands of people, and  churns out in excess of 1000 films a year, mostly straight to DVD and VCD. A few films are reaching  the art film scene, entirely in their own merit, and without the layers of expensive deployed incompetent cadres the government ( and especially the provinces) in South Africa  seems to regard  as essential for this purpose. There are over 300 film producers in Nigeria, and the VCD discs they are distributed on are sold at an affordable US2 each ,selling an average of 50 000 copies each  per release. One could say more, but the contrast between South Africa’s ingrained  culture of dependency on the state and Nigerian entrepreneurship is startling. No wonder that economy is growing faster , and will soon overtake, South Africa’s muddle of mediocrity and dependence on others to make things happen.

ORGANISED LABOUR IN SA NEEDS A RESCUE FROM ITSELF

Gavin Lewis (published in Business Day 5/7/12)


There are  about 12.8 million workers in South Africa.Organised labout represents about 2.5 miillion of these, of which less than 2 million belong to the Congress otf South African Trade Unions (COSATU). Yet COSATU continues to determine government policy on  economic issues.This is a fact that is costing us the implementation of vital job-creating intiatives, such as the youth wage subsidy.

In the post - Polokwane political arena, and particularly in the run-up to Mangaung, COSATU general secretray Zwelinzima Vavi appears to have a de facto veto power on the governnment's regulation of labour.In fact organised labour represents a minority of workers.  This cannot be either fair or healthy for growth and employment in South Africa, as the National Development Plan itself points out. In fact, in the education system organised labour, in the form of SADTU  is the single biggest cause of poor school performance, casting a blight over generations of our young people for years to come, and crippling our skills base on which our economy depends for faster growth and employment. The ANC Alliance is thus caught in the contradictions of its own internal dialectics.

Nor does the COSATU leadership necessarily reflect the views of its membership. In a thought –provoking article by Philip Hirschsohn, of the University of the Western Cape," The Hollowing out of trade union democracy in COSATU", it is pointed out that as unions have grown, so a bureaucratic elite of full time official has become distant from the workers, taking on oligarchic characteristics. This leads in turn to lower levels of worker participation, and the effective demobilisation of mass worker activism in South Africa, with  a monopoly of political leadership lying in the hands of the leadership. Direct democracy is dying in COSATU, as SACP aligned leaders drift further away from workerist principles, suffering under top down political directives rather than bottom up mandating channels.

 The result in the Western Cape since 2004 has been that only 20% of COSATU workers said that they would still vote for the ANC Alliance, rather than for the DA and Cope. As you reap, so shall you sow, the biblical saying goes. In the fullness of time pro SACP COSATU leaders might become so estranged from their base that a split will occur, and the rest will be history.

 In the meantime, just last year the IMF pointed out that reform was needed in the wage negotiating structure in South Africa if SA was serious about creating jobs. Yet COSATU stubbornly stops any attempt to lower the hurdles for first time entrants to the economy. Instead an entrenched labour aristocracy, increasingly dominated by public sector workers, has pulled up the draw bridge for the rest of South Africa. In this way COSATU blocks initiatives such as Pravin Gordhan's (and the DA's) youth wage subsidy.

 The public service wage bill now leaves only 60 % of our national budget for infrastructure investment, and its share is growing all the time. In fact, the two fastest growing sections of our national budget now are public sector wages and repayment of our climbing debt.

Economist Mike Schussler points out that, after Sweden and France, South Africa has the highest paid civil service in the world. What's more labour productivity, on which mooted wage increase should be based, is down to 82% of what it was ten years ago. We will never reach governments own targets of 5 million new jobs this way.

 We have shed 2 million permanent jobs since 2000 . This process began way before the international financial crisis, on which the ANC now attempts to blame all our recent poor economic performance. Thus are doomed the majority of South Africans who are unemployed to blighted lives as a permanent underclass, foraging for scraps on the outskirts of our glass cities.

Organised labour is a vital part of South Africa's industrial landscape, but not in its current form. At the moment we sit with a country that not only has one of the highest recorded unemployment rates in the world, but simultaneously one of the highest strike rates in terms of man days lost. And our strikes are increasingly violent and always highly confrontational.

 Clearly we need a different way ahead, including looking at the example of Germany's social contract which sees labour represented directly on company Boards. We must rescue organised labour from itself. We must restore it  to being a shining example of non racialism, support for democratic and open government, and as a central player in a robust, democratic, peaceful and healthy political landscape. Otherwise we are nearing the point at which public money, and public borrowings will finally run out, and our hinterland will be contemporary Greece – if we are lucky.

Gavin Lewis (published in Business Report,26/6/12)

Cutting Red Tape

Red tape regulations cost the SA economy R79 billion a year. At least that was the case in 2004, when government launched a pilot project on Regulatory Impact Assessments (RIAs) for new regulations. More recently, the World Bank placed us at 34^th in "Ease of Doing Business" worldwide, but 91^st on registering property and 75th in dealing with construction permits (infrastructure development, anyone?). And a Grant Thornton survey of business leaders in Gauteng in January 2012 found that red tape was now the biggest single obstacle to doing business in the province.

For small business the impact is worse, largely because they lack the departments that see to compliance on a full time basis. Estimates show compliance costs of 0.2% on average for big business, versus 8.3% for SME's.This was underscored by a SBP (Small Business Project) SME Centre Report of November 2011, which surveyed 500 SMEs in SA on the impact of regulatory requirements.

It was news like this that prompted David Cameron's new government in the UK in 2011 to issue a ruling that there would be a three year moratorium on any new regulations that affected small business in that country.

Not far behind is the New Growth Plan, which views "unnecessary" red tape as a key obstacle to business growth in SA, even as Minister Patel comes up daily with new codicils on the hoops the private sector will have to jump through if it is to share in government's infrastructure investment programme. The NGP has called for, amongst other things, a move from red tape to "smart tape", for instance in speeding up drawn out land rezoning requirements.

In the Western Cape, progress has been made in its '"From Red Tape to Red Carpet" programme to speed up and smooth out obstacle to business in that province, with a dedicated unit established to that end, with its own website and call centre. Amongst its priorities is to slash turnaround times for all the permissions required before a new business can open its doors.

Indeed, worldwide remedies for reducing the burden of red tape abound. They include exemptions for SMEs, the elimination of duplication, the adoption of easy to access and use e-systems, and setting budgets for reducing the regulatory burden in business.

The point is that reducing the negative impacts of red tape does not happen in government as an afterthought, but as a concerted conscious, target setting exercise involving close cooperation with, for instance, local chambers of business. In any case, all new regulations should first be examined for their impact, and all new regulations should include an appeal process.

There will always be a need for regulations affecting business. Health and safety requirements spring to mind. Then there are regulations that are required, for instance those relating to the SA Revenue Service (SARS), but which are applied in a dilatory or apparently hostile fashion. Most annoying of all are those that simply clog up the works, or which are designed without consulting business, but which gave all sorts of unintended consequences. A list of some of the regulations makes the point:

1. SARS compliance.

2. Dealing with Companies and Intellectual Property Commission (CIPC) to register your company in the first place.

3. BBBEE requirements.

4. Labour and CCMA requirements.

5. New legislation requirements (e.g. the new Companies Act).

6. Consumer regulation requirements.

7. Requirements regarding local procurement from government.

8. Dealing with SETAs.

9. Obtaining operating permits.

10. Rezoning requirements.

11. Local planning and development requirements

12. Slow Environmental Impact Assessments (EIAs)

13. Sectoral regulatory requirements.

14. Licensing requirements.

15. The King 3 codes of good governance, with its over 70 stipulations and requirements.

And so on.

Ironically enough, it is the public sector, state –owned companies that often have the worst compliance record.

Improved administrative efficiency in itself would go a large way towards mitigating the impact of regulations. Issues such as poor service delivery, inadequate planning and controls, skills shortages amongst officials, poor coordination across government, and slow approval systems trip up the would be investor on all sides. Add to that poor communication, a lack of access to business information, cumbersome compliance procedures with long term planning, and a lack of transparency on municipal tendering, and the obstacles to business –led growth mount forbiddingly high.

In the OECD countries, which are equally concerned about this riding tide of red tape, several measures are being undertaken to remove the worst burdens. They include the European Commissions "Small Business Act" of 2012, the adoption of the "once only" principle requiring public authorities from requesting the same information and documentation and certification repeatedly from business owners, and speeding up the cost and time of starting a new business to Euro100 and three days respectively.

In South Africa dedicated red tape reduction projects should be put into place in all provinces, as a low cost, high impact intervention in the battle to grow businesses and create jobs. Greater use of e-Government platforms, exemptions for businesses below a certain threshold, and harmonisation across authorities, would all help. So would making use of the RIA system assessing the costs and benefits of all proposed new regulations before imposing them, across government at all three spheres, and process engineering to eliminate duplication and simplify procedures.

In sum, to address the wastage caused by unnecessary red tape a "whole of government" across the board approach is needed towards reducing it, and vigilant monitoring to ensure that it does not creep back in again via a hundred local regulations that have unintended consequences. As always the best source of information of the drag effects of red tape is the business community itself.

But there remains one remaining obstacle to dealing with red tape in South Africa, and that is administrative incompetence, verging on hostility towards business. As the SBD study concludes: "At a bare minimum, a concerted effort must be made by state agencies and bureaucracies to switch from and ethos of authority and punishment, to one of assistance and facilitation".

WHAT WOULD THE DA DO IN GAUTENG?

By Gavin Lewis, DA Spokesperson for Economic Development, Gauteng Province

A recipe for 8% pa growth for South Africa's leading provincial economy

 (Note: Provincial powers are limited in terms of the Constitution, so that some decisions, such as those on labour legislation, fall outside provincial competencies and into the national sphere of government).

Gauteng faces core structural impediments to growth.

1. Electricity shortages and costs severely hamper job intensive mining and beneficiation.

2. The absence of any linkages between wage increases and productivity makes South African labour too expensive to compete with many other developing economies.

3. Measured by international standards, entrepreneurship levels in SA are low.

4. Severe skills shortages impede higher levels of growth.

What is to be done?

1. Free entrepreneurship. The emphasis on supporting small and medium enterprises (SMEs) must be increased, and moneys from other economic development activities diverted to this cause.

In practice this means:

- Changing the Gauteng Enterprise Development (GEP) emphasis away from vague "training" towards set targets for SME support that measure not just quantity but quality, the latter being determined by sustainability. Over-dependence on state contracts for survival, while important in the start-up phase, must be only a step on the path to diversified markets, not a destination in itself. Independence, not dependence, must be the goal.

- In addition, there must be attention to new start-ups (accepting that many of them will fail) as well as to existing SMEs, and to SMEs able to make the transition from small to medium sized enterprise – because this is where the job creation potential is greatest.

- Identify more entrepreneurs. Entrepreneurs are people willing to undertake risk, not, as the current government thinks, people chosen at random off phone-in lists. Start with entrepreneurs selected from those companies unsuccessful at tendering, to train them to do better next time. Entrepreneurship modules should be offered at high school levels. Support township service providers by allowing them to share tools and equipment in a safe environment (e.g. electricians, mechanics etc.)

2. Good governance. Good governance grows the economy because it has the following attributes:

- It eliminates the corruption "taxes that add to the cost of doing business".

- Transparency in tendering procedures free of insider trading allows SMMEs to compete on an equal footing.

- Provincial administration staffs are measured by efficiencies, which means better, faster, cleaner licensing, zoning and other key inputs investors look for.

- It creates a climate conducive to economic growth and supportive of, not hostile to, the private sector.

- Involve the private sector more. Outsource GEDA (Gauteng Economic Development Agency) and export readiness training to the private sector entirely, to those who understand the sectors they operate in through personal experience. Involve the banks in the Tender Boards, to find new ways of financing emerging entrepreneurs.

3. Reduce crime. It hits SMMEs hardest. This means a properly trained, professional Metro police, amongst other things. Introduce lifestyle audits for high level officials.

4. Provide affordable infrastructure. The provincial government must lead the rapid roll out of broadband in alliance with the private sector at affordable rates, preferably free. This will raise Gauteng's growth rate (judging by international norms) by 1%-2% pa.

Administered prices, especially tolls and electricity rates proposed by metros and municipalities must be cleared at Provincial level with an eye towards their impact on jobs and growth. The East Rand refineries and plastics industries are losing jobs daily because of the electricity rates, for instance. All beneficiation projects are negatively affected, since they all require heat for smelting. Allow companies to provide their own power supply wherever feasible (co-generation) – and import it from Botswana.

5. IDZs/SEZs. Scrap the ORT IDZ currently being invested in by government. It will not work unless we can match labour concessions offered by international IDZs. Nor is gold jewellery manufacture going to work. We've tried it before, at Virginia, and it failed.



Re-examine every regional airport for its potential as an EPZ ( export processing zone), where goods (e.g. textiles) can be imported duty free for value adding and export here, using favourable international trade agreements (e.g. the American Growth and Opportunity Act). Link these to Local Economic Development (LED) projects in the municipalities and to the Johannesburg fresh produce market (extending the benefits to agro processing – see below).

6. Expand Exports. Facilitate trade with sub Saharan Africa, especially neighbouring Botswana and, through it, the Walvis Bay port in Namibia – cheaper than Durban. This includes ensuring border posts operate efficiently on a 24 hour basis.

Work with the Department of Trade and Industry (DTI)'s Trade and Investment SA, and with SA embassies worldwide to eliminate unnecessary and costly junkets by provincial officials abroad.

7. Job Zones. In depressed areas (e.g. former homeland decentralisation hubs) allow the creation of "job zones" where lower wages can be negotiated with unions to attract decentralised investments and improve geographic spread.

8. Innovation. Pay attention to innovation, in alliances with provincial tertiary institutions and expanded Innovation Hubs.

9. Promote tourism that draws on Gauteng's strengths. This means focussing on African, Indian and Chinese middle classes by facilitating the kinds of products these categories, which have much in common, desire. This requires different tourist offerings than we currently focus on. These attractions are characterised by the following:



- Family based

- Secure and comfortable

- Safe and predictable

- Group oriented

- Theme parks for families- e.g. Cradle of Mankind.

- Fashion and shopping, especially for brand conscious African markets.

Entrench the West Rand and use our 2010 stadiums to cement SA's position as an international high altitude sports training facility.

10. Arts & Culture. Provide more support for the Gauteng music and fashion industry. Devolve film support to Metro level for venues, permissions, etc.

Support international art forms where Gauteng has shown excellence, and which can be exported or attract tourists here – opera, ballet, orchestras. Build the Gauteng world city brand.

11. Address skills shortages. Return skills training to the private sector, so that people are trained for existing jobs rather than what training "suppliers"(i.e. SETAs) think would qualify them. Transfer un- or underutilised state training facilities to the private sector. Introduce the youth wage subsidy proposals. Encourage companies to hire youth on a trial basis, in return for incentives. Ensure that charity make-work activities, such as the Expanded Public Works Programme (EPWP), are focussed on infrastructure that is productive and that participants get proper certified training on the job.

12. Work with, rather than harassing, informal traders and survivalist enterprises. Get the Metro police off their backs. For very small companies, outsource to NPOs for support on Grameen Bank lines, and support them.

13. Eliminate unnecessary regulations that make it difficult to do business in Gauteng (on the lines of the Western Cape "From Red Tape to Red Carpet" model).

14. Grow your own timber. Metros to use underutilised SOC training facilities to train their own technical staff and provide jobs on completion, on the Cape Town model.

15. Provide business with a welcoming, predictable business environment that is a safe and enjoyable place for their employees and their families to live and work in.

16. Eliminate corruption through swift and public prosecution of offenders. No more "golden parachutes" for offenders.

17. Pay SMEs that win tenders and government contracts within 30 days of receipt, or you will destroy their cash flow.

18. Take care of existing investors. Identify major investors in Gauteng and appoint identifiable, knowledgeable, accountable Department of Economic Development (DED) executives available 24/7 to keep them happy and, if possible, to assist them to grow and export as well.

19. Develop small scale agro processing and link it to markets (e.g. via the Johannesburg Fresh Produce Market) through efficient inland ports.

20. Utilise SPVs with banks and private sector, especially for emerging contractors, to overcome finance bottlenecks.

21. Benchmark major infrastructure investments against international costings to avoid over engineered solutions. Focus on affordability as a key criterion.

22. When in doubt, get out of the way should be the motto of provincial government. Government should not be diverting scarce public resources where the private sector is willing and able to invest.

Letters; Exploiting Youth Unemployment

I note in Business Day 10 August 2011 several references from various commentators to the “ticking time bomb” that is the unemployed youth In South Africa. That there is reason for grave concern about this is beyond doubt. But when it comes to using this” time bomb “ as a threat for the adoption of economic policies, nationalisation included, a very large dose of scepticism is necessary. First, the time bomb, should it explode, will take all of us down with it, not just the capitalists; second, there is no revolution in history that has ever been successfully led by the unemployed poor – it always come from the middle class, the Malemas of this world. Third, no current political party encapsulates the needs of the unemployed youth, as the increasing number of apathetic voters shows, and fourth, such sufferings are experienced in other African countries with much bigger “time bombs than ours, endured in Southern Africa with stoic resignation and a well armed military and police force. Zimbabwe is a case in point. The “lumpen proletariat”, should it ever unite and rise up, will be shot. Instead, the threat of the time bomb is incessantly used to bully business to endorse suicidal policy options and radical transfers of assets to the new elite, who are neither unemployed or poor. So we have a real problem, but it is trivialised in the way commentators use it. We should not allow people to hide their agendas behind the real sufferings of the truly poor.




Dr Gavin Lewis
DA MPL Gauteng Legislature
Spokesman: Economic Development
Deputy Spokesman: Finance

Letter Published In Business Day ; "Insulting his Employer"

It was with astonishment that I read the vituperation heaped on Mr Leon Louw by the Department of Health’s "spokesman” Fidel Hadebe, over the formers’ criticism of the new proposed anti smoking regulations. Being a non-smoker myself, I have no irons in this fire, but Mr Hadebe would do well to remember that Mr Louw, in his capacity as a taxpayer, is his de facto employer. Mr Hadebe’s intemperate response to a someone else ‘s opinion on the matter cast further doubt on his judgement; “Selfish and dangerously igonorant” being one such phrase flung at Louw. I for one am sick to death of the arrogance shown by so-called public servants to the people they are supposed to be serving, whoever they are and whatever opinions they may hold. Mr Hadebe would do well to learn some manners, with a modicum of humility to go with it, and start behaving like a professional.





















Dr Gavin Lewis
DA MPL Gauteng Legislature
Spokesman: Economic Development

A Capitalist Future for South Africa

by Dr Gavin Lewis, DA spokesman in Economic Development, Gauteng.

For many policymakers in South Africa, especially in the trade union movement, what is happening in the world today seems like the end of capitalism. Are we in the last days?



The answer must be 'No". All the leading global economies, from Beijing to Sao Paolo, and from Washington DC to Prague, remain capitalist economies. There is much talk about China being a communist state, but this ignores the reality that it is in fact a very capitalist state indeed. The difference is that in China the capitalist is the state bureaucrat.



There is no existing viable left alternative, and even the outer fringes of social democrats are affected .



In addition, through following market principles, even amongst the crisis in financial capitalism, many developing countries continue to flourish under capitalist principals, some of them in Africa today.



In this context, it is worth reminding ourselves of how centrally planned economies did collapse in the former Soviet Union not so long ago.



Because of its sole focus on the importance of primary industrial output the Soviet bloc missed the intensive high value production that transformed, and continues to transform, western economies. Nobody who had any choice wanted to buy their obsolete products. All of this lay with the core problem of central planning, under Gosplan, the main Soviet agency for this purpose.





Fixed price systems made it impossible to work out real costs, administrators had no interest in innovation, because these might damage their chances of reaching the numerical targets set from above, besides, they we secure in their posts(after the Stalinist age of terror); they were not accountable to anyone. Numerical targets set by Gosplan made no sense because the ignored all the other factors including quality, so that in one famous case the biggest producer of tractors in the Soviet Union was making tractors that did not work.



In the end, this produced vast and entrenched networks of sustained corruption, because even though you could not own property, position gave you power that made you wealthy; it became a case of not what you owned, but who you knew. Sounds familiar ?



The fact of the matter is that it is very difficult for even a highly competent, technologically adept state to deal with the amount and range of information a modern economy throws up daily. Market replacing micromanagement of a whole economy is impossible, which produces sluggish and even falling growth rates overall.

Recently our MEC for Economic Development in Gauteng has made the announcement that no investors will be allowed into the capitalist paradise that is Gauteng without committing to sourcing 90% of their investment locally. Similar efforts apply to procurement by the State. Yet not so long ago there was a controversy over the Brazilian busses imported for our BRT system. Buy local, was the populist outcry. But the fact is we got the busses for less that they would have cost to source locally because the Brazilian taxpayer paid for the export subsidy that made them so attractively priced in the first place. The money thus saved could then be utilised in other areas of our local economy.



The age of mercantilism is over. With the current era of globalization, investment capital now flows wherever there is opportunity, regardless of nation state boundaries. In 1980 the sum of all money lent by international reforms and banks was $324 billion a year; by 1991 it was $7.5 trillion – a 2000 per cent increase in just over ten years.



In recent years the State has moved aggressively to intervene in capitalist economies to shore up demand. But that tide is turning as well, as the austerity measures of the successful German economy attest. The financial crisis is not a license for an overweening, know it all state to continue expanding its role within a mixed economy forever.



On the jobs front the outlook for countries like South Africa is less reassuring. The pendulum is swinging back as innovation and knowledge production increasingly form a larger and larger part of the leading economies = return of investment to high wage but high knowledge economies. These are epitomised by new technologies, such as software plus robots plus 3D printing systems fopr manufacturing. These are the latest disruptive technologies. Factories of the future won't have oil and grease stains . They will be run by white coated people, with few employees. Jobs will be in design, marketing, IT, engineering, logistics – all need more skills.



Low wage economies will lose their competitive advantage. Ideas – centred, not labour centred will be where the growth is. And for entrepreneurs and people with new ideas, the government simply cannot keep up.



What does this mean for us ? South Africa must move with urgency to properly educate and up skill its workforce. We cannot continue to have illiterate matrics and a 50% drop out rate at schools before kids reach matric. There simply is no going back. We must focus on stopping the new divide, between the insiders, the unionised public sector workforce plus the state bureaucrats, those mainly concerned with the distribution of wealth, not its production, against the outsiders, the private sector and the entrepreneurial, and the unemployed majority. Otherwise we will end up just like the Soviet bloc in the 1980s, and for essentially the same reasons. Either way, with us or without capitalism remains for the foreseeable future the only game in town.

 

 "Who's fooling whom ?"

Budget Speech, DED

8/6/12

Madame Speaker,

Ladies and Gentlemen,

A good Annual Report contains two main elements. First, it gives the reader a fuller sense of what the organization has been up to over the past year. Second, it gives you an insight into what can be expected in the year to come. This Annual Report of the Department of Economic Development, however, does neither. It conceals more than it reveals.

On the surface, all seems relatively well with the DED and its Agencies. But lurking under everything remains the question, what are the Department of Economic Development and the Agencies it funds really for? Why does it exist, as opposed to, say the Department of Education, or the Department of Finance. What is the DED there to do?

Well, the answer lies right up front, in the mandate that the DED has been given by this House and this Government.

In the DED's own Budget Analysis it is stated quite clearly that "emphasis is thus placed on large scale creation of decent work opportunities to be at the centre of the socio economic agenda, in an effort to conquer the triple challenge of unemployment, inequality and poverty." That is what the DED is for: Decent jobs to combat unemployment, inequality and poverty. Is it in fact doing this? I am very much afraid that the answer must be "No", and I will show you why.

What becomes increasingly clear to me as we enter the third year of economic recession is that the DED has ,since the start of this government in 2009 , failed to deliver,. What is more, it is failing to deliver when the citizens of Gauteng, with their 25% plus unemployment rate, most need it to deliver. And what is almost as bad, there does not seem any way of fixing it. We keep doing more or less the same things, making the same empty promises, year after year without doing any better.

Which is why I argue for a root and branch review, not tampering at the edges, of what the DED does. Or else we should simply take the R1 billion a year this department consumes and divide it up amongst the very poor, and save ourselves the hard work of pretending there is progress when there is none.

Let's start with the obvious – jobs. By end March 2012, the DED claimed credit for creating 266 737 jobs. Not bad, one would think until you look a bit closer. Because of those 266 000 jobs, only 9938 were permanent jobs. Fully 207 686, by far the majority, were Expanded Public Works Programme jobs. But, we are meant to be proud of this, and I quote: "This ...means that the Gauteng Provincial Government surpassed jobs target set for 2011/12 ...by 16%".

Now let's be clear about EWP jobs. Yes, EPWP jobs are necessary in times of high unemployment, such as we endure in this country. But no, they are not real jobs, or decent jobs if you prefer that term, and they are very short term. The SA Institute of Race Relations points out that the average EPWP job in South Africa lasts 46 days, and pays at an average rate of R64 per day. Would anyone in this House today regard that as a proper job, with adequate pay to feed yourself and your family? Then why do we pretend to the citizens of this Province that it is? Whom are we trying to fool?



The DED itself created 4002 permanent jobs, very broadly defined (e.g. 1713 jobs for the Gauteng Film Commission). But read the fine print. What do we mean by GFC jobs? Jobs facilitated indirectly, through getting planning permission for filming in Eloff Street? Where were these new jobs created: SABC? DSTV? SA film industry? In a recession, with ad spend severely down? Dubious claims, indeed...

And GEP created 1`192 permanent jobs. Where? Why can't our Focused Intervention Studies find them? Even though we went to visit the SMEs that the Gauteng Enterprise Propeller itself recommended, what we found there was dereliction and grave worries at the bad service they received from the GOPG. You only had to attend the well attended public hearings at Caesar's Palace organised by the Portfolio Committee to hear the discontent with the services emerging entrepreneurs fail to get.

A classic example of this resort to claims of easy victories" is the Y-Age project launched by DED this year, and in which the MEC is complicit.



The MEC claimed, and repeated these claims at the Workers Parliament in February this year that 100 000 new SMEs would be created, creating 1 million new jobs. How? By advertising for young entrepreneurs. Now put yourself in the shoes of your average unemployed township youth. Another set of shiny new promises, one million new jobs, 100 0000 new small businesses. It sounds too good to be true. And that is because it is too good to be true.

An entrepreneur is an owner or manager of an enterprise who makes money through risk and initiative. There is no risk in replying to a newspaper ad, especially if you have got nothing to lose. So the Department duly received over 120 000 responses by March 2012. Of these 999, I repeat, 999,have succeeded in being placed in the "first phase of entrepreneurship training "by GEP – the same GEP who our focused intervention studies shows is neglecting its own start ups, is claiming credit for non existing SMEs, and which 99% of delegates at the GPGs own Emperors Palace conference were so critical about ? This is a far cry from the MECs interview with the Star in February this year, where she claimed 40000 people will be trained this year. And it ignores the fact that in South Africa 80% of SMMES close their doors within three years of start-up. So again I ask this House, who is fooling whom, and why?



In the Sowetan on 4 April 2012, we are told of an interview with the MEC on the Y-Age project, and the overwhelming response "to the Youth and Graduate Entrepreneurship Development Schemes". Let me point out that this overwhelming response is due not to enthusiasm but to desperation. And it is a desperation that will become worse when once again these unfortunate youngsters find out that the politicians have been less than truthful to them. There is only one thing crueller than having no hope, and that is having hope dangled in front of you when the whole thing is a con job.

And what happened to the 100 000 entrepreneurs creating 10 jobs each that was promised at launch? And where do they get 10 jobs per SME from?

I million jobs? We are already half way through the year. Name me one single job created by this venture so far. And who is advising the MEC with these nonsense projections.



Of course, we can't all be entrepreneurs. What about jobs? Well let's take one of the jewels in the DEDs crown- the OR Tambo International Special Economic Zone, with a jewellery hub as its proposed centrepiece.

The ORTIDZ will end in tears, even though it is a major focus for GPG job creation on a larger scale. This is not just my say so, but the experience elsewhere in South Africa with simper ventures. At Coega, government has spent over R22 billion, but by early this year had attracted investments of only R800 million. You need real incentives to attract investors from our major markets, which, North or South, are a long way away. And as for gold jewellery, it has been tried before under the Industrial Participation Programme arms deals offsets investments administered by the DTI. It failed. Are we doomed not to learn from our own mistakes?

At least there is hope in some of the other DED activities.



What are working are Blue IQ innovation hubs, the Gauteng Tooling Initiative and automotive sector development – mostly all connected with existing private sector jobs. And herein lies the secret- work with the private sector, whatever your private reservations about the evils of capitalism. Don't try and second guess private business, because government knows nothing about business at all.

Matters are also not helped by the slipshod way the DED continues to operate, at least as far as the Portfolio committee is concerned. The DED reports are often late, always inadequate and poorly presented. On occasion, across party lines we in the Portfolio Committee have personally found through our own focussed intervention study visits, that the DED and some of its Agencies reports are less than honest.

To sum up then,

The DED is failing to meet its core purpose – to facilitate the creation of jobs in Gauteng Province, and to do so on scale in its larger projects.

SMEs are at the heart of job creation, and their neglect by the GEP does not augur well for the Province. GEP is set to support 489 new SMEs, 393 new coops and disburse 38 loans – a drop in the ocean, and again, when you read the small print, not as impressive as it sounds. How many of these will still be in existence in a years time. Well, judging by our FIS visits very few indeed.



But there is always no shortage of high level well paid officials complaining of budget constraints at the top. But doing apparently very little, apart from waiting for the interminable restrurctruing prices of the Agencies to take place. Presumably we will muddle on in this way until the 2014 elections when a new governement with new policies and new proposed restructuring will take its place and delude the people until they have had enough of it and vote the bums out.

Meanwhile, and not reflected in the Annual Report, it many interest you to know that currently the DED is doing the splits. It is simultanoueusly underperforming and over spending. Take some egs:



-Trade and Sector Development - spent 95% of budget, attained 55 % of targets


-Business Regulation – spent 92% of budget, achieved 56% of Target

-Under the office of the HOD, only half the targets were met in the year to date.

-In Economic Planning, less than half the targets were met. In addition, there continues to be "non-adherence to prescribed supply chain management policies "in procurement.
- The LED programme is dead in the water: no money.


-Under Development Planning, only 50% of targets have been met YTD.


The Integrated Economic Development Services division, however, is the winner of the all. This DED division has achieved the remarkable combination of spending 112% of its Budget while achieving only 45% of its targets.



So what is to be done?

Sometimes when the patient is so far gone with decomposition of their limbs, amputation is better than using band aids.



Stop rearranging the deckchairs on the Titanic, and abandon ship entirely.



- Limit the DEDs role to that of facilitation. Governments do not create jobs anyway. Only the private sector does that, Help the private sector to do it. Confine the DED role regarding its Agencies to transferring funds timeously and to provide oversight on shared goals/ targets.

- Work more closely with other departments, especially to open up Public Private Partnerships in enabling infrastructure projects – especially from an economic pers9ective, broadband access.



How to catch up on economic growth in Gauteng:

- Create new wealth

- Create new wealth that spreads to all, via opportunity and access.

- Focus on entrepreneurship

- Focus on increased competition within the economy

- Find new markets for new products.



How to facilitate entrepreneurship in Gauteng;

- Identify and remove obstacles to doing business –microeconomic reforms

Cut red tape. Using SARS as your model. The DEDs Business Regulation and Governance division is still focussed exclusively on BEE and Consumer protection .There is nothing to acknowledge the seriousness of the need to cut unnecessary red tape strangling new business on Gauteng, not least the compliance costs and lengthy development approvals procedures. Sanlam e.g. – R90 million ten years ago to R400 million now. In other words, create a business friendly investor friendly environment.

Get a global view of South Africa and the world economy it is part of. Learn economic lesions from our African neighbours. Stop pretending the Berlin Wall did not fall, and understand why it did. And let us develop a more humble, but more elastic assessment of where we stand in the world today. Globalisation is real, it is here to stay, and we had best learn to deal with it rather than railing against it. We are just one market among many others, all competing for investment. If we don't step up to the plate, someone else will.



On DED Agencies

- Collapse GEP entirely. Outsource training to private sector suppliers overseen by GEDA, and linked to sustainability requirements.
- Leave financing of SMES to new SME Fund, the Small Enterprise Finance Agency, under the IDC.


- GEP to be managed by a PPP Board. Requirements for inclusion must be successful exposure to private sector business world.

- Improve access to information. Nobody's ever heard of GEP or its services, despite all the Annual Report's glowing claims about public awareness programmes.


- Stop appointing trophy leaders and deployed cadres for business development and support.


- Stop investment in intelligence work. Don't have to be a thought leader – be a jobs leader. Let Treasury do intelligence work for every GPG department

- Find a way to bring on board informal traders, and reduce crimes against SMMEs.


- Strengthen BLUE IQ R&D work to develop new products, adopt new technologies in close association with industry. Focus must include products derived from cellular phone technologies.'



- Replicate motor industry training success story with other successful industries: chemical industry?



- Link youth directly to jobs, introduce wage subsidy if necessary paid for out of revenue saved by cutting down GEP


- Build on new markets (not identify - leave that to DTI).



- Launch massive skills training initiative for existing successful key sectors. Use underutilised Metro and parastatals training venues. Grow own timber for government artisans. Link skills to actual jobs.



- Establish a Gauteng Business Lobby to lobby national government for provincial needs, and to act as a practical think tank.

That, Honourable Members, is my assessment of the DED's annual Report for the past year. You may think I am being unduly harsh. But it is very difficult to stand by and say nothing, and to see so many good DED and Agency employees working so hard only to fall victim to poor leadership and bad management.

In conclusion, I would like to leave you with some thoughts about Africa and its potential, to remind us that we are becoming a country of losers on a continent of winners. Even as you can get better cheaper and easier access to broadband in Nairobi than you can in Johannesburg, or as we watch the Nigeria economy sail past ours towards being the strongest in sub Saharan Africa, and putting paid incidentally to our hopes if being the first African country to get a seat on the UN security Council, just remember that in large parts of Africa an economic spring is coming, bearing promises of a fruitful harvest to come. And ask yourselves, each and every one of you here today: do we South Africans want to be part of the African Renaissance, or do we not? The power is in our hands, after all.



(Speech by Ali Bongo Ondimba, president of Gabon, London Business School, 19 May 2012)

Africa's time has come - fastest growing middle class in the world, 5.5%average annual growth, full of natural resources, apoen to new technologies such as mobile phone money transfer. Isn't it time SA joined them? Africa has 1 billion people, 56% of them less than 30 years old.60% have access to mobile phohnes. Increasingly active and well informed via social media. By 2040 Africa will have the largest workforce in the world, as well as being a major market for consumer goods. It has 60% of the world's arable land. But African governments cannot do this on their own. Need private sector to realise dreams. To attract investors need an attractive investment offering/case for investment. Africa is a carbon sink, uniquely among the continents – the solution to global warming lies here. Oil and gas just starting to be discovered.