OPINION : Recognising the private sector's heroic role
NEWS24 / 04 NOVEMBER 2018 - 09.00 / DR ANTHEA JEFFERY
The private sector still confronts a plethora of damaging new regulations despite recent utterances by President Cyril Ramaphosa and Finance Minister Tito Mboweni, writes Anthea Jeffery.
In recent weeks President Cyril Ramaphosa has tried hard to rekindle business confidence in a "new dawn" for the country. In September 2018 he announced an infrastructure spending plan intended to stimulate the flagging economy. His Jobs Summit a fortnight ago spoke of creating 275 000 jobs a year. The Investment Summit he convened last week witnessed the making of investment pledges totalling some R290bn.
Minister of Finance Tito Mboweni. (Photo: Adrian de Kock)
Often, however, these announcements seem little more than smoke and mirrors. The stimulus plan re-allocates the existing infrastructure budget, rather than expanding it. Many of the projects announced at the Investment Summit are not new but have been planned for some time. (Examples include Anglo American's promise of R71.5bn, Sappi's R8bn investment, and the R10bn ramp-up of manufacturing capacity announced by Mercedes Benz.) Often the detail of what is to be done is sketchy too.
The crucial test, moreover, is whether economic growth forecasts can realistically be revised upwards in the light of these investment pledges. That this is not happening speaks volumes.
A new attitude to business does, however, seem apparent in what finance minister Tito Mboweni told Parliament in delivering the Medium Term Budget Policy Statement on October 24, and in what Ramaphosa said at the Investment Summit two days later.
Mboweni stressed the need for strong public/private partnerships to help put failing state-owned enterprises back on track.
Ramaphosa went further, saying: "We should treat our entrepreneurs as heroes' and stop 'treating our business people as enemies."
However, two swallows do not make a summer. In addition, the private sector still confronts a plethora of damaging new regulations. These range from increased BEE procurement and employment equity obligations to the divestiture provisions in the Competition Amendment Bill being rushed through Parliament with extraordinary haste.
Looking past 'the selfish myopia of the black elite'
If the ANC is truly to start regarding business as a hero rather than an enemy, it will also have to revise the Strategy & Tactics document it adopted at its Nasrec national conference in December 2017. This recommits the ruling party to a National Democratic Revolution (NDR) aimed at a socialist and then communist future. It also identifies business (particularly of the larger kind) as the "primary enemy" of that revolution.
However, if the ANC is willing to jettison the NDR – and to look beyond what author R W Johnson has described as "the selfish myopia of the black elite" – this could pave the way for one of the most important policy changes of all: a shift in the content of empowerment policy.
Current BEE requirements, with their emphasis on ownership deals and preferential procurement, help only about 15% of black South Africans while bypassing and in fact harming the great majority. By contrast, a new policy of Economic Empowerment for the Disadvantaged (EED) would work to the benefit of all.
As Ramaphosa has at least implicitly acknowledged, business makes an enormous contribution to the upward mobility of all South Africans. In 2017, for instance, overall capital formation in South Africa amounted to some R870bn, of which business contributed about 63%. Business often also helps to bring in crucial foreign direct investment (FDI).
Government narrative says private sector does not contribute
In 2017 the private sector provided formal (non-farm) employment to close on 8 million people. The average monthly salaries paid to these employees totalled some R115bn or roughly R1 380bn over the year.
Corporate income tax generally contributes more than 20% of the annual tax take. Moreover, it is primarily because of business activities that SARS is able to collect all the other taxes on which the government relies, from personal income taxes to VAT, customs duties, capital gains tax, and mining royalties. Business also contributes significantly to export earnings and spending on research and development (R&D).
Yet the enormous contribution that business makes is generally disparaged or overlooked by the ANC and its allies. As Pick n Pay chairman Gareth Ackerman recently noted, "the government narrative is that the private sector is doing little or nothing for the country".
That this narrative is so pervasive is not because the ANC does not understand the business contribution, as Ackerman suggests. Rather, it is the NDR ideology which bars the ruling party from acknowledging the positive role that business plays.
If this is to change, then business (as Ackerman urges) needs to "stand up and speak out about what it is doing". It should spell out just how much it has invested and just how many jobs it has created or sustained.
Pick n Pay, for instance, says Ackerman, has invested R5bn over the past four or five years and created 14 000 jobs in the last three. A host of other firms, both large and small, have equally important contributions to record.
The contributions that business makes to capital formation, FDI, employment, salaries, tax revenues, export earnings, and R&D are by far the most important inputs the private sector can make to the prosperity and upward mobility of all South Africans. Yet the BEE scorecard ignores them all. By contrast, an EED scorecard would give credit where it is due by recognising and rewarding them.
An EED scorecard would provide a far more accurate and telling measure of what the private sector is doing to expand opportunities. It would also free the economy from the leg iron of BEE's ever more onerous and impractical requirements. Effectively, these have become an unacknowledged and debilitating 'tax' on business operation which has no parallel in any other country.
An EED scorecard in place of the BEE one would make it easier to attract fixed investment from across the globe. It would help lift the growth rate to 5% of GDP, and start generating the jobs the poor so badly need.
An EED scorecard would also help to shift empowerment policy away from what Professor Ricardo Hausmann (of Harvard's Kennedy School of Government) has called its "obsession with making the top of society black" even as it overlooks the need to "make the bottom of society better".
As a recent article in the Financial Mail reports, Hausmann identifies South Africa's main inequality challenge as "not so much between blacks and whites, but between those with jobs and those without".
Professor Hausmann emphasises the importance of creating many more enterprises, rather than "tinkering with ownership and trying to transform the few enterprises" the country already has. "It's not about changing the asset ownership for a few rich blacks in the country. It's about empowering the millions," he says.
An EED scorecard would achieve precisely that kind of empowerment. It would give appropriate recognition to business's heroic role – and do more to rebuild confidence in a realisable new dawn than probably any other reform.
- by Dr Anthea Jeffery, Head of Policy Research at the IRR, a think tank which promotes political and economic freedom.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER