BUSINESS MAVERICK / 09 JUNE 2020 - 14.56 / ROBERT VOS
In Tim Cohen’s article on Transactional Analysis, he asks the burning question: ‘Why is the South African economy failing, not just now, as one might expect, but generally?’ The answer to this is complex and there is no single explanation.
To attempt an answer to Tim Cohen’s article on Transactional Analysis (Business Maverick 11 May 2020), we need to ask a question – simply: “What starts a business?” Most businesses start when a person, or group of people, come up with an idea to make money from a feasible notion. In a lot of cases, the core interest in the business model would be a desire to market an idea or product that the originators have a passion for – there would be little purpose in putting energy and capital into an enterprise that does not, in some way, “touch the soul”.
With all the enthusiasm you can muster, you cannot get a business off the ground without a pile of capital. Starting a financial advisory enterprise, such as an investment company, for example, needs a relatively small amount of capital. However, if your passion is manufacturing, you will require a much larger chunk to fund the machinery and time span to bring a product to market. Raising capital is complex and time consuming. You may have the passion, but whoever lends you the money for your ambition will require convincing through logical and reasoned motivations.
Thereafter follow other factors such as finding premises and hiring staff (as few as possible to start with) to get your business up and running.
These are all logical steps to get an enterprise off the ground. What is not so obvious to the casual outsider seeing a business start up and grow is the amount of stress and personal sacrifice that often accompanies this process. Raising capital is very often only possible by signing personal guarantees, backed by putting up your home or personal assets as collateral. The bank or lending institution therefore carries very little of the risk for the reward they get in the form of interest on your loan. Then there is the lease on premises, which you might have to sign and commit to for up to five years.
Most entrepreneurs are aware of these hurdles, and are prepared to take chances to realise a financial dream that will – hopefully – provide them with enough money to support their families, and in so doing, also enjoy the thrill of owning their own business and hopefully one day have enough money to retire.
Which brings me to the point of this article – why is SA’s economy failing?
It is government’s responsibility to create an environment in which businesses have the opportunity to start up and prosper. With freedom to operate and supportive legislation, businesses and the economy will flourish, the country’s citizens will be gainfully employed, and the government will have a steady flow of tax funds to provide the means to look after infrastructure, and provide a social net for those in need.
After 1997, SA embarked on a programme to reverse the destructive laws which held back the black population and enabled the white population to prosper. While most business folk were not particularly fond of laws to reverse the status quo, they realised that the black population had suffered a huge injustice, and had been severely disadvantaged by apartheid. And conversely, that white businesses had benefited unfairly under the apartheid regime.
The challenge on how to remedy this situation successfully was always going to be to ensure that the black population was brought into the mainstream economy as speedily as possible. Without a symbiotic benefit, the diametrically opposite outcome of this was going to be achieved. This is what has happened.
Over many years, numerous successful businesses were built up in South Africa. Capital and wealth grew, and a treasure trove of knowledge and experience, both technical and financial, was amassed. This applied to the private sector, where most businesses succeeded, as well as in the public sector that on the whole ensured that the country’s infrastructure was maintained while our public finances and currency were kept on a sound footing.
The end of apartheid, and the ushering in of a democratic government in 1994, meant that the status quo was going to change – quite rightly, and inevitably so. Most white South Africans saw this as an opportunity for the country to aim for a normal and fair social and business footing. This could only be good for companies and for the economy.
Following the installation of the all-new, democratic government, the Department of Labour established a Ministerial Legal Task Team to draft new labour legislation, and in 1995, the new Labour Relations Act (Act 66) was created, and came into effect in November 1996. The purpose of the act was to introduce fair labour practices by establishing and making provisions for the regulation of basic conditions of employment. Tito Mboweni, SA’s Labour Minister from May 1994 to July 1998 and currently our Minister of Finance, was tasked with introducing this legislation.
Most of the legislation was adopted from the International Labour Organisation (ILO) of which South Africa is a member state. So far, so good – the need to protect the working class from exploitative capitalist bosses definitely had merit. The management of this legislation was entrusted to the Council for Conciliation, Mediation and Arbitration (CCMA), with final oversight by the Labour Court.
From the beginning, laws governing employment were heavily skewed in the favour of workers. This was undoubtedly a reaction to the harsh apartheid laws that had pitted bosses against their employees for so many years. The CCMA invariably ruled in favour of employees, very often with questionable bias. Although decisions could always be taken on review to the Labour Court, the delay in getting a hearing, as well as the costs involved, made taking this route costly and extremely unpleasant.
The status quo heavily favoured workers and generally did not look kindly on employers. This resulted in employers reducing employment numbers, and in many cases introducing mechanisation and automation. Outsourcing workers through labour brokers also became popular as a means to steer as far away as possible from time-consuming and costly labour administration. In many cases, the government also resorted to this method of “employment”, recognising the debilitating and other unintended consequences of their own legislation.
The new administration looked for ways to redistribute the assets and wealth in the country to the black majority, and in 2003, Black Economic Empowerment legislation was passed. The government had already embarked on a massive programme to replace white public sector workers with ANC cadres, and it was time to start on the business sector.
Public companies became easy targets, and deals were done to transfer a percentage of their shares to a select number of black citizens – the majority of whom were ANC members. These were “Sweetheart Deals” that made many of the selected recipients fabulously wealthy, as the repayment terms for the shares were invariably deferred to future dividend pay-outs and profit earnings. These deals helped set the country on a path to become one of the most unequal societies in the world.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER