Date: 22/06/2004
Source: Department of Trade and Industry
Title: L Hendricks: World Conference of International Council for Small Business


INTERNATIONAL COUNCIL FOR SMALL BUSINESS 49TH WORLD CONFERENCE: KEYNOTE ADDRESS: BY DEPUTY MINISTER OF TRADE AND INDUSTRY, MRS LINDIWE HENDRICKS, 22 June 2004

GLOBALISATION AND THE IMPACT ON ENTREPRENEURSHIP AND SMALL BUSINESS DEVELOPMENT IN THE DEVELOPING

Queen Mother of the Bafokeng
President elect of the ICSB, Dr Sandra King-Kauanui
Dr Danisa Baloyi
David Moshapalo
Board of the ICSB and SAESBA
Ladies and Gentlemen

I am honoured to be able to address you this evening at this important small business conference, which has as its theme: 'Globalisation and the Impact on Entrepreneurship and Small Business Development in the Developing World'. This event is taking place at a historic time in our country as we celebrate ten years of democracy.

The 1990's saw globalisation spreading at a rapid pace and it is necessary for us to explore how globalisation is impacting on small businesses, particularly small businesses in the developing world. Such analysis would allow us to develop appropriate responses to the impact of globalisation so that we are able to find ways to benefit from globalisation, as well as ensure that those that are disaffected by the impact of globalisation are assisted.

Globalisation is characterised by increased flows of trade, investment and technology in the global economy. However, these flows have been uneven and their benefits have been inequitably distributed. While some developing countries have been able to take advantage of the opportunities presented by globalisation, the majority, most of whom are developing countries and in Africa, have become further marginalised in the world economy. Furthermore, within economies we are finding that there are those who are able to adapt to the global environment and thrive, and those who are increasingly being pushed to the periphery of the global economy. This divergence is a cause for instability, both between countries and within a country; and has given rise to a vociferous anti-globalisation movement. Some of us have witnessed firsthand the demonstrations of this anti-globalisation movement at World Trade Organisation meetings.

Last week I attended the United Nations Conference on Trade and Development (UNCTAD) eleventh conference that was held in Brazil. Amongst other things, this conference unpacked the issues of how globalisation has negatively affected developing countries. Yet the consensus was that globalisation is inevitable and that we, as developing countries, need to have appropriate responses to deal with the impact of globalisation at a national level while at the same time there need to be policies at a multilateral level that address the integration of developing countries into the world economy. This integration should be done in a manner that will advance developing countries economic and development objectives.

One example of the negative impact of globalisation has been on the prices of commodities and the role that decisions made by developed countries at a national level to support an industry adversely affects the growth potential of developing countries. The worst case of this that I have seen is in the cotton industry. The statistics that UNCTAD released on this issue highlight the negative effect that can result from globalisation; allow me to share this information with you:

In West Africa, cotton contributes 10% of the GDP of countries such as Chad, Mali and Burkino Faso; studies have show they are by far the lowest cost producers of this product in the world and this industry supports over two million people in these countries. Subsidies given to the cotton industry in developed countries such as the USA are currently over $3 billion per annum, which has led to USA producers increasing their volumes of cotton production and becoming the largest exporter of the product. This amongst other things has resulted in a collapse of cotton prices, which are now close to half the price that they were 40 years ago. The impact as you can imagine on West African producers of cotton, many of which are small enterprises, has been devastating.

In looking at globalisation we therefore see the importance of multilateral issues and how multilateral organisations such as the World Trade Organisation and UNCTAD play an important role in trying to resolve the negative effects that can result from globalisation.

Ladies and gentlemen, at a country level we need to look at the important role that governments play in assisting their industries to better deal with the effects of globalisation and equipping them so that they are able to take advantage of globalisation. Such support includes:

1. Identifying priority sectors where the country has a comparative advantage and supporting such sectors
2. Providing WTO compliant incentives to support these industries so that they are nurtured and are able to grow
3. Liberalising the economy to the point where industries are forced to be competitive so that they are able to fend off competition in the domestic market and are able to successfully export
4. Ensuring that there is access to global and regional markets through signing bilateral trade agreements and Free Trade Agreements, and entering into regional partnership arrangements or customs unions
5. Having high levels of investment in technology, skills and in research and development
6. Providing an enabling environment for businesses, in particular small businesses, so that they are able to flourish. This enabling environment would extend from broad political issues, such as having a democracy, to issues of a regulatory nature
7. Supporting the growth of enterprises through addressing the barriers to their development, by facilitating access to finance, access to business support services and access to infrastructure, etc. Much as been said already at this conference on these issues
8. Finally, having stable macro economic policies.

The economic benefits of engaging with globalisation would firstly, be the ability to attract foreign direct investment, which could bring greater inward flows of scarce physical and financial capital, establishing links to global markets, and providing access to new technology and managerial capacity. These investments could therefore have positive role in reducing unemployment and promoting greater economic growth in a country. A second benefit of globalisation is export orientation of industries. Globalisation has provided access to new markets, new products and new opportunities; industries and countries that have been able to take advantage of this have grown phenomenally. One only has to look at the Asian newly industrialising countries to see this success and the important role that small enterprises played in driving this success.

Ladies and gentlemen, I would now like to turn to South Africa's experiences of globalisation and small business development.

In 1994 when South Africa become a democracy two things happened simultaneously, we started to open up our economy and we started to promote small business development. Prior to 1994 it was not possible for South Africa to participate effectively in global markets due to sanctions and international isolation, and prior to 1994 South Africa's support of the small business sector was limited, as the Apartheid government had concentrated its energies and policies on large business.

It is no accident that the drive to promote small business development in South Africa and the opening up of our economy coincided with our becoming a democracy. The new government realised that while we had won political freedom, a battle in which we fought long and hard and in which many people suffered, economic freedom was a long way off and if we did not achieve economic freedom then the suffering of our people would have been worse.

Our ultimate goal in South Africa is to have a society that is characterised by high levels of employment, low levels of poverty and greater levels of equality, a sentiment that was well articulated by our President yesterday when he said that we are striving for a society that does not know hunger and has declared war on poverty. Small business development, black economic empowerment, and women empowerment are key components of our drive to achieve economic freedom.

In the area of opening up of our economy we have made remarkable progress. This has seen us liberalising our tariff regime, floating our currency on international financial markets, and allowing greater movement of currency in and out of the country. We have as a result seen our volumes of trade triple since 1994 and our currency is highly traded, with the latter not always being in our favour. Our businesses were initially slow to enter the export market and faced difficulties with increased competition in the local market. Many big and small enterprises have adapted well and become international players. However, there have been negative consequences in the form of job losses from industries that were forced to restructure once the protective barriers of high tariffs and international isolation were removed. The people losing jobs as a result of this are often unskilled and unable to find new employment opportunities; they are then pushed into the second economy, which I will talk more about shortly.

Since 1994 a great deal has been done in South Africa to promote small business development. The presence of President Mbeki at the opening session yesterday is indicative of the priority that South Africa is giving to small business development at the most senior level of government. You also heard in the presentation given by the Minister of Trade and Industry and in the presentations made this morning by senior dti officials of the measures that we are taking and programmes that we will be implementing to develop and support small business.

Amongst this we have areas of black economic empowerment (BEE), which should be seen in the context of our need to have specific measures to address economic disenfranchisement so that black people are brought into the economic fold. It should also be seen in the context of our need to ensure that investments into our economy have a greater proportion of local content and are better integrated into our economy. Our BEE strategy looks at supporting black peoples access to equity in companies, greater management opportunities, improved human resource development, increased procurement opportunities, and where possible opportunities for downstream beneficiation of products.

South Africa's black economic empowerment programmes like our small business develop programmes are not only there to address the productive sector and high value adding sectors of our economy, but also to address what we refer to as the second economy.

The second economy is characterised by underdevelopment, contributes little to the gross domestic product (GDP), and is disadvantaged by its relationship to the global economy. People are pushed into the second economy from the first economy due to lack of skills or are already there due to historical reasons emanating from the policies of Apartheid towards black people. Race is unfortunately a defining feature of businesses in the second economy as the majority of the businesses located in the second economy would be black owned.

The government has a responsibility to address this aspect of the economy and to find ways to bring people into the first economy so that they are no longer marginalised and they are able to achieve economic freedom. As you have heard over the past two days we are addressing this through our black economic empowerment programmes, through our small business development programmes and through our women empowerment programmes.

To conclude, South Africa has embraced globalisation as a tool to develop our economy and to contribute to our social equality goals. We have seen how our small business sector has on the one hand positively embraced and benefited from globalisation, yet on the other there has been a negative impact. We have tried to manage the process of globalisation and to encourage greater domestic involvement in international capital that invests in our country so that it has a positive impact and does not result in an enclave of foreign investment. We have not allowed the allure of globalisation to distract us from the negative impacts that results from entering and engaging with the global economy and we have put measures in place to support those that have found themselves unemployable or marginalised by the first economy.

Finally, I hope is that the issues discussed at this conference are taken back into our institutions and we find ways to improve the delivery of small business support so that this becomes an effective weapon in our battle to achieve economic empowerment and in our war on poverty.

I would like to thank the Godisa for their support for this evening's function.

I thank you.

Issued by: Department of Trade and Industry
22 June 2004