Changing course

22nd July 2016 By: Terence Creamer - Creamer Media Editor

Changing course

During a recent interaction with business chambers, Finance Minister Pravin Gordhan agreed that South Africa should seek to create up to ten-million new businesses to properly tackle its serious unemployment problem – one that lies at the very root of the country’s poverty and inequality crisis.

In the process, he offered the following summary of his vision for enterprise development: “We need the informal sector in South Africa to grow. We need those that have been in the informal sector to formalise themselves into a formal small-business sector. We need small businesses to grow into medium-sized businesses. We need medium- sized businesses to start fitting themselves into African and global value chains. That’s the hierarchy of business we want to create so that we don’t have a heavy top and a very narrow middle – which is part of the problem of the structure of the economy currently.”

This exposition of the evolution of enterprises appears not only reasonable but also eminently achievable when outlined so plainly. However, nothing is that simple in the South African context.

For one, the idea is arguably at odds with the country’s prevailing regulatory and legislative demands, which remain skewed towards the needs and capabilities of the ‘heavy top’.

Secondly, many South Africans remain reticent about the virtues and potential of the informal sector, which is possibly partly why many of the country’s most successful informal-sector entrepreneurs are not originally from this country.

Third, and possibly mostly importantly, the opportunity for the crea- tion of new enterprises is currently being seriously undermined by South Africa’s extremely weak growth performance, which some trace back largely to the two foregoing points. The International Monetary Fund has downgraded its growth forecast for 2016 to a paltry 0.1% and few are dismissing the new projection as being outlandishly pessimistic.

In light of this worrying outlook, it has become urgent to make an honest assessment of the real constraints to enterprise development and to pursue remedies that are truly supportive, rather than ones that simply paper over the cracks.

Some of the interventions, such as embracing the informal sector, or reducing the regulatory burden on small firms, could well prove quite jarring. But, in a context of chronic joblessness, rising political tensions and iniquitous inequality, the risk of doing nothing is simply too high.

Perhaps an evolutionary approach is called for, whereby government uses existing instruments differently rather than trying to reinvent the wheel.

For example, at the same chamber event, one bank employee asked Gordhan to consider whether elements of the broad-based black-economic-empowerment scorecard could not be used more creatively. For instance, offering big business the opportunity to divert resources set aside for internal training budgets to the creation of a venture capital fund for black industrialists.

The Minister, quite correctly, requested that the proposal be made formally so that the costs and benefits could be properly assessed. He also, correctly, highlighted the long-term nature of structural transformation and stressed how important it therefore was for the current generation to “collaboratively” take the economy in a different direction.