Thursday, 6 April 2017

Mcebisi Jonas resigns a day after addressing the AHI SME Indaba

This morning we heard the news that former Deputy Finance Minister Mcebisi Jonas has resigned as an MP. Yesterday I attended the AHI SME Indaba in Centurion where Mr Jonas gave possibly his last public address as an MP. It was striking in its frankness about the dangers facing SA today.

I sat Tweeting like mad as a substitute for making notes, but the gist of what he said confirms what we all suspected about the state of capture South Africa finds itself in.

In South Africa, "politics and economics are inextricably linked" he said. Economist Dawie Roodt's comments after his speech highlighted Jonas' emphasis on politics rather than a focus on economic policies, the latter being what you would expect from a former deputy minister of finance.

His comment about South Africa entering a new phase of mercantilism was particularly astute. Wikipedia defines mercantilism as "a form of economic nationalism. Its goal is to enrich and empower the nation and state to the maximum degree, by acquiring and retaining as much economic activity as possible within the nation's borders."

The version of mercantilism perfected by Zuma goes a few steps further, acquiring power for a small, connected elite at the expense of the nation's majority. It is what Jonas called "the patronage political economy."

Turning to the topic of the Indaba, Jonas said SMEs are not delivering on expectations outlined in the NDP in terms of growth and job creation. He gave four reasons for this:

1. The macro structure of the economy is weighted against SMEs. Most sectors are highly concentrated around a few dominant players, making it hard for small, new firms to gain entry into markets or obtain working capital to grow.

2. We have poor education and training outcomes. There is a direct link between education and entrepreneurship, and without the former it is unlikely we will see a flowering of the latter. At the same time, business must pay more attention to building the skills base suited to its own needs.

3. Government support is disjointed and disconnected from business. Government has many support programmes for SMEs but they are not well coordinated and tend to be remote from those in need. For them to succeed they need a closer interaction with similar support programmes provided by the private sector.

4. The level of organisation and activities in the private sector exclude SMEs. By this he means the main representative groups in business such as BUSA, BLSA and its seat on Nedlac do not give sufficient airtime to SMEs.

He concluded by saying links between business and local government are crucial, and municipalities must work with business to create SME incubators and industrial platforms to stimulate small and growing businesses. I Tweeted about that and copied my DA Mayor colleagues Herman Mashaba and Patricia de Lille to take note - too few characters to include Athol Trollip and Solly Msimanga.

I have to say there is not much in what Jonas said that I disagree with. It is no wonder he has resigned, because virtually everything he is calling for is the exact opposite of what is happening.

Some of the other contributions to the Indaba are worthwhile repeating here:

1. The DSBD Director General Prof Edith Vries began by saying it was important to separate State from Government. We know she meant separate Party from State but no-one bothered to correct this Freudian slip. She was closely questioned by moderator Dr Ernest Messina, CEO of AHI, on why the department had underspent its budget and responded by saying it was still under-capacitated, and in any case it would have been irresponsible to spend money just to meet its expenditure targets. The point is, madam, that such a crucial government function cannot underspend and then cry for more money, as Minister Zulu has been recently.

2. Ashraf Adam from SALGA said land use regulations are an impediment to business growth, as they are out of date and too onerous. It takes up to two years to re-zone land use, so most businesses do not bother to try.

3. Emil Nothnagel, an independent SME consultant, says the greatest failures are happening at the local level. Policies cannot simply be transferred from ivory towers in Pretoria into towns and cities without taking local factors into account. Councillors and officials are not skilled or capacitated in LED so many programmes are not well implemented.

4. David Lewis, CEO of Corruption Watch, admitted that most of his life had been spent dealing with big organisations and only recently had he turned his attention to the needs of small business. He acknowledged this shortcoming and spoke of an app they are developing allowing small businesses to easily report corrupt activities and have them tracked. This is a sign of progress. Lewis said that corruption is a crime against all South Africans so we must all respond by rooting it out wherever we find it. Corruption Watch receives around 130 reports of corruption a week but only has capacity to respond to a small fraction of these.

5. Annie Malan, founder and CEO of Annie Malan Promotions, said entrepreneurs jump off the cliff and build a parachute on the way down, meaning they take risks and are resourceful. Unlike most others on the panel discussing how to negotiate the minefield of regulation and bureaucracy affecting SMEs, she said true entrepreneurs find a way to deal with them.

6. Paul Marais, a business restructuring specialist based in Stellenbosch, said cashflow problems are the biggest headache for SMEs. This was reiterated by entrepreneur Marnus Broodryk who's just sold his business to Transaction Capital which provides financing solutions to SMEs with cashflow problems. Annie Malan disagreed, saying cashflow is about maintaining good customer relationships. You can see what she means, but unfortunately many customers put their own short-term interests ahead of long-term relationships.

7. Tanya Cohen, newly appointed CEO of BUSA, listed their top three priorities as 1) transformation for inclusive growth and job creation, 2) support SMEs and 3) create an enabling business environment. There is nothing new or special about this, and the most important thing in my view that BUSA should do is be more vocal in its opposition to current government policies, and during election time come out in support of DA policies as those most likely to achieve its own priorities. It is high time business groupings came off the fence as they do in other democracies - in the UK, for instance, the CBI is open about its political support of the Conservative Party, except for periods in the late 1990s and early 2000s when they supported New Labour.

7. AHI President, Bernard Swanepoel, also came down hard on businesses not paying suppliers on time. Swanepoel wrote a persuasive piece in Business Times last Sunday on the Think Small First approach needed in government. Is government listening?

Last week the Portfolio Committee spent time in Mpumalanga visiting coops to evaluate the impact government programmes, particularly the Cooperative Incentive Scheme, are having. It became very clear they are falling woefully short of their intended impact. So while the present government might claim it is putting small business first, it has shown very little capacity to deliver.

I will be writing about last week's oversight visit to Mpumalanga in a future post.

In the meantime, thanks to AHI for a very stimulating indaba.

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