Criticism of government economic policy is mounting

Whether it is the IMF, BUSA, Cosatu, the Black Business Council or the World Bank doing the criticising, they all agree on certain key fault lines within our economy. The economy is dominated by big players, investment is too low, there is a rampant skills and entrepreneurial deficit, we are consumer and not producer focused, we are good at writing blueprints and plans but are hopeless at implementation, and we are still suffering the legacy of apartheid. Where there is less agreement is what to do about it.

Broadly, some say government should intervene more to stimulate growth while others say the opposite, that government must “get out of the way” and let business do what it does best, which is create wealth.

At its heart, this ideological divide is what is limiting economic growth. It manifests both in a persistent and seemingly unbridgeable gap between government and business, and the half-hearted policies towards small business development which have served only to hamper their contribution to the economy.

South Africa’s economy is and always has been controlled by a small number of powerful individuals and corporations. In an attempt to shift the emphasis, the National Development Plan expects 90% of all new jobs to come from small and medium enterprises. Currently these businesses account for 90% of registered companies but only 60% of employment. With large businesses mostly shedding jobs, a weighty burden rests on smaller ones to rescue our economy.

But things are stacked heavily against them, particularly burdensome red tape, precious few tax incentives, restrictive labour regulations and inability to break into government and big business supply chains.

Successive South African governments have always had an ambivalent, even an indifferent attitude towards big business while small business has mostly been off the radar. This is because business over the years has ‘delivered the bacon’ without too much interference.

Periodically, at times of stress, government and business have got together to try to close the divide. The Carlton Conference convened by Prime Minister PW Botha in 1979 was one of the first such attempts.

In his book Inside South Africa’s Foreign Policy: Diplomacy in Africa from Smuts to Mbeki, John Siko recounts the moment Neil van Heerden, a senior government official, introduced Botha to Harry Oppenheimer, chairman of Anglo American which at the time controlled upwards of 50% of the Johannesburg Stock Exchange.

“Harry, I’d like you to sit next to PW,” said van Heerden, to which Oppenheimer replied “Oh, but I don’t know him!” A clearer indication of the divide between business and government would be hard to find.

Shortly after the Carlton Conference the government, in partnership with Anton Rupert’s Rembrandt Group, established the Small Business Development Corporation (SBDC). This was a non-profit company which aimed to provide funding for small businesses, and was the first practical acknowledgement that small businesses played an important role in the economy.

During the apartheid era government was happy for business to do its own thing, so long at it produced the taxes which propped up the regime. In the main, business leaders avoided direct criticism of government. Small businesses grew up to serve the huge mining-industrial complex which is where the bulk of our export earnings came from. There was very little emphasis on innovation. We had a laager economy where import replacement was a necessity and sanctions hampered exports.

Pre 1994, there was no talk of inclusive growth because black people were seen as second class citizens hired and fired to suit the needs of an economy designed around the needs of the white minority.

However post 1994, the exclusion of blacks from the economy no longer made economic let alone social sense, and policy instruments have had to steer a more difficult path.

Government’s instinct has been to tighten control, not relax it, with labour, BBBEE and affirmative action legislation all serving the interests of the 10% of big employers, not the rest. To this day small business does not have representation on Nedlac.

When the ANC took over in 1994, the DTI moved swiftly to gain control of the Small Business Development Corporation, which was unbundled into the privately controlled Business Partners and the publically controlled Ntsika Enterprise Promotion Agency, now the Small Enterprise Development Agency. It also formed the National Small Business Council to act as the lead in driving government policy towards small business.

Since being appointed to my current position I have met many stakeholders from business and government whom you would imagine would be in constant communication about what should be done to improve the effectiveness of these agencies, as well as how government can level the playing field for small business.

While there have been meetings, these have in the main come to nothing. It was very revealing to read a recent interview with Sizwe Nxasana, former RMB Chief Executive, in which he bewailed President Mbeki’s International Advisory Council for ignoring local business leaders and favouring international luminaries. Such a pointed brush left a bad taste in the mouth which persists under the Zuma administration.

Government lives in an echo chamber in which only the voices it wants to listen to are heard.

It’s been the same with small business. In 2010 Minister Rob Davies commissioned a study on how to improve conditions for small businesses in South Africa. Most of this report’s recommendations were ignored because the obvious ones – give the private sector more of a role, relax labour laws, reduce regulations and red tape, give tax breaks for angel investors and mentors – fly counter to Davies’ and his communist colleague Ebrahim Patel’s ideological word view that the state must control.

In parallel to this, we have the Black Business Council and the DTI advocating an explicitly black nationalist policy to create 100 black industrialists. Anything the white apartheid regime could do we can do better, they say.

It really is extraordinary that the ANC and its cohorts are simultaneously pursuing two mutually incompatible policies which have their roots in two of the 20^th century’s most disastrous ideologies, white nationalism and red Marxist-Leninism. Such is the internal contradiction within the alliance that is paralysing our progress as a nation.

Minister of Small Business Development Lindiwe Zulu has a huge task on her hands. To do her job, she must be the first pro-business voice in the alliance. Just tinkering at the edges, with an incubator here and some mentorship there, will not fundamentally restructure the economy and allow small businesses to flourish.

The alliance talks of radical economic transformation. We can all agree on the need for this. Trouble is the ANC’s instinct is to command and control, not to unleash – look at what is happening at Eskom.

Minister Zulu is due to present her budget to Parliament in May. When she does we will get a measure of just how brave she intends being in confronting her colleagues with the hard realities of doing business in South Africa.