14 September 2018
Delivered by BUSA President Sipho M Pityana
Transforming the Economy Through Inclusive Growth & Decent Jobs
Deputy President of the Republic of South Africa, Mr David Mabuza,
Minister of Labour, Ms Mildred Oliphant,
Deputy Minister of Labour, iNkosi Phatekile Holomisa (Ah! Dilizintaba)
Government, Labour & Community Representatives,
All protocol observed,
There is little doubt that, as we gather here today, our country is at the threshold of a rapidly worsening economic situation. It is a domestic crisis amplified by a wider emerging markets meltdown, and implosion of the Turkish and Argentine economies.
This week, Argentina raised interest rates to 60% to try control inflation of more than 30%, as its currency sunk to new lows. In Turkey, a currency in freefall has pushed inflation close to 18%. Venezuela’s situation is even worse — the UN estimates that 2,3m people, roughly 7% of the population, have fled the country since 2015, hollowing out its economy.
The speed and severity of the current downturn has greatly increased scrutiny on developing countries vulnerable to this contagion and we – sorry to say – are near front of the queue.
The reality is that the providers of capital, including rating agencies, investment funds and financial institutions which fund so much of the day-to-day functioning of our state, are nervous. And this anxiety is growing as the market gains a greater appreciation of our complex economic and political challenges, for which no clear and cohesive national response is proffered.
While investors head for the door, leaving the rand spiralling and our borrowing costs soaring, our reaction leaves much to be desired. Instead of ringing in reforms to show we’re a good bet, there is an unproductive debate about whether or not we are in a technical recession.
Agriculture, manufacturing, investment and consumer spending, which account for more than two thirds of GDP, have underperformed. The economy is haemorrhaging jobs at a frightening pace. Stats SA says the number of unemployed South Africans is up almost two-thirds since 2008, to 9.5 million people. Over the same period, the expanded unemployment rate increased to almost 40%. It’s hardly surprising that the World Bank report describes our country as the world’s most unequal.
It is even more worrying that we continue to decouple from our peers. While the IMF sees global economic growth of 3.9% this year, our economy is shrinking. This simply continues a long trend of moribund growth. Between 2009 and 2017, our GDP grew 1.6% a year against 5% for an IMF benchmark of 150 developing economies.
If ever there was a time to prove the efficacy of our social partnership, it is now. As NEDLAC we must remind ourselves that distinct mission: to find solutions to almost intractable national challenges, and to build a societal consensus that improves our prospects of being a winning nation. To do this we need to and maintain a relationship of trust and align on a shared vision, which we can collectively implement.
The business community recognised that it has to put its house in order.
Collusion inflates prices for no reason other than greed, it robs the poor and deepens our dire socio-economic problems. It must stop. So, too, corruption exposed by the Zondo and Nugent Commissions. Black Economic Empowerment, a noble endeavour to be sure, can never be an excuse for corrupt behaviour.
We must address excessive executive pay; encourage inclusive procurement; make meaningful contribution to a skills and employment revolution.
With improved policy certainty and a clear agenda for growth, we must lead the charge in deploying more capital investment, which will encourage foreign partners to follow suit. Most investment is reinvestment. Often, new money follows the experience of the old.
We can also cultivate our value chains in such a manner that they become more inclusive and developed with job creation and enterprise development in mind.
I would like to use this opportunity to call on business – big and small, black and white – to commit to work with our social partners to develop an Economic Recovery Plan for the South African economy. We simply have no time to waste. It is not only our duty as South Africans to act, but it is our fiduciary responsibility to recognise what Martin Luther King called, “the fierce urgency of now.”
But for this to happen, Mr. Deputy President, organised business has to be viewed as a valued long-term partner and generator of wealth and taxes.
We can only agree that our economy is in a perilous state. The latest Reserve Bank’s Quarterly Bulletin puts debt-to-GDP at 50% versus 24% in 2008. This is before we take into account guarantees to SOEs. That’s worryingly high for a developing economy.
Investors look carefully at this measure to gauge a country’s ability to pay its debts. Borrowing is growing above this benchmark, interest costs are rise, diverting already-scarce capital from social spending intended to mitigate the lot of our poor citizens, to servicing debt. This is a debt spiral that many-a-household knows only too well.
We are likely to part with R163 billion to service interest on our R2,2 trillion debt burden this year.
As mentioned if we Include SOEs, our debt climbs to roughly 70% of GDP. Like me, you have, no doubt, been reading about a growing queue of SOEs seeking bailout from the fiscus. In Eskom’s case alone, total debt has risen to nearly R400bn over the past four years.
While we welcome and are encouraged by the reassuring anti-corruption tone and measures taken since President Ramaphosa assumed office, we are under no illusion that the leakage from our country’s coffers is likely to continue until good governance and accountability are restored.
With an economy either contracting or showing lacklustre growth, the capacity of the fiscus to generate more revenue to meet the growing and competing demands is clearly reduced. This is a structural economic conundrum unlikely to be resolved by a litany of platitudes and promises that raise false hopes. Not even the most militant demands are a solution.
This is a moment to look each other in the eye, confront one another with uncomfortable truths about how painful the journey ahead is likely to be, but also commit to finding solutions that will allow us to face our challenges with honesty and courage.
We need urgently to restructure the economy to achieve inclusive growth. This relies upon significant capital investment. Given our low domestic savings, we must agree with the President that we focus on attracting fresh investment to the economy.
Currently, the state lacks the fiscal capacity (space) to invest sufficient capital to turn the economy around. The envisaged stimulus package should be managed prudently to ensure the most optimal impact on the economy. We must improve the management public expenditure towards a more sustainable fiscal trajectory.
Without addressing the systemic risk that these structural constraints pose to our economy, our growth ambitions will suffocate under their dead weight.
Our President has rightly set an ambitious target of $100 billion in new investments. To realise this goal, a clear vision of our economic trajectory, with a clear action plan, is needed. No savvy fund manager or businessman will be lured by a slick sales pitch alone — they’ll look for the detail. They’ll look for clear action, before committing a cent.
This lack of a clear plan prompts the question: Does South Africa present a good long-term investment portfolio compared to other destinations? If the answer is currently no – then work done in advance of the Investment Conference and the actions that follow it, must enable us to unequivocally say YES.
We will host an Investment Conference in October, at a time when both domestic and foreign direct investment is on a steep decline. If we fail to emerge with a clear plan from this conference, it will be a lost opportunity and will severely undermine our credibility. Its success is a national imperative.
As organised business, we have already made clear what we expect from President Cyril Ramaphosa’s relatively new government. It is a truism that capital is allergic to uncertainty, and in this regard, we urgently need clarity on issues such as land policy, the future shape of the financial sector, mining and telecommunications policy, and the laudable visions of the NDP.
To have any chance of achieving meaningful growth, we also require predictable and competitive delivery of services from our state-owned enterprises. These companies are large enterprises central to our economy, and it’s no secret that they’re in a deep crisis.
As demands grow for the injection of state capital in these failing state entities – can we justify diverting scarce capital from much-needed investment in healthcare and education?
If we do not have the fiscal space to bail out these ailing SOEs, we must ask ourselves what then do we do?
While we commend the laudable work done by government to remove discredited board and executive leadership, we urge it to adopt an uncompromising approach to employ in these crucial roles people with requisite skills and experience. Appointments based on political loyalties is what got us where we are today, and the same approach will produce the same results, even under the new dispensation.
As organised business, we have also made clear what we expect from our other social partners, labour and society. We expect a commitment to productive social dialogue and the creation of a practical and meaningful social compact. For all of us, this means making – and sticking to – commitments. It also means recognising that sacrifice is needed, if we are to turn this ship around.
An inclusive society
As business, we are under no illusion that in order to deal a decisive blow to poverty and inequality economic growth and transformation are indivisible.
The minimum requirement for achieving this kind of economic transformation is increasing the involvement of black people, youth, women and the disabled in the productive economy. That includes employment which is the most effective means of economic redistribution, ownership of businesses and their management.
Faced with the painful reality of an economy that is shedding jobs today, the forthcoming third Jobs Summit in October must reflect on the realistic measures needed to minimise, not only the looming prospect of more job losses, but also the businesses that are closing down in the face of these challenges. Roughly 1,800 businesses were liquidated last year, with the services sector of the economy hardest hit.
We must be a modern economy that is not built on cheap labour, but on highly educated, skilled and therefore more productive labour that is not only innovative, but capable of mediating technologies from other parts of the world. The Jobs Summit must pronounce itself on the future of work.
Minister Oliphant, we need enabling policy, created in partnership with business, to conscript as many people into internships, mentorships, and on-the-job training, as is humanly possible. We must also commit to making the structural changes that will continue to shift our economy away from the dominance of extractive industries and monopolies, towards one that supports labour-intensive growth and small and medium enterprises that are geared to meeting the needs of local and global markets.
Social Partnership is Imperative
To achieve these lofty goals, we must work together to find solutions. When the going gets tough, and the race, class and ideological divide seems too wide to cross, we need to appreciate that we are no longer at a place where anyone of us has the hegemony to impose their chosen pathway on the other without tripping all of us over. We dare not condemn future generations to our short term selfish objectives.
What can we learn from our past?
It is crucial that, in our desire to give hope to South Africans, to its business community, and to its investors, that we don’t paint an overly optimistic picture. We must be able to communicate a credible vision for the future and a strategy for getting there, persuading our compatriots to tighten our belts for a better tomorrow. Equally, while we take the bitter medicine, we must find ways to shield the vulnerable in our society from destitution.
As the chairman of a publicly listed company, which has most of its shareholders abroad, I can tell you that there is South Africa fatigue among investors. These are the large institutions which have for many years committed billions in risk capital to our private and public sectors, on the promise of reform, good governance and probity, and the commitment that our government will create the environment for business to flourish.
Just like our own people, they are fatigued at the lack of progress. They have grown tired of the dizzying number of commissions, probes, summits, panels, Phakisa and Indabas trotted out as an alternative to real, decisive action. Rarely, if ever, are these talk-shops followed up with tangible results that remove the barriers to investment, improve the business environment or demonstrate that those who break the law will be held accountable.
The Preamble of our Constitution enjoins us to “improve the quality of life of all citizens and free the potential of each person.”
Let’s us all work together to bring that to life.