OPINION

Ending the Mexican standoff between govt and business

Ricardo Hansby writes on how the two sides can start working together again

South Africa needs to move from a Mexican standoff to the Stockholm syndrome to save the economy

31 August 2016

It is therefore about matters of action that men show unanimity, and especially about matters of action which are of major importance and in which it is possible for both or all parties to get their way ... for unanimity does not consist in each party just thinking of the same thing, but each thinking of it as vested in the same hands ...” Aristotle - the Ethics, Book IX

The overtures by the Minister of Finance, Pravin Gordhan, and President Jacob Zuma to extend an olive branch to the South African business community and to garner their opinions about averting further economic meltdown is long overdue and laudable. What is not helpful is the instability caused by the factional internecine warfare in the ruling party. But irrespective of whether this persists or subsides, the preconditions for dealing with South Africa’s economic quagmire need to be dealt with and require long-term solutions. The solution lies nowhere else than in the ability of different sectors in South Africa to collaborate as witnessed during recent attempts to stave off a sovereign ratings downgrade.

Were the state and the private sector to have worked together from the outset and focussed on tapping into the enormous economic potential of the country there would be no need for a growth rate which is below par, runaway unemployment, permanent affirmative action and Broad-based Black Economic Empowerment which has benefitted only the few. With its core natural and human endowment the country would be resplendent with opportunities for most. There would be more than enough to go around.

What is pulling South Africa down is not the vagaries of international markets alone, but mostly self-inflicted injuries which have resulted in the country’s inability to unlock this considerable potential. Of course global economic growth rates have a bearing on South Africa’s economic performance, but if judged over a prolonged period, even during global boom cycles, the country’s performance has never been stellar and this suggests that the challenge is essentially a local one. This is most telling in the low labour absorption rate of the economy even during periods of sustained growth.

To therefore pin the country’s economic woes on one administration is also short-sighted and does not recognise the structural weaknesses that have manifested themselves even prior to the dawn of democracy. It certainly needs to be recognised, however, that South Africa has witnessed a rapid acceleration in declining economic performance of late and the current administration is not blameless either. As a result, the Republic is facing another Rubicon moment: either it will succeed or this will be just another lost opportunity.

The scale of the current economic malaise experienced globally and in South Africa should jolt the key economic actors in the country into action to place the country onto a more sustainable growth trajectory and place the private sector at the centre of economic development. However, it is not only about allowing the private sector to realise its full potential, but it is about creating a partnership between the state and the private sector to grow the economy.

Some business leaders, analysts and commentators have glibly called for an economic CODESA or some form of high-level social dialogue to address the lacklustre economic performance of the South African economy. Before such talk can truly be entertained, there needs to be an understanding of the complexities of bringing the two critical social partners in economic development together otherwise it will just fizzle out and recent efforts will have been reduced to mere talkshops. Notions that government and the private sector do not want to work together could therefore be misguided. Structures such as the Presidential Business Working Group bear testimony to traces of this. So what is the problem? And what exactly is it that should transpire from such an initiative?

The gaping rift between the state and the private sector in South Africa has been described as a “trust deficit”. It is, in fact, more than this and can be regarded as more akin to a “Mexican Standoff”, in which neither government nor business are prepared to move from their positions. With the battle lines drawn since before 1994, the bevy of crossfire has resulted in the impoverished and unemployed being the relentless victims. This partially stems from our belligerent apartheid past in which business was seen as being pitted against the liberation movement by virtue of the benefits derived from the apartheid regime.

Soon after the demise of apartheid, the disjuncture between business and the state was informed by ideological mistrust and vestiges thereof still remain. The problem is compounded by the inability of government to communicate effectively with the business community.

Few government officials speak the language of business, let alone have run a business or have even structured a business transaction. Business discourse is one of balance sheets, cash flows, new markets, distribution channels, lower input costs and deal-making. Public sector discourse is one of regulation, taxation and redistribution, as well as social development.

Academic credentials aside, there are very few officials with the appropriate business development expertise and private sector experience in the economic sector departments which partially explains the state-centred development approach of government. The absence of the private sector in most government discussions about the economy has long been foolhardy and gives credence to the fact that for too long sections of the state wanted to go it alone in developing the economy.

The historical context, the ideological disjuncture and the language barrier that inform the rift between the public and private sectors are at the heart of the inability of South Africa to rise to the occasion to attain GDP growth rates of over 7% per annum and to infuse in this growth a labour-intensive proclivity and an egalitarian character.

Economic development in the rest of the world has dropped its ideological overtones and has become more practical based on the prevailing conditions in particular countries and regions. It recognises that the two social partners are intimately inter-dependant: business requires a strong and efficient state that creates a conducive – even nurturing - environment for trading and investing; government requires a vibrant and responsible private sector that can exploit and develop local business opportunities for purposes of job creation and revenue for the public good. Both feed the economic cycle and should complement each other. Instead, in South Africa they are constantly at loggerheads and rather focus on what the other one is not doing or is doing wrongly. It has become a zero-sum game at the expense of the unemployed. The irony is that both the great ideologies of our time have the same objective of the withering away of the state.

Government should focus on the enablers for business growth which could bring about the establishment of more farms, factories, shopping centres, mines and tourism businesses as well as the expansion of existing successful businesses. These enablers include macro-economic stability, a conducive legislative environment based on the efficient implementation of existing laws, the efficient and effective planning and delivery of basic services and economic infrastructure to reduce the costs of doing business, skills development in critical sectors, efficient and effective procurement directed to local companies to stimulate domestic demand, demand-based incentives that unlock the business potential of the country and a cost-effective tax structure to encourage higher levels of investment. Every decision taken by government should be counterbalanced with a predetermined priority to create and expand more local business and not stifle it with regulations that are not in the public interest or make businesses unfairly uncompetitive.

The private sector on the other hand should focus on the core business of generating shareholder and stakeholder value. Its focus should not narrowly be on reckless profiteering, but all business should come to the realisation that creating jobs, spreading ownership and protecting the environment are not bad for business and serve as key tenets in building sustainable businesses.

Moreover, business should utilise their existing business infrastructure, including their management capacity, skills pool, balance sheets, technology and equipment, markets and distribution channels and access to information, to unlock more opportunities for trading and investing. It is therefore extremely droll on the part of President Zuma to opine after the Cabinet meeting of March 2016 that it is not the responsibility of government to create jobs but rather that of the private sector. Government, he said, should create a conducive environment for the private sector to do so. Touché, Mr President! The President was remiss in not acknowledging that government has been frustrating the private sector all along to take up this responsibility and that far from creating this conducive environment for the private sector to function, government has acted according to warped economic idiosyncrasies.

As a country, South Africa is ignoring its own resources, business opportunities and existing capabilities at the peril of government, business and society at large. With its relatively strong economic fundamentals and its unlocked potential combined, South Africa should have been leading the African growth narrative. Ratings agencies should have been singing our praises and lauded us as the most recent miracle economy.

A social dialogue about economic policy would not be sufficient on its own. A two-tier partnership is what is required. At the apex level is one that should focus on economic policy and regulations that have a bearing on the ability of the country to grow the economy and create jobs. This social dialogue should be located within the appropriate structures such as the National Economic Development and Labour Council (Nedlac). For too long this organisation has been dysfunctional and its core stakeholders of government, business, labour and civil society should devise a rapid turnaround process for this institution. This social dialogue by its very nature needs to be broad-based to go beyond merely government and business. Because there are labour market issues and service delivery issues that are also discussed, the same fallacy of government discussing business without the presence of business would be committed if labour, for example, is excluded from the discussion of the labour market.

However, it would be pointless if this discussion is merely a fuzzy ideological one. Nothing focuses the mind more than a crisis and how to navigate through the approaching storm and salvaging the economy and creating jobs. This should be the bottom-line of the social dialogue in Nedlac. Here the requirement would be to remove the gloves and move beyond debate into an actual consensus on the core requirements for a successful economy. Some of this is already contained in the National Development Plan which is teetering on the brink of historical irrelevance.

The Presidential Business Working Group has the wrong composition and might serve some or the other purpose. Seemingly this structure mostly serves as a vehicle to hobnob with the high and mighty than to vigorously discuss the fix the country finds itself in. It is mostly composed of organised business representatives (the politicians of business) rather than by actual producers who know the intricacies of establishing and running a business.

Economic policy rectification would not be enough. The investment levels required in South Africa to attain an above average growth rate that would address the sticky unemployment problem need to be higher than the investment that would flow from having a merely conducive business environment. What is required is an unparalleled focus on generating more deal-flow in the real economy.

In much the same way as the country has developed a pipeline of mega infrastructure projects to kick-start growth, a pipeline of greenfields and brownfields mega business opportunities need to be identified for development. Whereas the infrastructure projects are government driven, the business projects need to be private sector driven and the development costs and risks should be partially carried by government for the social returns that come with higher levels of trading and investing.

This partnership is the second tier of social dialogue that is required in every district and it is one that concerns business and government more than any other stakeholder directly. In as much as South Africa needs more productive small business, it also requires more sizeable catalytic businesses that will accelerate growth and employment creation by creating value chains. To do so would entail the mobilisation of the captains of industry, commerce, agriculture and mining across the country.

It is a programme that actual producers in the country need to manage. The institutional model required would therefore be fundamentally different from policy based structures such as Nedlac. There should be structures in which actual business opportunities are discussed for development in every district, province and at a national level with a view of accelerating investment decisions.

This structured high-level dialogue between government and business should be informed by factors such as identifying the actual large scale sustainable business opportunities in the economy (including opportunities for business expansion); how to turn these many business opportunities in the country into actual operating businesses of note; removing the bottlenecks in developing those business opportunities into actual business operations; the type of criteria that should inform the selection and prioritisation of these opportunities; the resource requirements to develop these opportunities; and finally, designating private sector champions to operate the businesses that will arise out of the many opportunities South Africa as a country is endowed with. In the process the economy can be expanded considerably to accommodate the army of unemployed South Africans that suffer the indignity of not earning a working income. The only way out is to rapidly and urgently grow the economic cake and this is attainable.

Economic CODESA or whatever the nomenclature, this is what a practical collaboration between the state and private sector should be all about to avoid the risk of it becoming an ideological talk-shop. Like in the case of the “Stockholm Syndrome” where hostages develop a sense of empathy for their captors, economic stakeholders in South Africa need to demonstrate some form of magnanimity to grasp both the challenges of governance and of entrepreneurship simultaneously.

The narrative of South Africa’s successful transition to democracy is one of overcoming what was perceived as intractable differences between pole-opposite political forces. The political miracle did not fall from thin air. Breaking the language barrier between business and government and creating an economic miracle that will unlock the embedded economic potential of the country, will require magnanimity on both sides and accepting and recognising their distinctive and complementary roles and responsibilities. It is never easy to make any relationship work.

It is always easier to stay out of it, but South Africa cannot afford a government and private sector at odds with one another to the extent that it leads to mutual alienation, gridlock and an erosion of the economic base of the country. Given the dire needs of the nation and the fact that both social partners are affected by it, this relationship, like all, will require hard work, diligence and many concessions which should be based on mutual benefit. The blame-game is not always helpful. In these tough times, and moreover the good times, a mountain of hard labour awaits us all to turn the economy around.

Ricardo Hansby is former CEO of the Cape Chamber of Commerce and Industry and former Deputy Director-General: Infrastructure and Economic Development in the Department of Cooperative Governance.