Building a new generation of young entrepreneurs

Note to editors: This is an extract of the speech that will be delivered by DA Parliamentary Leader, Lindiwe Mazibuko MP at the University of Cape Town Graduate School of Business as part of their Distinguished Speaker's Programme, April 25 2012

I am delighted to be here this evening to address the UCT Graduate School of Business. I would like to begin first by complementing you. You are participating in one of the most exciting arenas of creativity, ingenuity and innovation, at a time in history when there is an exponential growth in new ideas and technologies.

The Graduate School of Business is one of the few business schools in the world which has a defined set of values. In particular, your sixth value:‘We live by equality and firmly believe in treating each person fairly and with respect' speaks to the liberal democratic character of our Constitution, which ascribes dignity to every individual. It reminds us that society's sum total is greater than the individual parts - we are truly ‘better together'.

I was invited to speak to you this evening about the challenges facing young leaders in politics. There are, of course, many of these that I and others like me face on a daily basis. But what I consider to be my most important task - as it is for my peers - is to help shine a light on the way to lasting reconciliation in South Africa: to help our fellow citizens see themselves in each other.

I don't need to tell you that this is much harder than it sounds. Apartheid's injustices left us divided from one another in school and university classrooms, in where we live, at work, how we travel to work, in hospitals and clinics, in what we eat, in the conditions of our bodies, in how we think, in our children's futures, and even by how we die.

To do this, we need to do what other African leaders have recently done across the continent, and what President Barack Obama did in the US in 2008: mobilise the youth and talent of the nation into a new kind of public service. We must restore the ideal of the Nelson Mandela years that public service is not for material gain, vanity, and scheming, but is the place for noble pursuits.  

Why this particular emphasis on the youth? South Africa has a very young population, over two thirds which is under the age of 35. Unfolding directly from this is an issue that occupies my mind every day; an issue which, if it were dealt with properly, would begin to ‘put right' all other attendant issues arising from the inequalities perpetuated by apartheid. It is one that crops up constantly in the ‘walks of solidarity' that I have begun to undertake in communities around the country. And it should keep every young leader who cares about South Africa awake at night.  

I am speaking of youth unemployment, and how it relates to the need for us to build a new generation of young entrepreneurs in our country.

I know that there are those who say that 'business is not the business of government', and by extension - of politicians like me. And while the Democratic Alliance (DA) does not believe that the state can perform the work of business; we know that the government does have a major role to play in creating the necessary conditions for entrepreneurialism to flourish. In fact, we also have a moral responsibility to do so when one considers the big picture. Let me briefly sketch the context:

The grim reality that we face today is that South Africa is falling behind its African peer countries when it comes to job-creating economic growth. I am sure that you already know that six of the world's ten fastest-growing economies are African. And that in eight of the past ten years, sub-Saharan Africa has grown faster than East Asia.

The rest of Africa is, paradoxically, benefiting from the movement of capital, skills, and technology from China, India and Brazil more than we are. Since 1994, South Africa has been exposed to the same skills-biased technological changes as every other part of the globe.

The combined effect of apartheid's legacy of inequality and the spread of globalisation means that South Africa cannot leap to a developed state in one fluid movement. We must not only to put right the wrongs of the past, but also compete with our peers throughout Africa as a nimble economy. The two imperatives are closely interconnected.  

During apartheid, racial separation was South Africa's defining characteristic. Black South Africans were deliberately disadvantaged and denied economic opportunities. To be black in South Africa was to be subjected to a ruthless process of asset stripping and economic restrictions: labour laws that prevented material advancement, land expropriation, business regulations banning black ownership, the morally bankrupt system of Bantu education, and laws that kept black South Africans from living in metropolitan areas, and benefitting from property ownership there.

I have already mentioned how the emotional damage to individuals and communities is incalculable. Nor we will ever be able to calculate in numerate terms the economic opportunity cost of apartheid. Apartheid is still felt in the bizarre spatial divisions of our cities, and between a relatively prosperous urban and gut-wrenchingly poor rural South Africa.  

Our daunting challenge today is to carefully make strategic interventions to counter the effects of apartheid's asset stripping and restrictions, while keeping the economy competitive in the global arena. One of these interventions is black economic empowerment.

The DA believes that broad-based black empowerment (BBBEE) is a necessary condition for reconciliation, redress and economic growth. As a young political leader, I am committed to making workable proposals to make BBBEE work for the many millions of young people who have yet to experience true reconciliation, not just an elite few. Over the coming months, the DA will detail its policy alternatives in this regard.

Despite real progress, youth unemployment is widely recognised as a potential source of political instability. This is not to mention the human tragedy that it represents for each person it affects. Our unemployment rate is one of the highest in the world, and it is clustered among younger workers, with 71% of the unemployed under the age of 34.

So if we take up the chisel and hammer, and deal a strong and decisive blow against youth unemployment, we will change the destiny of our entire nation. Part of the solution must lie in creating a multitude of young entrepreneurs.

In the past, most of the policy proposals for addressing youth joblessness in Africa have focused on stand-alone development efforts.

As I mentioned in my opening, the DA has developed a nuanced approach of role of the state in the economy - one that is limited to providing an environment conducive to growth. This involves the provision of critical infrastructure; correcting market failures; ensuring fairness by promoting broad-based ownership and participation; and championing our firms and entrepreneurs on the global stage.

We agree that the government's infrastructure investment programme, announced by President Jacob Zuma earlier this year, is appropriate to help tackle poverty and social exclusion. It will also create some temporary jobs and skills training.

Development, however, will only become self-sustaining when it is located within a private sector that creates jobs, opportunities and incomes for all. And the private sector can only prosper when the right infrastructure is in place: railways and roads to bring goods to market; open and free ports to enable trade; and the power to switch the lights on and off. This is why the DA speaks about the need for a capable state.

The other part of the equation is entrepreneurship. It is estimated that 80% of new jobs globally are created in the small and medium sized businesses sectors.  This depends on the right policy framework, which the DA believes lies at the intersection of the economy and education. If we don't get this half of the equation right, our children will be paying for the other half - infrastructure - for a very long time.

South Africa is, I believe, a ‘natural' entrepreneurial society. It is written into our national DNA. We see our entrepreneurial spirit all around us from sidewalk vendors to our huge taxi industry to our sophisticated financial industry. Were we not the first country to develop the pay-as-you go cell phone bringing millions of poor people into instant communication? And did not Mark Shuttleworth, a graduate of UCT, literally reach for the stars by being the second self-funded person to go into space?

Today, South Africa needs policies that promote entrepreneurialism; good education policies to provide a skilled workforce; and good financial policies to finance young entrepreneurs. Entrepreneurialism is constrained by the limited availability of technical and entrepreneurial capabilities. Our educational system has paid scant attention to training in the engineering fields, the sciences, and related business knowledge. Even for graduates, there is no such thing as the ‘job for life' anymore.

This is why the DA's policy focus is on assisting people to acquire the requisite lifelong skills to enter the job market and stay working. We need to lower the barriers to entry for new job seekers.

In this regard, the DA strongly supports the introduction of a youth wage subsidy. A solid academic body of research on South Africa's market imperfections makes the case for it. As you will know, COSATU is stonewalling the subsidy's introduction on the unproven grounds that firms will retrench older workers. This is protectionism for the ‘haves' at the expense of the ‘have nots'. 

The National Treasury estimates that the subsidy would assist up to 430 000 school leavers, while a Harvard study strongly supported a youth subsidy in South Africa to address the structural conditions which produce persistent youth unemployment. In Britain, the DA's sister party, the Liberal Democrats, secured the introduction of a youth subsidy by the coalition government. It has not resulted in older people being booted out of their jobs.

The DA places a special emphasis on innovative ways to ‘capitalise the poor' by making it easier for poor and low-income South Africans to acquire and trade assets. This includes home ownership for the poorest, and access to micro-credit to start small businesses along the lines of the pioneering Grameen Bank of Bangladesh.

Another really important reform is to link group savings and loan associations with formal banks in order to allow people, especially women, to scale up their businesses to a small or medium sized business. Here South Africa is again falling behind other African countries. A new approach is needed, and the DA has taken a lead in developing it.

How have we done this?

Firstly, the DA believes that there is a key role for the government to play in linking infrastructure managers to business and management schools like the GBS. Governments, from municipal to national, are located at the heart of a dense network of information and a multitude of actors from the state to academia to business.

We see a smart government working as the ultimate ‘networker'. Think of your most prolific social media friend and multiply that by 1 million. In this elegant model, "networks are directed and controlled as much as they are managed and orchestrated". The outcome is a network that provides power to achieve preferred outcomes with other players rather than over them.      

The Western Cape Minister of Finance, Alan Winde, is writing a new narrative on the role of the smart government to bolster growth to the level of other emerging markets like Brazil and Vietnam.

Tomorrow the Western Cape Economic Development Partnership will be launched as an independent, membership-based not for-profit company, to lead, coordinate and drive the Western Cape economic delivery system. The cornerstone of the initiative is the prioritisation of support for small and medium sized businesses (SMMEs).   

Minister Winde has also allocated funds in the next financial year to create an "enabling environment for inclusive growth, and provide demand-led support to businesses". In the last year, the partnerships between the Department of Economic Development and Tourism and other SMME support organisations saw about 7900 existing and start-up businesses supported.

The Minister also announced that the Western Cape government in partnership with a major commercial bank will allocate funds to support SMMEs to improve their chances of accessing commercial funding and increase business sustainability. These are just two examples of what Alan is doing at the provincial level: not sinking lots of taxpayers' money, but networking actors, creating an entrepreneurial environment, and slashing bureaucratic red tape.   

The City of Cape Town over the past few years has demonstrated bold leadership in establishing entrepreneurship initiatives. This includes reaching an agreement with the Business Place eKapa in December 2010 to implement Cape Town Activa. This initiative is working on connecting the dots to create a functional Entrepreneurship Ecosystem for this City.

Last year, the city participated in the Living Labs Global Competition for the first time ever and recognized the PoweredbyVC concept, which is aimed at developing and implementing a new generation, hybrid venture capital fund.

The administration also provided funding to the Business Place Philippi to implement a program aimed at providing trading spaces for businesses within their premises. There is also the East City Design Precinct which is promoting the use of incubators for design industries in the area. Like the province, the city is also considering innovative ways to help small businesses access capital from banks.

So as you can see, the DA does not approach government in a ‘silo' manner. That is the old way of doing government. We carefully coordinate the interface between delivery, policy and strategy. We look at how other smart governments have incorporated changed based upon empirical evidence. We will one day bring the same approach to the national government.

National government, of course, can do things that the provincial and municipal governments cannot. Within this context, you might ask:  can a nation pick and back winners? There has been discussion in South Africa about creating "national champions". The DA is of the view that governments tend not to be savvy at what products the markets want, or which firms ‘deserve' to succeed.

Greg Mills uses the analogy of the Malaysian Proton car, a state-picked champion, and asks the question: who wants to drive a Proton? At the other end of the scale, state-led projects like Concorde or the TGV train never turned in a profit, although they are, admittedly,  prestige projects. Like military spending, these projects can have many technological spin-off benefits. 

The evidence, however, tilts heavily on the side of the private sector to foster competition and innovation. The US, despite its present economic woes, enjoys a lead because of its universities, reputation for entrepreneurial activity, and cutting-edge technology like bio- and nanotechnology. Silicon Valley, Apple and Google emerged in the United States.

In South Africa, the state can play an imaginative role in awarding infrastructure contracts and BBBEE deals close to leading centers of learning and innovation. There would have been no Silicon Valley in the first place without the Defence Advanced Research Projects Agency (DARPA) funding. The century old Massachusetts Route 128 was also as much a product of government contracts as it was of private investment. 

The world's great centres of innovation are usually networks of small ‘start-ups' - some of which become big. One thinks of the North Carolina research triangle, which enables an agglomeration effect. This is the kind of entrepreneurial spirit that the DA wishes to release in South Africa.

Such creativity, incidentally, is not restricted to technology. Harry Potter fans among you will know that the franchise began with a single mother in Edinburgh, not a directive from Whitehall. Harvard drop-out, Mark Zuckerberg founded Facebook. The social network site is worth around $103 billion, give or take a dime. Not bad money for a 27-year-old!

This brings me back full circle - to you. Unlike Mr Zuckerberg, I, of course, would prefer that you complete your courses! However, I know that I am looking out at an audience that is every bit as brilliant and innovative as the Shuttleworths and Zuckerbergs of the world.

Each one of you possesses the imagination to make life in our country and our world better, kinder and more fun. My party, the Democratic Alliance, will do everything within its power to support you.  

Thank you.

Issued by the DA, April 25 2012

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