Building Competitiveness: Business Leadership South Africa's response to the National Development Plan

May 11 2012

Preface

Business Leadership South Africa (BLSA) is an independent association whose members represent South African big business leadership and major multinational investors. It is a forum for South Africa's business leaders to exchange ideas on matters of current interest to the large companies of South Africa and to facilitate an effective business dialogue with government.

BLSA and its members welcome the National Development Plan (NDP) and the exhaustive process that led to its creation. This plan, which we see as the most significant research of its kind in our country's history, provides a solid base for working towards a better life for all South Africans.

Our submission focuses on how we as BLSA can join in partnership with government, labour and civil society to achieve the goals of the plan.

We welcome the opportunity to use our particular viewpoint and experience to help the Commission understand our perspective. In particular, we believe that the plan lacks a specific acknowledgment of the role of business as a positive force for society and at times business seems tangential to the goals of the plan. There are a number of areas in which business can assist the NDP to achieve positive change. There are also areas where the NDP can push harder, faster and more innovatively.

These areas are, however, small compared to the support we want to provide for the plan as a whole. Throughout this submission we have focussed on practical sTEPs and used case studies to illustrate these sTEPs wherever possible.

We look forward to working with the Commission to make the NDP a document which is lived and breathed by all South Africans.

A blueprint for South Africa's future

The National Development Plan (NDP) is the most significant research of its kind ever produced in South Africa. It offers a comprehensive and accurate diagnosis of our challenges and constraints and does so in a frank and open way that creates the space for an honest national debate. President Jacob Zuma has emphasised that this is not a plan for government but a plan for all the people of South Africa, and it is this context that BLSA makes this submission to the National Planning Commission.

The plan charts a 20-year path towards achieving the overarching vision embedded in the Constitution that South Africa belongs to all who live in it. South African companies as patriotic corporate citizens of this country want and need this vision to be achieved.

We agree with almost all of the proposals embedded in the plan and we believe that, if adequately implemented, the NDP will set us on a very promising path.

As such we see the NDP as a blueprint for South Africa; an overriding, long term document that extends beyond the electoral and short term business cycle to form the framework of future policy creation. We hope that the plan will come to underpin all future economic and social planning and regulations, providing the golden thread that underpins the battle to address the challenges of poverty, inequality and unemployment.

We see the NDP as a national rallying call that will unite the whole country behind it. We see it as a plan whose key tenets will be known by, discussed by and lived by the whole population. A plan that will become a national implementation strategy for the principles articulated in the constitution. To achieve this, the NDP must become part of the daily conversations of government and business leaders as well as civil society going forward.

As part of this process BLSA welcomes the call to develop a constructive partnership model with government and this is a key theme of our submission. Business has the project management, process and administration skills to help government address capacity shortfalls as quickly and efficiently as possible.

Just as importantly, the NDP has identified trust as a constraint to the achievement of its goals. It acknowledges that "long term growth and investment requires trust and cooperation between business, labour and government. In South Africa levels of trust are low". The issue of lack of trust within South Africa, particularly between government and business, is one that has been raised in various forae over the past two decades. Unfortunately, it is still an issue which persists. BLSA and its members acknowledge that trust is a two-way street and that we need to do more to build bridges with government.

Trust is an essential but elusive ingredient to the partnerships envisaged by the NDP and BLSA. We welcome the opportunity to work with government to build trust, cement deeper partnerships and help release the productive capacity of South Africa. BLSA will do all it can to use its convening power to help initiate discussions between BLSA members and other parties as and when the Commission believes this to be useful.

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Case study: Business trust

Recognising the need to build relationships between government and business, the Business Trust was conceived in late 1997 to help to rebuild the relationships that existed between business and the ANC at the time of the 1994 transition and to find a way for business to help contribute to the rebuilding of South Africa.

By the time that the Growth, Employment and Redistribution strategy (GEAR) had been introduced in1996 it had become clear that the country was facing severe financial and economic constraints due to the actions of the apartheid government, and many of the anticipated policies of redress would need to be delayed. Business and the Deputy Presidency held a series of meetings which resulted in business committing R1 billon over and above existing CSR initiatives to projects focussing on education and employment.

Some of the specific achievements of the Business Trust (such as the Tourism Enterprise Partnership) are listed elsewhere in this document, but just as important as the projects themselves was the building of bridges with government. As a result of the engagement, the then Deputy-President Mbeki set up the Big Business Working Group to act as a sounding board for government.

By the end of its intended lifespan, 10 years after inception, the Business Trust had shown that it was possible for trust to be built, but that the process was complex and not without its failings. More targeted and specific proposals were found to be more successful than general plans. Building relationships with individual ministers was critical, but getting the buy in of the next generation of leaders was just as important. BLSA recognises that trust is a two way street and that it will need to do more to achieve this crucial goal.

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The road to international competitiveness: Clear principles of agreement

BLSA fully agrees that increasing employment and improving education should be South Africa's highest priorities. We agree that it will only be through addressing these two key areas that the plagues of poverty and extreme and persistent income inequality can be addressed. We also welcome the focus on the creation of what the NDP refers to as a developmental state. Shifting from the paradigm of a "passive citizenry receiving services from the State to one that systematically includes the socially and economically excluded, where people are active champions of their own development and where government works effectively to develop people's capabilities to lead the lives they desire". We believe that being in work helps to empower people, creating a greater sense of worth, transferring skills and building other jobs in the process.

The merits of well-planned infrastructure as an engine of economic growth and job creation are inarguable and we strongly support the NDP's plans for higher levels of fixed investment. We welcome the targets of increasing the level of gross fixed capital formation from 17% to 30% of GDP meaning that the level of public sector gross fixed capital formation should reach 10% of GDP by 2030. The NDP wisely differentiates between infrastructure that generates immediate financial returns, like airports, power stations and toll roads; and infrastructure that does not generate financial returns such as schools and hospitals. We welcome the proposal that while the latter will be funded by the fiscus, the former will involve other sources of funding including from the private sector. We believe that investment in ICT must be seen as a key infrastructural priority and not just another sector of the economy.

We welcome the focus on improving public health. The national health system must be fixed. The spinoffs to the economy will boost confidence and productivity and lessen the burden on the state. We believe that the plan has, however, missed an opportunity to take a clear position on how the National Health Insurance system should be funded.

The NDP's proposals on broad based black economic empowerment, employment equity and land reform all seem to us to be improvements on current practice.

The recommendations on improving the functioning of the labour market are crucial. These are welcome initiatives and should be implemented with a degree of urgency.

We are struck by the plan's careful attention throughout to sequencing, and by the sober way in which its goals are linked to the scale and quality of South Africa's physical, financial and human resources.

We welcome the focus that the report places on addressing corruption. We strongly believe that the capacity of the state, leadership and corruption are closely interlinked and that all three are a function of the relative emphasis or neglect of meritocracy at various levels of the state. There are no innocents in this battle; this is a battle that we all must fight together.

BLSA will support and work in partnership with government to deal with the problem. We do not believe that new institutions are necessarily the answer, but specialised corruption courts with dedicated prosecutors such as those used to fight crime during the 2010 World Cup may be an option. Most institutions such as the Auditor-General's office have raised the issue of capacity as the main obstacle to fulfilling their mandates, and this will need to be addressed. It is imperative that accountability and a culture of reporting suspicious criminal activities be instilled in the public service.

The NDP references the need to improve South Africa's global competitiveness. We believe that the plan should prioritise this issue and define and quantify what "success" in the global context would look like. For BLSA competitiveness is about South African business being able to project on the global stage. As a country that does not save as much as it should, we need to be able to attract investment from abroad at least in the short term.

We need to develop relationships with our fellow BRICS countries while recognising that they are both partners and competitors and maintaining and strengthening existing relationships with other countries. We need to support new industries that can both enhance our competitiveness and contribute to job creation. We need to be practical in acknowledging that existing industries need to regain and sustain their competiveness and that there will be industries that face decline. We need to be pragmatic and accept that there will be tradeoffs. We feel strongly that government should support local industry where this is the best course of action for the country, and believe that the energy sector is one such sphere.

Cutting red tape and making it easier to do business are also important factors that will help drive competitiveness. The importance of research and development (R&D) in a variety of areas must be acknowledged as a driver of competitiveness and job creation.

Gap assessment

BLSA notes that in any document as wide raging and comprehensive as the NDP will, by its very nature, have gaps. Bringing the experience of BLSA in South Africa to bear, this section outlines the areas that we believe should be covered in more depth.

1) The role of the private sector

BLSA believes that an area which needs more focus in the plan is the role of the private sector as a partner and enabler in the economic growth and social redress that South Africa so dearly needs. The private sector is a key partner for growth, and the plan should more exhaustively address the role that the private sector can play.

This is most clearly felt in the lack of detail on public private partnerships (PPPs). BLSA acknowledges that there have been significant failures in this area and proposes that a comprehensive review of ppps be undertaken. This review should be undertaken by a committee involving BLSA, government and a neutral third party and should involve a "warts and all" analysis that results in the creation of the institutions or practices necessary to address the failings that are identified.

This is especially important as there are areas where a lack of planned private sector participation can seriously limit the success of priorities that the NDP identifies. One of the most glaring of these is the lack of private sector participation in key areas of infrastructure provision. Studies from around the world have shown the benefits of competition in the transport and energy sectors.

Private sector participation drives down costs, improves efficiency and creates longer term jobs through more effective skills transfers. It also provides a crucial way to complement the capacity of the state, filling gaps that are not viable for the state to fill, taking on development risks, and creating potential global leaders in companies that could, for example, be key providers of nuclear and renewable energy infrastructure.

The private sector can also provide a strong source of funding for major projects.

Many of the planned infrastructure investments are an attractive asset class for private sector investors, especially for retirement funds, as returns are predictable and therefore provide low risk, low volatility investment vehicles. Infrastructure investments also facilitate asset and liability matching for retirement funds as the investment return emerges over a long period and the liability profile of retirement funds is also generally long term. Finally, infrastructure investment provides a modest but consistent real return over inflation which makes it an attractive asset class to match pension liabilities which generally escalate with inflation.

The UK listed infrastructure sector has, for example, performed incredibly well against the FTSE All Share Index since the beginning of the financial crisis. BLSA notes that there have been calls for "development bonds" as a prescribed asset class for retirement funds to finance infrastructure, but we believe that these are a less attractive alternative compared to the aforementioned voluntary participation in infrastructure finance. We suggest that a task team of industry and government be set up to explore the private sector's potential role in the financing of infrastructure. This team will look at all options, including modified versions of the development bond and investments which generate financial returns based on the "user pay" model.

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Case study: Ontario retirement funds investment in the UK

The Financial Times (28/11/11) provided a noteworthy example of the benefits to pension funds of investing in infrastructure. The newspaper cited the example of the Ontario Municipal Employees Retirement System (Omers) which started investing in infrastructure projects as a separate asset class 12 years ago with the aim of securing long-dated returns that were less volatile than shares or bonds. The Ontario Teachers' Pension Plan (OTPP) soon followed, with nearly $7.1bn of their $107.5bn in assets in infrastructure. Omers invests 21.5% of its $55bn worth of assets in infrastructure.

Together, these two funds are invested heavily in infrastructure projects around the UK. For example, OTTP owns 48% of both Birmingham and Bristol airports and the two funds own rail lines and 25% of a gas supplier.

The results have been compelling. OTPP's portfolio generated a 13% return in 2010, compared with a benchmark return of 4%. Omers' investment arm has seen annual returns of about 10%.

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2) Policy uncertainty

Perhaps the greatest obstacle to investment in any country is policy uncertainty. Large capital investments require clear, long term event horizons with strong, secure property rights so that investors can be certain to recoup their investments. The alternative, high risk investment model requires quick, high returns that are not sustainable or in the public interest. The NDP highlights policy instability as a concern, but this is mainly in relation to mining. It also rightly identifies providing policy certainty over property rights as a key imperative.

While this is especially important for businesses where the returns are only realised in the longer term, greater policy and regulatory certainty as well as certainty over property rights affect the entire economy, not just mining, and should be a key priority for every sector. Some uncertainty about the outcomes of political debates and discussions is a given in almost every country, there are some things which need to be sacrosanct, some policies that must extend beyond the short term if large scale investment is to be contemplated. Agriculture is a classic example.

South Africa has a cohort of successful commercial farmers who play a pivotal role in providing food security in SA. Uncertainty about land claims, land reform and property rights will affect these commercial farmers' propensity to invest and grow their farming operations as well as the propensity for future farmers to emerge. The NDP has the objective of "...creating a million jobs through agricultural development based on effective land reform and the growth of irrigated agriculture and land production". Without certainty regarding policy, regulation and property rights, it is unlikely that the million jobs target in agriculture will be achieved.

Indeed, the lack of policy certainty in the agricultural, tourism and mining sectors (all areas where the NDP highlights the potential for significant employment of the unskilled unemployed), is in our opinion a key reason for the lack of private sector 10   investment in them, in spite of the potentially lucrative rewards. For example, during the commodities super-cycle that started in 2002 mining investment in South Africa significantly lagged that in other mining economies, exacting a significant cost in terms of lost employment, investment, exports and tax revenues.

The plan also lacks the overall financial framework in which the planned expenditure will take place. The proposals in the NDP will have a major impact on state expenditure.

We believe that it would be prudent to set out the financial parameters within which the NDP will be implemented. There should be a clear statement on the limits that SA's debt to GDP ratio and ratio of fiscal deficit to GDP should not exceed, to ensure fiscal sustainability. We believe that this type of fiscal responsibility is essential for long term investment, and that abiding by these pronouncements will result in increased confidence in the capital markets. The Commission also needs to provide greater step-by-step guidance on how it will go about achieving the targets set out in the NDP.

For example, the plan proposes the creation of 11 million jobs by 2030 but there is no indication as to the progress it envisages by 2015 or 2020. As such, it will be difficult to assess the progress of the initiatives in the report.

One avenue towards the achievement of certainty would be the creation of a body entirely independent of government to provide independent economic forecasts and assessments of whether the government is likely to meet its targets. Based on the Office for Budget Responsibility in the UK and the Congressional Budget Office in the United States, this body would provide facts that could aid government in sustainably achieving its objectives by creating real, verifiable, objective measures to increase confidence in the targets set by government. Objective measures can help to ensure that global competitiveness and attractiveness is maintained so that the country can continue to attract and retain foreign direct investment.

We also believe that fears around policy uncertainty would be greatly allayed by establishing the NDP as an overriding, long term document that extends beyond the electoral and short term business cycle to form the framework of future policy creation. We see the NDP as the economic and social blueprint that will underpin economic planning, the budget, tax laws and other regulations. Whilst acknowledging that any document of this sort is almost certain to be a "living" document, establishing the primacy of the NDP would go a long way to addressing policy uncertainty.

The plan needs to address, head on, the real regulatory inconsistencies that exist in South Africa. As we have mentioned already, one way to begin to do this is to assert the primacy of the NDP as the central planning document of the state. Over and above that contradictions between the NDP and the New Growth Path need to be clarified, particularly on the envisaged role of the state in the economy.

One example of the effects of a lack of regulatory coordination can be found in the industrial development Zones (IDZ), an issue which the NDP pays little attention to. South Africa's current economic zones have not yielded the intended results since inception. While the IDZs were conceptualised as Export-processing Zones (EPZs) that would offer a special package of tax cuts and export incentives like those offered by other EPZs around the world, in reality, the incentives often never materialised.

A lack of coordination between departments and insufficient regulatory support to high level plans saw these zones focusing narrowly on the provision of infrastructure without 11 dealing with restrictive employment laws and other disincentives to the establishment of labour intensive industries. It is also surprising that the IDZs were not given more prominence at the same time that the Department of Trade and Industry (the dti) has released the Special Economic Zones policy and bill for public comment. The policy and bill must be aligned with the Industrial Policy Action Plan, the New Growth Path and the NDP for it to succeed. Mauritius and Madagascar are examples of successful implementation of EPZs and lessons could be learnt from them.

The NDP proposes that Regulatory Impact Assessments (RIAs) be done on all new regulations, and that an expert panel will be appointed to prepare a comprehensive regulatory review for small- and medium-sized firms to assess whether special conditions are required. This measure is key and we would would welcome the opportunity to engage with the NDP regarding how best business can support the RIA process. We are available to support the proposed expert panel if required.

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Case study: the automotive industry

One feature of the automotive policy in SA is the long term horizon and certainty which is often not the case in other emerging markets. The Motor Industry Development Program (MIDP) started in 1995 and was due to end in 2012 but has been extended twice in 1999 and 2002. The Automotive Production and Development Programme (APDP) will stretch from 2013 to the end of 2020. While the industry faces severe international competition, the policy certainty provided by these programmes has been a key factor in the continuing strength of the automotive industry in South Africa which is a major exporter. Apart from the direct jobs created, the industry also supports about 300 local companies producing parts exclusively for the automotive industry, as well as a number of companies that supply the industry on a nonexclusive basis.

While the successes and failures of these programmes have been widely debated, and while the industry has not supported all the features of the APDP or the length of time taken to agree on the specifics, it is widely acknowledged that both programmes have been critical in ensuring the future viability of the sector. Moreover, the government's commitment to the industry evident in the revised Industrial Policy Action Plan (Ipap2) has boosted investor confidence. As a result of this commitment and the incentives provided by government, substantial investments have been planned, R11 billion worth of investments were announced. Although industry is still awaiting the final guidelines, the APDP framework which was announced in September 2008 provided companies with enough certainty to make large, capital intensive investments due to the certainty that the APDP and MIDP provided. These investments include those of VW in the new Polo series, BMW in the new 3-series and Mercedes in the new C-class from 2014 onwards. Source: NAAMSA

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3) State Capacity

As highlighted in the NDP, South Africa inherited a severe unevenness in state capacity from the previous regime with the result that those most in need of the state and its protection overwhelmingly live in areas where the capacity of the state to deliver is weak. We agree with the framers of the NDP who argue that a fundamental reimagining of the State is needed. improving the capacity of the state is key.

Without it delivery will simply not happen. We are pleased by the stress placed on this area and we think that plans to achieve these goals are credible and deserving of strong support. That said, a capable state is not necessarily a developmental state and more work is needed on the specific sTEPs needed to achieve this transformation.

We strongly support the creation of a professional bureaucracy through the creation of a strong graduate recruitment programme, making the civil service a career of choice for the best and the brightest. To attract and retain skills and expertise in the public sector, the remuneration packages and incentives offered to professional civil servants must be competitive and benchmarked periodically with their counter parts in the private sector. We also believe that the bureaucracy should be independent and entirely merit based. Throughout the NDP the commission establishes the primacy of merit based appointments. With regards to schooling the NDP suggests that "expertise is recognised as the only criterion for appointing and promoting personnel within the education sector. Union and political interference in appointments should be removed.

Principals should be selected purely on merit". In the health sector the plan says that "all managers (should) have the necessary qualifications," and the plan also says that the Public Service Commission should "promote and monitor norms and standards to ensure that only competent and suitably experienced people are appointed to senior positions". We believe that these statements are in contrast to the current system of appointments, particularly when it comes to the selection of Directors General. As such, we welcome the "hybrid" approach to top appointments (Directors General) that allows for the reconciliation of administrative and political priorities. We see this as an intermediary step on the road towards entirely non-political appointments and an independent bureaucracy.

BLSA is willing and able to join partnerships to address capacity shortfalls at all levels of government, but most especially at the local government level. In terms of human resource requirements, BLSA can join with government to help with the development of processes that will fill current vacancies, train incumbents and develop best practice.

In addition, BLSA can help to explore models to directly partner with local government to fill the gaps that are created due to a lack of skilled engineers, managers and other key professionals. Over and above this, government can leverage the expertise and the strategic capabilities of the private sector to help translate policy intentions at national, provincial and local government level into practical and measurable plans with clear delivery outcomes and timelines.

Capacity building should not only apply to government departments however, but also to State-Owned Enterprises where the principle of merit based appointments should also apply. We welcome the suggestions in the NDP on how these companies can be transformed to meet the developmental needs of the country. We believe that the plan could go further by creating an independent regulatory oversight body, particularly in the transport sector.

The oversight body would ensure that targets are met and hold the leadership accountable for non-performance. The predicament that both the South African National Roads Agency and to a lesser extent Airports Company South Africa face as entities operating within the Department of Transport, illustrates the lack of coherence between national policy, policy-makers and policy implementation.

BLSA can also help to fill the vacancies that stubbornly persist in these industries.

4) Youth unemployment / Job creation

BLSA welcomes the focus that the plan places on job creation and agrees with the Commission that, alongside education, the challenge of unemployment is key to addressing the future developmental goals and growth of South Africa.

BLSA strongly believes that the focus should not be on trying to create 5 million jobs as an end in themselves; jobs that may well have limited longevity. Instead the focus should be on stimulating the environment where long term employment can be created. If we can successfully create an environment that supports the creation of 1 million SMMEs, we can be confident that several million long term, sustainable jobs will follow. This is an important change in mind set that has the potential to really knock a hole in the problem of unemployment. Small businesses have the capacity to employ the low to moderately skilled population but the National Development Plan pays little attention to this important segment of the economy.

BLSA would welcome the opportunity to engage more with the NDP about how government and business can work together to create the framework and incentives to support labour intensive small businesses. Critical areas to be addressed include the high costs associated with registering a company and labour related issues. Small companies should be given tax incentives to encourage them to expand their operations. Most importantly, small businesses should be asked about what the right incentives are. This is a process that needs a series of honest conversations between government and business on what is holding back SMME creation, and what can be put in place to encourage it.

The key to addressing the broader problem lies in the labour market, where structural unemployment has been stubbornly high. Many policies have been geared towards creating jobs for a labour force that we simply do not have. Entry-level jobs are often inappropriate for unskilled school leavers. The long-term solution is to prepare our school leavers better. The short to medium-term answer is to work to better match job creation to the skills available, and work at building the on-the-job skills that will move the currently unemployed to better and more highly paid occupations over time.

The solution must involve a drastic change to the labour market to bring the majority out of poverty. A paradigm shift on unemployment is needed, with a particular emphasis on youth unemployment. Business, as the biggest employer in South Africa, recognises that addressing unemployment is a two way street and that the NDP's proposals to address the rigidity of the labour market will require movement on our part. Business needs to be willing to take sTEPs to target those who cannot access the usual routes into work.

On the supply side, we need to deal with the fact that while government has been incredibly successful at large, one-off projects that involve a limited number of steps in the transaction (we hosted a very successful World Cup, put a satellite in space and have built a world class passenger rail service in our richest province); it has struggled when projects require regular and on-going contact with a large number of end users - such as in education.

On the demand side we need to deal with the collective action problem that means that individual businesses would rather poach the employees of another firm than employ and train talented people without skills and work experience who could add value in the long term. In spite of the high unemployment rate we still find that our members struggle to fill available vacancies. And we also need to deal with the structural constraints of a large, poorly educated, mostly black population without the social capital needed to gain work experience, job placements and the skills that would help them to be employed.

BLSA was particularly concerned that the national Youth service programme was omitted from the plan as it provides just the paradigm shift which is needed to create long term employment. As is shown in the case studies included below, the unemployed need to be given the chance to build up skills in entry level employment.

The types of endeavour that we highlight need to be embraced, supported and scaled up to meet this critical challenge.

The scope for employment at the community level has also been underestimated in the NDP. BLSA believe that there is significant potential for the use of community development in conjunction with government and non-government organisations (NGOs) as a route to employment creation.

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Case study: The Tourism Enterprise Partnership (TEP)

The Tourism Enterprise Partnership (TEP) is a flagship public private partnership and one of the longest standing and most successful enterprise development partners for small tourism businesses in South Africa.

TEP facilitates the growth, development and sustainability of small tourism businesses. This is achieved through a number of interventions that provide hands-on, sTEP-by-sTEP support and guidance and ultimately improves the tourism business' product quality, operational efficiency and market reach.

TEP was initially set up by the Business Trust in July 2000 as a four-year job creation programme for the tourism industry. Due to its success, the programme was extended with additional funding from the Business Trust and the Department of Environmental Affairs and Tourism (now National Department of Tourism) until March 2008. On 1 April 2008, TEP's programme was institutionalised to ensure its sustainability and it is now a Section 21 (not for-profit) company dedicated to tourism SMME development. TEP is governed by a Board of Directors comprising prominent individuals from large and small companies from the tourism as well as other sectors.

Funding for TEP's tourism SMME's development interventions is provided by the National Department of Tourism as well as the private sector who, after the winding up of the Business Trust in September 2011, continue to invest in TEP through TEP's Enterprise Development Portfolio (EDP) which allows companies to receive B-BBEE points for the Enterprise Development element of the Codes. EDP is an innovative, accredited and audited development fund which is used to assist the over 2,000 previously disadvantaged small and medium South African tourism businesses registered with TEP.

Objectives Job Creation through Enterprise Support - To improve the performance and increase the profitability of SMMEs by focussing on skills and product development, quality assurance and access to finance thereby actively supporting the creation of new jobs and maintenance of existing jobs.

Transformation - To increase the participation of black tourism enterprises by focussing on skills development, enterprise development and market access for enterprises that are predominantly black-owned.

Sustainability through Market Access - To increase market access for SMMEs, thereby actively supporting the creation of new jobs and maintenance of existing jobs through increased turnover in excess of inflation TEP Impact and Sustainability - To actively source programme and grant funding and provide fee generating services to the tourism sector to enhance the impact and sustainability of TEP.

TEP's achievements from inception to date

• Managed investment volumes of over R500m since 2000
• Has a national footprint with representation in all 9 provinces
• Contributed to revenue increase of SMMEs of R5 billion since its inception
• Facilitated the creation of approximately 69,000 job opportunities country wide
• Trained 18,291 and mentored 231 small tourism businesses
• TEP has a client base of over 4,000 tourism SMMEs include accommodation, car hire, travel agencies, entertainment, conference centres, restaurants, tour operators, activities, attractions, storytellers, artists, performers, lifestyle products and museums, all combining to form the social and heritage product network of South Africa.

TEP's interventions and support to tourism smme's TEP offers a portfolio of services and solutions for tourism SMMEs which are structured in terms of four key support areas.

Access to information: Providing relevant and impactful information to enterprises registered on TEP's database through an information portal. In addition Tourism Awareness Workshops as well as Tourism Industry Workshops are provided free of charge.

Business Support Services: TEP provides tailor-made services to SMMEs that comprise a review of their business and its potential and the development of a growth or intervention plan that sets out key activities and targets. The review looks at the SMMEs product or service, its skills levels and systems and its marketing and market access needs. Intervention plans are unique to each SMMEs particular circumstances and opportunities. TEP provides support to the SMME to implement the intervention plan through technical and financial assistance. TEP also provides grant funding to SMMEs to assist them in respect of organisational development and accessing markets.

Skills Development: TEP offers training workshops on a national basis on a range of topics that include TEP Toolkits (10 topics), Customer Service and Business Skills.

SMMEs access this training as required in terms of their intervention plan. Learning networks and mentorship are also provided. TEP provides a range of initiatives that enable SMMEs to network with entities similar to themselves. In addition, for those SMMEs with high growth potential, a dedicated mentorship programme is offered.

Market Access: TEP has a dedicated programme that undertakes a range of activities to improve market access for selected enterprises with marketable products and services.

TEP's Market Access programme facilitates the creation of businesses linkages and procurement opportunities for TEP clients.

Scalability of TEP for greater impact

TEP's track record as a viable vehicle for job creation through enterprise development is well established and the organization is recognized by both the public and private sector stakeholders as an example of a successful public private partnership (PPP) to tackle the important national imperative of job creation through enterprise development in a sector - tourism - that has been identified by government as a priority sector. In his 2011 State of the Nation Address, President Jacob Zuma identified tourism as a priority sector for job creation and a target has been set for the industry to create 225 000 jobs by 2020. With additional funding, TEP has the ability to scale up its interventions to fast track the achievement of job creation targets in the tourism industry.

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Case study: City Year South Africa

City Year South Africa is a non-profit organisation registered with the National Youth Service Unit, a unit set up by the South African Government to promote youth service in the country.

It has a continued affiliation with City Year Inc in the United States. 2012 marks City Year South Africa's eighth year of operations.

City Year South Africa provides a year of full-time community service, using young South African volunteers between the ages of 18 - 25 from all backgrounds. Through this programme City Year South Africa equips these volunteers with skills to provide quality services, enhances their future prospects, and develops their leadership capacity. In addition the programme provides agreed community services - currently these comprise support to selected primary schools so as to enhance the quality of education provided in the schools, as well as various environmental programmes.

The social exclusion of youth from the labour market coupled with youth poverty, substance abuse, crime and violence all point to the need to address the socio-economic conditions of youth in South African society. The causes of these problems are varied and complex and are challenges faced in common with many other developing countries. Globally one of the most promising initiatives that has emerged is youth participation in community service and volunteerism. Community service and volunteerism are effective mechanisms through which youth can acquire skills, prepare for active citizenship through civic engagement and a commitment to nation building. Youth community service is a social institution, as well as a strategy for youth inclusion into the very core of nation building and is an effective mechanism to address social, economic and democratic development.

City Year has developed a unique youth service programme that assists youth to make the transition from school to work and instills values of national building and a belief in themselves.

The first National Youth Development Policy framework (2002 - 2007) was designed to provide an outline for the mainstreaming of youth development as an integral part of the broader transformation of South Africa. The policy was updated through the National Youth Policy (NYP) 2009 - 2014 which focused on closing the identified gaps, strengthening the existing interventions, introducing new ones, shedding those that have not worked, enhancing the quality of the services rendered, extending coverage and increasing impact.

The goal of the NYP 2009 - 2014 is to: "intentionally enhance the capacities of young people through addressing their needs, promoting positive outcomes, and providing an integrated coordinated package of services, opportunities, choices, relationships and support necessary for holistic development of all young people, particularly those outside the social, political and economic mainstream."

One of the key focus areas of the NYP 2009 - 2014 is the National Youth Service. This is defined as being "involvement of young people in activities which provide benefits to the community whilst developing the abilities of young people through service and learning."

The NYP 2009 - 2014 sees the National Youth Service (NYS) as a key initiative intended to bring the excluded youth back into the social and economic mainstream. The principle of youth service is to provide young people with opportunities for learning, training and gaining work experience, while contributing to the overall development of South Africa's poorest communities.

The NYP 2009 -2014 sees the NYS as being implemented as a voluntary government programme structured on the following basis:

Category 1: structured NYS that comprises accredited learning and skills development, community development and exit opportunities

Category 2: voluntary service by professionals in support of young people

Category 3: ad-hoc volunteering by youth who offer their talent and time in response to the needs of their communities.

The NYP 2009 - 2014 embraces the key principles of the youth service and seeks to expand it over time by ensuring compulsory service for all young people. The NYP indicates that by increasing and focusing on this programme, the country will benefit as a whole, since it is one means of building a cohesive nation, forging a sense of belonging, fostering solidarity, bridging the divide between youth from different communities and cultures, fostering responsible citizenship and ensuring that young people are included in the overall national development effort.

The NYP 2009 - 2014 recommends that government departments prioritise the NYS to ensure its success through adequate resource allocation.

Recommended policy interventions include:

• Mainstreaming and institutionalising the National Youth Service
• Extending the ambit of youth and community service so that all young people have the opportunity to serve
• Forming partnerships with government, state-owned enterprises (SOEs) and the private sector to ensure their significant contribution to National Youth Service exit opportunities for youth graduates
• Ensuring that there is sufficient funding is in place to ensure that the National Youth Service programme exceeds its impact and target allocation
• Monitoring and evaluating the National Youth Service Programme to determine its impact.

City Year South Africa falls directly within Category 1 of the NYP 2009 - 2014 categorization comprising a structured NYS programme.

The idea of introducing City Year into South Africa occurred through the association of former Presidents Nelson Mandela and Bill Clinton. City Year spent a period of time researching and connecting with relevant stakeholders in South Africa, including the City of Johannesburg, the National Youth Commission, the Umsobomvu Youth Fund, the Gauteng Department of Education (GDE) and the Department of Labour.

City Year South Africa launched its Youth Service Programme in February 2005. Services were provided in primary schools selected by the Gauteng Department of Education in regions prioritized by the City. City Year South Africa has retained the City Year Inc model, but has made a number of adaptations to ensure that the programme is South African and addresses local development needs. To qualify and register with the National Youth Service Unit, City Year South Africa has incorporated formal, accredited training and is committed to channeling its graduates towards exit opportunities.

Over the seven years since its inception the programme has been adjusted and improved upon so as to ensure that it remains relevant in the context of youth unemployment in South Africa.

Some of the achievements over the last seven years (2005-2011) include:

• Graduated 1236 service leaders,
• Average retention rate of above 90% of service leaders,
• 79.2% of graduated service leaders have been placed in viable exit opportunities as of end 2010;
• Completed an estimated 939 020 hours of service;
• Spent over 923 312 hours in leadership and skills development training;
• Served 10 828 children through the after school programme;
• Engaged more than 24 000 children through various other activities and projects;
• Completed 37 signature (special) service days;
• Engaged more than 124 service partners.

[1 What is National Youth Service?, Dr. E G Pahad, Minister The Presidency. Presented at the Inter-Ministerial NYS Orientation Workshop, 2006

2 National Youth Service Policy, undated]

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Case study: Harambee Yellowwoods, with interests in Clientele, Direct Axis, Hollard, Nando's and Telesure and a member of BLSA, designed and established a youth employment accelerator - ‘Harambee' in 2010 specifically to address the problem of youth unemployment. Harambee has gained a number of insights which could prove useful when tackling youth unemployment.

1. Demand side insights

1.1 High unemployment rates alongside a high demand for entry level skills

It is estimated that approximately 2.1m young people, between the age of 18 and 24 and who have a matric are unemployed and current average annual economic growth projections mean that youth unemployment will be higher in 2014 than today.

700,000 new jobs are needed annually to halve the unemployment rate by 2014, but the current labour absorbing capacity of the economy is only around 250,000.

Despite this, businesses are struggling to fill vacancies with the right candidate and poaching is the preferred way to access skills. Generally, businesses under-invest in developing first time employees due the time and costs of bridging transferrable skills.

Harambee was set up to prepare these first time employees for work, ensuring their placement into jobs. By implication, it accesses new labour pools, replenishes the skills pool and reduces youth unemployment. At the same time, Harambee minimises the risk and the costs associated with employing first time work seekers.

1.2 Organisations lack the resources to access and match new pools of talent to job and organisational needs

Organisations will generally adopt less sophisticated approaches to recruiting individuals into entry level positions where low levels of technical expertise and experience are required. Often this involves one or two qualitative interviews with no emphasis in matching personal attributes to organisational culture or job requirements. Harambee has adopted a model of matching individuals to job categories. It conducts extensive interviews and competency based assessments to ensure that an individual is suited for the organisation and the role.

The Harambee selection process facilitates the searching for candidates based on personal attributes rather than formal qualifications whilst identifying competencies requiring further development. Harambee has been built for scale and has the ability to source, screen, assess and match high volumes of young people for multiple organisations.

2. Supply side insights

2.1 The education system in South Africa has not produced graduates with the requisite functional and behavioural ability to easily assimilate into the world of work

The quality of education remains poor. The poor levels of literacy, mathematics and science, coupled with high entry level wage demands, severely impact the probability that matriculants, especially black matriculants, are employed even at entry level jobs. Harambee has identified entry level jobs as the key nexus in tackling youth unemployment. In addition to poor levels of functional literacy and numeracy, young people often lack the behaviours to successfully assimilate into the world of work.

Harambee sources and selects youth with demonstrated potential, but who have gaps in terms of work readiness, and places them in pre-identified permanent formal-sector jobs after putting them through an intensive bridging programme which gives them the skills and personal development needed for success in the workplace.

2.2 Unemployed youth lack social networks and face technological and logistical barriers in accessing work

Young people who live in households and communities that are unemployed or underemployed do not possess the social networks to access formal work. Only 12% of all jobs in South Africa are advertised, leaving one to deduce that social networks are an important factor in accessing formal work. Harambee looks for individuals who meet a basic means test, who have been schooled in previously disadvantaged areas and who have no prior long term (greater than a year) work experience.

Unemployed young people face resource constraints in accessing formal work.

Applying for work is often a costly exercise and requires financial resources for travel to interviews, internet cafes and telephone calls. These financial constraints are large barriers to applying for work. Harambee deploys recruiters into communities to source unemployed individuals, eliminating application costs. In addition, a cell phone application process enables an individual to apply from home without the requirements of travel or technology.

The communities from which Harambee draws its candidates are those most in need of upliftment and the candidate profile will match South Africa's poverty profile in terms of race and gender. Harambee has worked on a multi-channel approach to reduce the costs of application and hence penetrate previously inaccessible labour pools.

3. A partnership based approach optimises quality and quantity of delivery

Harambee is a three way partnership in which each party, the candidate, the employers and the government (subsider) all work for work. Private sector companies became the founder participating employers of Harambee. This enabled Harambee to establish a foot print in the business process (call centre) and administration sector as well as the hospitality sectors. The Harambee model guarantees employment for successful candidates through pre-contracted placement through these partnerships with employers.

Employers pay a fee to Harambee for sourcing, screening, assessing, bridging and placing individuals. This fee varies depending on the duration of the bridging programme.

In addition to private sector fees, Yellowwoods has provided seed funding to establish and subsidise Harambee in its infancy. This social investment funding has provided Harambee with the ability to design an institution which has the institutional capacity to deliver 10 000 jobs over a three year period.

Although initial funding has been through the private sector, the new Jobs Funds managed by DBSA has matched a spend based grant to support Harambee's sustainability and impact as it scales for growth to achieve its vision of securing 10 000 permanent entry level jobs over three years. This is an example of a business led initiative tackling a national imperative that now has through subsequent government funding, the ability to scale and meaningfully impact the lives of thousands of South Africans.

Over three years, Harambee seeks to increase the number and type of participating employers in both the private and public sector. The Harambee business model is designed to ensure the flexibility to adopt new participating employers including the tailoring of profiles and bridging programmes. The founder participating employers have committed to guaranteed positions as part of the establishment of Harambee but with the assumption that other participating employers will come on board. Whilst Harambee is in its infancy, its vision is to leverage the institutional capabilities and processes Harambee has built to drive wider impact through significant scale and diversity of jobs.

4. Impact

Harambee seeks to make a meaningful social, individual and business impact in both the short- and long-term. Its goal is to be a catalyst for large scale impact on youth employment in South Africa.

To date, Harambee has enabled the full time employment of 250 black matriculants and has 1800 entry level vacancies identified for employment in 2012 across 15 companies within 3 industries.

Harambee has been designed for scale and flexibility. The team is actively expanding the current operations to Cape Town in early 2012; however future plans include scale to all regions and economic sectors (Port Elizabeth and Durban by 2013). Medium term expansion plans will seek to leverage current synergies around bridging content, candidates on the database and employee skills. Long term expansion plans will seek to replicate the Harambee process for completely different skills and industries.   In the long term, Harambee would hope to expand its impact and reach, either through expanding its own delivery or franchising its model to create similar organisations to tackle significantly different functional and industrial areas (e.g., nursing, mining and construction).

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5) Education and skills

BLSA agrees with the Commission that quality education is essential to addressing the long term competitiveness of the economy. We note that, as pointed out in the Commission's diagnostic document, South Africa has made great strides in improving access to education since 1994. Almost 98% of children who should be in primary school are enrolled and expenditure equality has largely been achieved between all public schools.

Despite this improved access, being in school is not enough. Only 35% of our children in grade 3 are able to pass the literacy and numeracy tests for that age. And that problem persists throughout the school years of our youth. Quality and outcomes have been poor. hard skills must be emphasised. The success achieved by countries like South Korea who insisted 30 years ago on maths (not maths literacy) and science for all school children is worthy of attention.

The effects of apartheid persist. Our children at former white schools overwhelmingly go on to a university education, a job, and a life of privilege. Our children at former "black" schools on the whole, do not. In South Africa your life chances remain overwhelmingly determined by race, by birth, and by where you go to school. Education is probably South Africa's most severe poverty trap.

We welcome the mechanisms raised in the NDP to address the education and skills shortages that we face, as well as the clear time frames and targets that the plan lays out. BLSA notes that the plan does not recognise the role that business can play in partnering with government and labour to achieve those aims. Business in South Africa commits an estimated R1 billion to R1.7 billion a year to education focused Csi projects and the plan could do more to chart ways in which those investments could be used to maximum effect. These projects cover a spectrum of interventions from nutrition to school building projects, all of which are important contributors to the overall health of the education sector.

One of the areas that we believe needs more attention is the quality of the teaching profession. The NDP acknowledges the need to improve pass rates, but does not give an indication of how to attract new, skilled entrants to the teaching profession.

We believe that significant resources should be committed to identifying ways to make teaching a more high status, attractive profession for graduates. This might include programmes like the Teach First programme in the UK where top graduates agree to teach for two years in underperforming schools before getting jobs in industry.

We strongly support measures to improve the performance of schools, and the emphasis that the plan places on the principles of meritocracy and school independence. We believe that the plan should look further at how schools can be made more functional.

We feel that they have to run without encumbrances and that the private sector can provide management skills to help address the weaknesses in this area. School governance is a key factor in improving performance. We would like to explore further the possibility of working together with the Commission to build and extend the multidisciplinary task teams that the plan proposes to assess the functionality of individual schools, develop turnaround plans and oversee the implementation of those plans.

These plans will depend a great deal on schools having the room to implement them, and the support to ensure that implementation is successful. We believe that these task teams present an excellent ancillary benefit of helping to address the social capital deficit in poor communities. By linking urban professionals with underperforming schools we can begin to build the cross cutting partnerships that aid the flow of skills and knowledge across class and race.

The further education and training sector is one that we believe needs a serious rethink as it has not been accorded the emphasis, or the thought, that it deserves.

South Africa is unique in that we have two university students for every one FET student while most countries have a 1:3 university to FET student ratio. Our current provision of FET is too small, inadequate, and the throughput rate is abysmal with only 15-20% of those enrolled ultimately graduating.

The key problem is that the training is not effectively linked to the skills required by business. There is little close interaction between industry and the FETs who are meant to supply them with skills. Training programmes need to be tailored to demand, failure to do so has often resulted in lack of skills for growth or businesses importing the skills at considerable cost. BLSA would like to work with government to adapt the curricula of FET courses so that young people leave education ready for work. In South Africa we have already seen the success of one such programme that saw the 5 biggest construction companies help to rewrite the syllabi of FET colleges to meet their needs, with a commensurate increase in the conversion rate to employment.

Over and above this we are keen to share skills to help improve the governance, accountability and administration of these colleges.

The National Planning Commission proposes that private banks offer state-secured loans for university study, with the amounts owing to be recovered through the South African Revenue Service. We strongly support practical measures such as this one and would be pleased to engage with the Commission on this proposal.

Regarding private education and its rapid rise, no consideration has been given to how public education could leverage off private education. The NDP is correct in putting the major emphasis on public education, but private education providers should be encouraged to build links with public schools, sharing resources and skills and also aiding the nation building project. This type of commitment might be something that could be encouraged through the tax system.

6) Economic diplomacy / Regional trade Blocs

South African firms and government can jointly undertake credible and principled economic diplomacy on behalf of ‘SA Inc' in the rest of Africa and the plan should better address this function of the South African diplomatic corps. A South African strategy for africa should be fast-tracked to help South African companies build their capacity in Africa and strengthen their comparative advantages vis-à-vis competitors from outside the continent. Moreover, better relationships between diplomats and business need to be developed so that we do not work at cross purposes and so that our mutually beneficial activities can be better coordinated. At times some businesses have felt that advances in Africa have come about in spite of government, in stark contrasts to the experiences of other developing nations.

In particular, the integration of other regional trading blocs, like the East African Community (EAC) appear to be moving at a faster pace than SADC, providing greater certainty for international investors looking for bigger markets. We believe that building SADC should be a key developmental goal and propose that the government support the [creation/ capacity] of regional business bodies to assist in this function.

BLSA and South African business can also provide managerial, administrative and capacity building support for SADC.

South Africa needs to do more to create the environment which cements our country as the gateway to Africa, a title that is fast being threatened by countries such as Mauritius, Nigeria and even non-African countries. Closer regional financial integration will do a great deal to achieve this.

The NDP calls for larger investments in infrastructure and industrial projects in the rest of the SADC region; more efficient trade and financial flows between African countries; and closer partnerships between South African banks and infrastructure firms to compete for contracts in the rest of Africa. Our members have a great deal of practical experience in these areas and we propose that a task team on financial integration be set up with BLSA.

The NDP proposes that South Africa establish ‘a Financial Centre for africa' to enable South African financial firms to expand more ‘aggressively' into the rest of the continent and to develop strong linkages between this expansion and growth and employment at home. BLSA would be pleased to assist the NDP by providing information and helping to convene meetings with financial sector firms and relevant authorities to discuss establishing this Centre.

Going forward together

BLSA is committed to seeking out partnerships with the Commission and with government and labour to achieve the vision articulated by the NDP. In this section we propose eight areas where we think that business and government, working in partnership, can achieve quick successes together, building confidence in the NDP as a whole.

BLSA commits to working to create a Code of Conduct on remuneration and labour practices for its members. As we have noted throughout, improvements to the labour market will need to involve give and take at all levels. Wage moderation should be pursued at all levels, including some sacrifices by management. Moreover, entry level wage flexibility should not be won as an excuse to displace existing workers.

Business has the project management, process and administration skills to help with filling the backlog of government vacancies as quickly and efficiently as possible. Not only will this have an immediate impact on employment but this is a crucial sTEP towards the goal of improving the capacity and efficiency of the state and enabling government to meet the objectives set out in the NDP.

BLSA believes that one of the key challenges that South Africa faces is that there are many unemployed people, but not enough skilled people to provide the catalyst for their employment or to create new jobs. The Commission and BLSA need to work together to work out why the current skilled immigration programme is not working and to create the environment that stimulates the migration of much needed skills to our country.

Working in partnership with the State Owned Enterprises, the Ministry of Public Enterprises and the Commission, BLSA members can help to develop a national proposal around the concept of infrastructure investment as an attractive asset class.

The significant investments in infrastructure over the long term should be matched by immediate and on-going investment in infrastructure maintenance. Doing so will create immediate jobs, offset future infrastructure spending and help deal with the supply side constraints to growth.

The setting up of dedicated corruption courts would do a great deal to inspire confidence in the zero tolerance approach to corruption. BLSA is keen to work with government to investigate the viability of institutions like these.

By placing more emphasis on incorporating independent power producers into the grid, and by emphasising the role of local partners in the construction of power plants, the government will be helping not only to secure supply but also to potentially create a globally competitive industry.

Joint economic diplomacy between BLSA and government will help South African companies compete abroad and advance the interests of the country as a whole.

Transcribed from PDF. Please check against the original here.

Source: Business Leadership South Africa

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