EFF, New kid redefining economic movers (Part 1)

My first impression of Economic Freedom Fighters (EFF) founding manifesto took me to my years as an economic student, to a lesson in the history of economic thought. A group of 18th century French economists developed an economic treatise called Physiocracy. Physiocracy is derived from the Greek for "Government of Nature" and its an economic theory developed on the believe that the wealth of nations was derived solely from the value of "land development" and that natural resources should be highly priced. Physiocracy is perhaps the first well-developed theory of economics. 

EFF architectures reading this article may disagree with my take, as I assume also, that their ideas are based on Utopian Socialism. Physiocracy as a forerunner of many economic theories forms also the foundation of the latter. Understanding the role of the three economic movers it will make it easy to also understand how, they plan to grow the economy once they are in power. The table below was developed by French economist François Quesnay in 1758

Physiocracy recognizes three economic movers. The "Proprietary" class consisted of only landowners. The "Productive" class consisted of all agricultural or land related laborers. The "Sterile" class is made up of artisans and merchants. The flow of production and/or cash between the three classes starts with the Proprietary class because they own the land and they buy from both of the other classes. The process has these steps (consult Diagram 1)

The Proprietary class (Government in the case of EFF) is primary consumer of food and crafts and produces no product at all. His supposed "contribution" to the production process is the redistribution of land rent the land user pays.

THE productive Expenditures are employed in agriculture, meadows, pastures, forests, mines, fishing, etc. to perpetuate riches in the form of grain, beverages, wood, cattle, raw materials for the handicrafts, etc.

The sterile Expenses are made upon handicraft products, housing, clothing, interest on money, servants, commercial expenses, foreign commodities, etc.

EFF IDEAS FOR ECONOMIC GROWTH 

"As a decisive way to fundamentally transform the South African economy for sustainable development, the following sectors and matters will be handled and responded to in the manner described below. All these interventions are centred on the 7 cardinal pillars for economic freedom in our lifetime. These pillars should inspire the EFF-led economic emancipation movement towards realising and consolidating economic freedom in our lifetime."   Quote from the Manifesto

1) Expropriation of land without compensation for equitable redistribution.


As in Physiocracy by defining Land as a primary resource it does make it, important to create central management of the resource. The tenets of this exercise are more revealing:

• EFF’s approach to land expropriation without occupation is that all land should be transferred to the ownership and custodianship of the state similar to the Minerals and Petroleum Resources Development Act (MPRDA) of 2002. The state should, through its legislative capacity transfer all land to the state, which will administer and use land for sustainable-development purposes without compensation.
• Once the state is in control and custodianship of all land, those who are currently using the land or intend using land in the immediate will apply for land-use licences for a maximum of 25 years, renewable on the basis that the land is being used as planned. 
• State custodianship of land will mean that those who currently occupy land should apply for licensing to continue using the land and should clearly state in the application what they want to use the land for over a period of time. 
• In line with the Freedom Charter and a new vision of agrarian revolution, the state should also provide implements and related extension services to help those who work the land to use it productively. Furthermore, the state’s procurement of food should prioritise small-scale farmers so that small-scale farming becomes a sustainable economic activity for the majority of our people. 
• Food production, packaging, transportation, marketing, advertising, retail, and trade should constitute one of South Africa’s biggest economic sectors. With a growing global population, and the growing capacity of Africans to buy food, South Africa needs to produce agricultural output through provision of subsidies to small-scale farmers, and open packaging and retail opportunities for these farmers. 
• A structured state support and agricultural-protection mechanism should be applied to all food products, including beef and other meats’ production and processing. 
• With a clearly defined and well-structured mechanism, South Africa, which is, oddly, a net importer of food, can realise the development of the food economy in a manner that exceeds Brazil’s. This will add sustainable job creation, not the kind of short-term jobs created through infrastructure development.

My primary analysis of this pillar will not be concerned much with how land is re-appropriated but more on whether or not it worth doing it. If growing the economy is the primary goal of the exercise then it makes it important to understand the value Land is currently contributing to the GDP and if the current productive activity can be improved and thus justify the tenets above.

The agricultural industry contributes around 10% of formal employment, relatively low compared to other parts of Africa, as well as providing work for casual labourers and contributing around 2.6% of GDP for the nation. According to the World Wide Fund for nature the Climate­soil combinations leave only 12% of the country suitable for the production of rain­fed crops. With only 3% considered truly fertile land, South Africa falls short of other countries, such as In­dia, where arable land covers 53% of the country. Most of South Africa’s land surface (69%) is suitable for grazing, and livestock farming is by far the largest agricultural sector in the country

So if the motivation is to start an agrarian revolution, there are limitations to the extend to which the revolution will be realized. The Brazilian arable land as the comparison above says is 31.3%, which is 71930000 hectors compared to South Africa's 15860000 hectors.

      

However the EFF has a point when its considered that in 1994, 85% of the land was owned by state and today over 50% of land is owned by 10% of the population and this occurred in the tenure of a black government. Also the productive use of the land has been reduced with only 30 000 active commercial farmers owning the 10% today compared to 60 000 farmer producing on Government land before 94'. So I believe more can be done to improve levels of productivity and EFF has a point to some extend.


2) Nationalisation of mines, banks and other strategic sectors of the economy.

• Owing to the character of the South African economy and the aspirations of the people for economic freedom, state ownership and control of strategic sectors of the economy should be the foundation for sustainable economic transformation in South Africa. 
• The ownership of mineral wealth should be considered through various means, prime being the expropriation of the current minerals-production processes in South Africa, and the commencement of extraction, processing and trade on new land.
• Nationalised mineral wealth will in effect constitute a very firm basis for the beneficiation of these products in both heavy and light industrial processes in South Africa.  
• Minerals and metals beneficiation will constitute a very firm, sustainable and labour-absorptive industrial process, which will feature both import-substituting and export-led industrialisation. 
• This process should conspicuously be coupled with an effective skills-development, training and education strategy, which will directly feed into a growing industrial and manufacturing process. 
• Certainly, the nationalisation of minerals and metals might ignite international condemnation by global imperialists, institutionalised in the World Bank, International Monetary Fund, and, notably, the World Trade Organisation. 
• The benefits of nationalising strategic sectors of the economy will include, but not be limited to, the following realities:

• An increased fiscus 

• More jobs for our people because state-owned and controlled mines will increase the local beneficiation and industrialisation of mineral resources.  

• More equitable spatial development because state-owned and controlled mines will invest in areas where mining is happening. 

• Better salaries and working conditions in mines.  

• Greater levels of economic and political sovereignty. 

• It is important to highlight that, as part of this programme, the transfer of wealth to the ownership of the people as a whole is not limited to mines only. 

• The EFF-led government will establish a State Bank, which should be accompanied by the transformation of the financial sector as a whole, particularly banking and insurance industry practices and norms.  

• The EFF will limit foreign ownership of strategic and monopoly sectors. 

The question of mining and the suppose contribution to fiscus, is particularly  a challenging one. Here is a quick fact about mining in South Africa. South Africa is one of the world's leading mining and mineral-processing countries. Though mining's contribution to the national GDP has fallen from 21% in 1970 to 6% in 2011, it still represents almost 60% of exports.The mining sector accounts for up to 9% of value added.The services sector constitutes the largest portion of economic activity at 64.9% of GDP. Not elevating Services to a similar level of interrogation is also the case with Government's prioritization of Industry which contributes 32.1% to the GDP. This ommision may mean in both cases of the ANC and EFF its still not clearly know what should be the economic focus in the current climate.

I remain curious without being dismissive about       

1.  Is the intention to grow the sector and there by grow the GDP contribution? or is the idea to turn operations into redistribution vehicles where the current bonuses of mine bosses and owners is redistributed to staff members as salaries and government through management fees?
2. Do we assume that such a maximising model will work because its modeled around other ideas from across the globe or do we envisage an indigenisation model where government owns with the private sector mines?
3. Why is it that Nationalization can deliver under this model versus the current state. Markets still determine commodity prices and as such global commodity demands. With the envisaged spoiling of international relations with imperial organisations, what would be the strategy to ensure that the demand remains consistent?  

On the SA Reserve Bank, it does not make sense that in a country where very few trading is happening over the counter. SARB stocks are only available over the counter and shareholder willingness to sell is the only, way people can buy the stock. Also being 1 of 7 privately owned central banks in the world shows that we are out of sink with the world. The nationalization of the SARB is overdue and I agree with EFF.

The labour environment in the mining sector has been hostile and there is no grander shame in the 20 years of Democracy like the death of miners in Marikana at the hands police for protesting against working conditions. Not withstanding other factors at play. The lives of South African miners have been sacrificed for the profiting of a few over a centuries and there are overdue reforms in the sector. It also does not booster well for the sector that it has failed to hold its self accountable to a charter on empowerment that it developed for itself.

On Beneficiation and on producing the Artisans to beneficiate natural resource. I must admit I am a fan of the Precious Metal Act of 2005 and the subsequent establishment of the South African Diamonds and Precious Metal Regulator. This organisation is turning the tide on building the beneficiation value chain and on the inclusion of Black people on the process. Maybe the scale is too low to dent perception but the model is admirable from licensing programmes, to access to raw materials from all mines through a government trading company and also to assistance with selling the final product. Any new policy direction should add to this, but don't undo it.        

3) Building state and government capacity, which will lead to the abolishment of tenders.

• For a successful state that seeks to drive real economic and industrial development and provide better services, an inspired, skilled, and well-compensated public service is required. 
•  This should, essentially, be a state that has the capacity to marshal all progressive social forces in society, particularly the working class, towards developmental objectives. 
• The state’s capacity to perform these functions will entail that the public service and its servants be properly maintained, serviced and adequately remunerated at all levels. .
• A strong developmental state should necessarily have political power and technical capacity to give developmental mandates to state-owned enterprises (SOE) and private corporations.
• As concrete steps forward, which the state should initiate, establish and give strategic and financial support to, are the following:
• These state companies will be buttressed by state ownership of critical parts of the value chains in which these companies operate.
• Within this context, the state will employ engineers, quantity surveyors, project managers, and builders for sustainable tasks. 

Bureaucracy has been the undoing of the ANC and even the hated NDP start by making this and important requirement moving forward in South Africa. The role of SOE's in growing the South African government is important. Infact I believe that in their current state they are utilized. Consider the following challenge:

OVER a third of Africa's 1 billion inhabitants currently live in urban areas, but by 2030 that proportion will have risen to a half. According to a recent report from UN-HABITAT, the United Nations agency for human settlements, the population of some cities is set to swell by up to 85% in the next 15 years. The most populous city in 2010, Cairo, will grow by 23% to 13.5m people. By 2025, however, it will have been overtaken by both Lagos (15.8m) and Kinshasa (15m). Food and water shortages, poor infrastructure and a lack of housing are among the problems faced by governments during such rapid urbanisation. Progress in meeting these challenges would be shown by a fall in the proportion of slum-dwellers, who currently account for 70% of urban inhabitants. 

This challenge is one of a few examples of how the capacity grown in South African SOE's should be shaping the landscape of the continent. No one in the content knows how to provide clean water to cities like Rand Water in the entire continent for example and this is similar to the work Eskom and Transnet are doing. That capacity I believe is trade-able and something should be said to how our national SOE's could be African assets. So there is room to reconsider their role and capacity to create opportunities for exportable competence from South Africa, thus creating more new jobs. 

The ANC has an opposing policy around Tenders and it calling for 75% of procurement by Government to be done from South African business. This capacity is shifted to state owned entities in the EFF position and thus Small business in the tender space are absorbed by government owned entity. I must admit that I am an entrepreneur and inherently a fan of the SMME development and the tender system. I cant claim to be in favour of a system that undoes them by burdening government further with responsibilities that could be decentralised through SMME. 

In the second part of these article I will look into details on the second half of the Pillars. To summarize my views of the first half,I have to admit that some of the ideas shared by EFF are different and they can proudly rebuff the ANC criticism that there are no new ideas. As to whether their ideas can rebuild the economy and make the country a better place? That question will be hard to answer immediately, radical ideas that almost call for reform on all aspects of the current status core without seeking first to understand it are hard to figure how they would plug into the future. 

What is clear though is that there are existing realities in South Africa that give voice to these views and they have application to the nations future. In the next half of the pillars the party defines a social state they would like to build, and critical around it is the question of Education and post high school education. This will resonate with many South Africans and I don't believe for a second that it has to do with South Africans being gallable but I believe it has to do with how as a country we define life chance. 

I am writing in my capacity as a voter with no attachment to any political party or media House. 

The Thinker!

The GDP Election Poser

Addressing the a New Age breakfast, President Zuma under pinned the ANC manifesto for 2014 with the promise below: 

"One of the key achievements of the past five years has been the development of the National Development Plan.  The NDP proposes that the unemployment rate should fall from the current rate of about 25 percent to 14 percent by 2020 and to 6 percent by 2030. This, states the Plan, requires an additional 11 million jobs. We should all be mindful of the fact that such growth will require an average annual GDP growth of 5.4 percent."

On the ANC's 2014 election manifesto - Jacob Zuma

There is no doubt South Africa needs economic growth to achieve the promise of democracy. The issue should decide the 2014 elections. The ANC challenge is that most parties have no new ideas on the table to address the challenge. What I can confirm though is this, the current trend of GDP is far worse than 2008 before the peak of the recession and the quarterly number continue to show, the trend is still down.

The ANC over promise  

It is an ambitious but commendable idea for the ANC to embark on a 2030 plan to grow the economy by 5.4%, for three reasons which I will share below:

1. Trading Economics issues long term forecasts with analysts expectations and technically projected using an Auto-regressive Integrated moving average (ARIMA) model. First, they model the past behaviour of a time series by using vast amounts of historical data. Then, they adjust the coefficients of the econometric model by taking into account, analyst’s assessments and future expectations. From these economic the projections of GDP growth, the forecast looks very gloomy. The number is 2.48% GDP growth by 2030, only countries growing at around 4.2% now will reach the desired 5.4%
2. The NDP is an elaborate programme which is founded on ten pillars and the first half requires a Social revolution unprecedented in South Africa. This is even wider than the anti-apartheid movement. South Africans needs a new conscientious of their role and responsibilities in the new South Africa. Such a social compact will take time to build in the absence of immediate economic relief.
3. The magical word in our politics is New ideas. Who has them and can they bring the desired economic growth. Here is a quick scan of the Economic ideas as proposed by the ANC, in their manifesto. (in later articles I will explore other party manifestos). Through these policies I am trying to locate the magic idea that South Africa's fortunes will be change by.  

ANC Top Ideas to grow the Economy

• Establish capacity in the state to do long-term planning, drawing where necessary on expertise that exists in wider society.

This is particular interesting considering the Midterm budget speech in 2013, where the Minister of finance lamented the use of consultants in the public sector and the Auditor General call annually to reduce such spending. So this manifesto promise means the ANC has a new consultative process in mind to lookout for. This has to be encourage though, in the past 20 years, our scenario planning as country has been bad, to an extended that we are still producing wrong skills from our institutions versus the opportunities the economy is creating.

• Promote local procurement by directing the state to progressively buy at least 75% of its goods and services from South African producers and support small enterprises, co-operatives and broad-based empowerment.

I have always been a fan of the tender system, precisely because as an entrepreneur the platform has always been my easiest access to capital for my other ideas. This is a common reality to many. However the DA lament and perhaps to an extend an AgangSA one has been the Government assuming this role and not charging the private sector with a similar burden to service their needs. The primary and missing cohesion in South African economics in the effective management of Nedlac, it is way overdue and we need a new compact between labour, business and government to shape a common future and to reduce the amount of strikes we are getting and labour market volatility. Government cant do it alone, lets task business and let not fear or protect it.     

• Accelerate the roll-out of the massive economic and social infrastructure programme “ especially in energy, transport, ICT and water “ to unlock economic opportunities, create jobs and improve people's quality of life.

There is not doubt that Infrastructure development is an area this economy is going to grow on. With the country at estimated 1.3 Trillion backlog this is where the jobs are going to come. I have five questions that I believe are lost though in the ambiguity of the statement:

Financing: The NDP says 10% of the GDP will be allocated to these projects. That is commendable, save the highway project in Gauteng has an outstanding bill and its an infrastructure project, which remains open ended. So: 

• How are the relevant government institutes tasked to build infrastructure? 

• What happens to the potion of GDP growth accredited to private business contribution, who invests that portion into infrastructure development? 

• How do past projects such as the Gauteng Highway project benefit from such future programmes?    

• In the case where GDP growth remains slow, do we abandon the project or do we finance through debt again and add to the deficit?  

Projects: I am a fan of Broadband communication and to the idea that anyone with access to the internet is a lot more empowered than where they stay or what the ate. So what happened to the Broadband project and how far are we from implementing it. Also what happened to Universal Access projects in rural places, at some point Universal access was an ANC policy driver resting with ICASA and now its gone cold. How can we empower the youth in rural areas if their level of access to information is not on par with their peers across the country.

Priority: What is the primary infrastructure project that we need to execute to create jobs. Where are starting?     

• Empower, educate and create jobs for youth through job placement and internship schemes, allocating 60% of employment in infrastructure and other projects for youth, and promoting youth employment and training incentive schemes.

The youth employment challenge is a pressing one and the EFF is on record to saying the ANC has adopted Neo-liberal idea from the DA to overcome the challenge of youth unemployment. Youth Wage subsidy has come under scrutiny and criticism by proponent of protecting the working class. There is room for the ANC to explain further the idea around this manifesto promise but here are Economic game changing ideas that I would like to share around this subject:

1. Youth education and career planning do not start after high schools. In a knowledge development system we need to grow our citizen to add to the economy we are building. We should be able to direct the population from primary school to areas of interest they could develop careers into. For a long time the system has been about delivering education in a given year, surely we deserve that, it now becomes about producing productive members of society.
2. Township based fully licensed community universities. I believe we have shot our-self on the foot for divorcing access to tertiary education from tertiary Institutes. Access in this context define our ability to attend tertiary education because we can travel to it and its affordable. Tertiary institutes receive 50k applications and take only 10k like UJ in 2014, this must be burdening to our ruling party that the rest have no access, even if they can afford it because the opportunities are limited. Bring back community colleges and force tertiary institutions to license community centers for their programmes. Its a quick win.
3. The management of Youth Entrepreneurship should form part of an education process. The is no single clear agenda for youth entrepreneurship in SA. Here is evidence, no youth can access a loan facility from banks and even from the NYDA without satisfying NCR regulations. When a young person starts a business they are viewed and considered as adults.
4.  The University dropout rate is high among black people and there is no study or proposal to manage it. 
5. If the assessment process still requires in-service opportunities, how are we going to achieve this when its already hard to get our FET learners to complete in-service hours in the current environment of mistrust between the private sector and government   

• Promote investment and access to credit in the productive economy from the financial sector, including development finance institutions, through bolder and far-reaching reforms.

I agree this would be a great move. South Africa has failed to attract Direct Foreign Investment(DFI), in fact the trend has shown that the US has become the place for money to be invest over the past ten years. Cheaper assets after the recession may have something to do with it. However South Africa has remained a good destination for Speculative investors and our Stock Exchange has continued to enjoy the attention of multinational investors. The bold reforms proposed here will have to take in mind these very ideas. Firstly that we do not alienate FDI and that we still maintain the discipline necessary to manage Speculative investors. The Adcock Ingram and Walmart deals may suggest that SA is not a great destination for foreign investment. The long drawn out process on both deals with a government agency at the centre with each may create a wrong perception.

 The second part of the position is on how, do we define productive economies (historically being the manufacturing sector), I remain uninformed. The EFF would argue for Land, AgangSA for SMME's and the DA for Big business participation, there is room for clarity there. However on the historic assumption that our Industrialization policy has already defined productive economies, what happens to those left out like services sector?      

• Consolidate the public works programme, creating six million work opportunities by 2019. Many of which will be of long duration.

The success of the public works programme is genuine and it will continue to make an impact. The nature of jobs, I assume they are not as envisage on the youth policy point. These opportunities are by nature very short-term and some may fail to satisfy the COSATU definition decent work. A number has been attached to the EPWP before by the President and the debate as to whether He delivered the number was never settled, hence I would rather put the 6 Million jobs target on all programs I am implementing, not just on the public works programme.      

• Investigate the modality for the introduction of a national minimum wage as one of the key mechanisms to reduce income inequality.

Minimum wage modality as the position says, are hard to decide on. Last year the minister of Agriculture had a challenge in the Western Cape harvest on the subject and the Minister of Labour had to intervene and even then for a good five minutes it was easy to assume that they contradicted each other. Thus I like the idea of a national minimum wage, its how it will be sold that would like to see. The youth wage subsidy was hard enough to sell to labour, this may just be harder given the post Marikana era, where the minimum wage for drillers was high.

• Enforce measures to eliminate abusive work practices in atypical work and labour broking.

I am not sure if the ANC has promised to cancel Labour broking from this position. There is an ambiguity that requires further elaboration. Although I am for better working conditions without abuse.

• Promote decent work and strengthen measures to speed up employment equity.

Employment Equity after 20 years in South Africa is surprisingly stagnant. I would have assumed that in the 90s we warmed to the idea of a inclusive nation. We are still lurking behind our own national convictions. In our mind this country is improving but the reality is we still need our social conscience to be educated on building integrated working place. Policing Employment Equity should be an indictment to us all.

The manifesto points covered here are on the economy, and I have failed to notice that game changing strategy that will change the current GDP growth trajectory. I am writing as a voter and not a critic and I am not attached to any news company and I hope this article is viewed as such. 

The Thinker!   

 

ECONOMIC TRANSFORMATION, THE NEXT TURN IN THE SOUTH AFRICAN JOURNEY

South Africa was once again at the centre of the global attention through the hosting the World Economic Forum on Africa 2013 in Cape Town. The 8 to 10 May conference provided an opportunity for leading minds from the continent and abroad to deliberate on Africa’s prospects under the theme, “Delivering on Africa’s Promise”.

Sub-Saharan Africa continues its transformative journey from a developing continent to a hub of global growth. Six of the countries currently growing their GDP above 7% are from the region and the expected GDP growth is expected to reach 5% in this financial year for the region. According to the World Bank, almost half of Africa’s countries have attained middle-income status. To build on its achievements, Africa’s leaders need to strengthen the continent’s competitiveness, foster inclusive growth and build resilience in a volatile global environment.

The conference sough to create a dialogue towards a sustainable path of growth and development by addressing the following themes:

· Accelerating Economic Diversification

· Boosting Strategic Infrastructure

· Unlocking Africa’s Talent

The themes sparked an internal discourse in my mind about the journey we have taken in the past 19 years and where are we heading as a country. South Africa is a middle-income country, and forms part of the emerging market with an abundant supply of natural resources. Our economy is anchored on a well-developed financial, legal, communications, energy, and transport sectors; a stock exchange that is the 18th largest in the world; and modern infrastructure supporting a relatively efficient distribution of goods to major urban centres throughout the region.

Growth was robust from 2004 to 2007 as South Africa reaped the benefits of macroeconomic stability and a global commodities boom but began to slow in the second half of 2007 due to an electricity crisis and the subsequent global financial crisis' impact on commodity prices and demand. GDP fell nearly 2% in 2009 but recovered in 2010-12. Unemployment remains high, at above one-quarter of the work force, and outdated infrastructure has constrained growth.

Daunting economic problems remain from the apartheid era - especially poverty, lack of economic empowerment among the disadvantaged groups, and a shortage of public transportation. South Africa's monetary policy focuses on controlling inflation; however, the country has had significant budget deficits that hamper its ability to deal with pressing economic problems. The current government must contend with the impact of the global crisis and is facing growing pressure from special interest groups to use state-owned enterprises to deliver basic services to low-income areas and to increase job growth.

Economic Diversification
Against such a back ground I wondered, how does South Africa approach the challenge of economic diversification? What has been its agenda to date and how effective has it been? Economic diversification is when the country has incomes from many different sources that are not directly related to each other. Middle Eastern countries that are anchored in Oil production are an example of a poorly diversified economy.

The South African economy has long been the largest, and one of the most diversified, economies in Africa. Its GDP grew strongly after 2000, but began to decline in 2008 and even turned negative in 2009, at the height of the global financial crisis. Manufacturing dropped, mining activities slumped and agriculture was badly hit. The automotive sector, a big contributor to international trade tax revenues, also saw output decline massively. In fact, only the construction sector was sparred because of the works associated with the 2010 Football World Cup. The consequences of the crisis highlighted South Africa’s strong integration with the global economy, and the vulnerabilities that can result thereof.

Government has made interventions to strengthen Economic Diversification through the National Industrial Policy Framework (NIFP) and its Industrialisation Action Plan (IPAP). IPAP identified a number of sectors in its drive to meet economic diversification through economic industrialisation.

· Cluster 1 – Qualitatively new areas of focus: realising the potential of the metal fabrication, capital and transport; equipment sectors, particularly arising from large public investments; “green” and energy-saving industries; agro-processing, linked to food security and food pricing imperatives.


· Cluster 2 – Scale up and broaden interventions in existing IPAP sectors: automotive vihicles, components, medium and heavy commercial vehicles; plastics, pharmaceuticals and chemicals; clothing, textiles, footwear and leather; bio fuels; forestry, paper, pulp and furniture; strengthening linkages between cultural industries and tourism; business process servicing.

· Cluster 3 – Sectors with potential for long-term advanced capabilities: nuclear; advanced materials; aerospace.


Some economists consider that the South African Government has been targeting industries that would not be sustainable without protection and should instead focus on resource-based sectors that enable South Africa to be internationally competitive. Critics also bemoan the lack of action to build entrepreneurial and technical capacities through more co-operative mechanisms between the public and private sectors.

The role of the South African private sector in Economic diversification is also import. The sector has historically been involved in most of the key areas of the economy. The size of the sector, and its links to major global corporations, has played a major role in enabling South Africa to become an emerging economic powerhouse. South African companies have come under some criticism in recent months for sitting on piles of cash and very unwilling to invest the money in the South African economy. The SA Reserve Bank (SARB) deposit data revealed that non-financial corporate deposits were R578 billion by the end of 2012. This equivalent to 18% of the GDP which could be invested in the economy.

As we seek build further on the country’s economy and with the growing involvement of South African economic interests in Africa, private sector companies and parastatals, should further help South Africa become a dominant economic force in the continent. In this way, the private sector will become South Africa’s bridge to sub-Saharan Africa, the broader region and the international economy.

Strategic Infrastructure
The establishment of the Presidential Infrastructure Coordinating Commission (PICC), Governments National Development Plan (NDP) and the subsequent lamenting of the pace of infrastructure development as lagging behind what the country needs, has made infrastructure development a necessary economic tool. In Economic theory, infrastructure can positively impact on economic growth, in the following five ways:

· Infrastructure as a factor of production: Infrastructure may simply be regarded as a direct input into the production process, like the creation of Power generating plants to fuel more industrial process.

· Infrastructure as a complement to other factors: Infrastructure may be regarded as a complement to other inputs into the production process, in two senses. Firstly, improvements in infrastructure may lower the cost of production. Inadequate infrastructure creates a number of costs for firms, who may have to develop contingency plans against infrastructure failure or even build infrastructure themselves. Inadequate transport infrastructure, for example, incurs potentially massive costs for firms who must seek alternative means of transporting both inputs and finished goods. Conversely, good infrastructure generally raises the productivity of other inputs in the production process.

· Infrastructure as a stimulus to factor accumulation: In particular, infrastructure, in the form of schools, roads used to access schools and electricity provided to schools, is likely to be an important factor in the human capital production function and it classified as Stimulus to factor accumulation.

· Infrastructure as a stimulus to aggregate demand: Large infrastructure projects typically involve significant expenditure during construction and potentially also during maintenance operations, increasing aggregate demand. Governments have, for example, often used large-scale infrastructure projects as stimulus policies during recessions or in order to achieve particular growth targets. E.g. 2010 Soccer World Cup.

· Infrastructure as a tool of industrial policy: The last channel focuses on the potential for infrastructure spending by government to act as a tool of industrial policy. Government might attempt to activate this channel by investing in specific infrastructure projects with the intention of guiding private-sector investment decisions. A road construction project in a rural area may be intended to facilitate integration of that area into the regional economy and hence promote private sector investment and economic growth. This thinking has been a key element of the rationale behind the Maputo Corridor and the Coega Development Corporation.

Unlocking Talent

In my internal discourse, when I looked at the question of unlocking talent, my brain thought of an economy known for its skilled workforce. The Republic of Korea is known for its ingenuity and its trend setting brands like Samsung, KIA and Hyundai. South Korea over the past four decades has demonstrated incredible growth and global integration to become a high-tech industrialized economy. Interesting that in the 1960s, GDP per capita was comparable with levels in the poorer countries of Africa and that in 1980 its economy was the same size as that of South Africa. In 2004, South Korea joined the trillion dollar club of world economies, and currently is among the world's 20 largest economies.

The South Korean system was initially, characterised by close government and business ties, including directed credit and import restrictions. The government promoted the import of raw materials and technology at the expense of consumer goods, and encouraged savings and investment over consumption.

The table above shows very interesting comparisons between South Korea and South Africa. Both countries have almost equal population sizes, with South Africa having more land. Given the size of the economies South Korea has more Gross National Income per population size at US $20,870 compared to South Africa’s US $6,960. The structures of the two economies are different but the fundamental contrast between the two economies is on the number of post high school tertiary institutions. South Korea has 100 times more institutions than South Africa even with South Africa’s bigger land availability.

Government has a role to play in the creation of information, intelligence or education necessary for the creation of industrialists. This is called a, "Knowledge Economy". Knowledge Economy is an economy in which growth is dependent on the quantity, quality, and accessibility of the information available. If SA were to become a Knowledge Economy, the biggest reform in education would not be the quality of education but access to institutions of learning from high school to under graduate level. The number of matriculants willing to learn towards a degree should not be affected by the limited number of studying opportunities in current institutions.

I respect that the National Development Plan (NDP) has recognized the need to build Universities in Northern Cape and Mpumalanga but I believe we still have room to build 30 more specialized institutions outside the Quality Council for Trades & Occupations (QTCO) scope. We need specialized institution to train new graduates in high speed rail, a specialized, Japanese study field which will drive the NDP's transport integration proposals; we need Post graduate institution in Nuclear energy or alternative Hydrogen option to add to the Eskom’s grid; if Fracking takes over the Karoo, then we need to establish a Karoo based Fracking institution up to PHD levels, after all this is the technology that the American President says it’s going to stop the US dependency on foreign oil.

Just a thought!

Youth Economic Empowerment, the final frontier in transformation

For big childhood trekkie, there is no greater frontier than the odyssey into Space. The journey into that unknown expanse of the universe and the idea of alien nations acting hostile or forming new alliances. I guess the most daunting of action would be setting sail in a technology that you don't know if it will serve you well on the journey. The famous "Space the Final frontier" prologue to the tv series is not mistaken to call members of Captain Kirk's team brave.

 In the recent history of our great nation, There has not been a greater threat to transformation and economic development like Youth unemployment. The trade unions call it the ticking bomb, while the Governor of the South African Reserve Bank calls it a crisis. It is as shocking as it is as threatening, more than 50% of South African youth are unemployed. Only 5% of historically disadvantaged youth that make it to the University will graduate. The greatest threat being a generation of South Africans doomed to dependency on the social grant system and an exaggerated burden on the fiscal policy.

Youth Economic Development is a journey many dread taking, as last year's march to Cosatu House by the Democratic Allience showed, one also with a few friends. Ultimately problems do not eliminate themselves and as a nation we need to brave up to the journey and tackle the problem head on. It is a frontier worth exploring and a journey necessary to be embark on.

Youth Employment Mainstreaming

The primary approach to tackling the challenge has been the need to create an environment where it is commercially appealing to employ the youth. Basically make it part of labour market culture to employ young people. Such mainstreaming activities may take several shapes and forms but in recent years the DA has led the way with a concept they call, "the Youth Wage subsidy" The tenant of their proposal is to create an incentive for business to employ young people by covering a portion of their wages. As far as mainstreaming ideas goes, this is both bold and radical. It is a long way away from other interventions which include market education and appealing to a sense of morality by employers to care enough to do something about the problem.

There is however an opposing view that focuses exclusively on labour market trends and the historic nature of employee and employers relations. That history has taught them that, the classic economic view that if parties maximise their economic goals, wealth is invisibly distributed amongst the player is wrong. Employers have a history of exploitation and the existence of a subsidised work force will result in profiteering. Why would the jobs of adult employee's be safe when the youth can make cheaper employees. Our history with economic migrants supports such theories with cheaper labour marginalizing South Africans in other sectors.

What is missing in the whole picture and perhaps unfortunate is the idea that there is no political solution to the problem. I am a believer in the South African dream, till this day there is no grander moment for me than the TV ad where South African outliers declare that this country is alive with possibility. So it is as unthinkable as it is shocking that as a country we do not have a Social contract amongst all role players on how to solve such challenges. Our National Skills Development Strategy (NSDS) identifies Further Education and Training (FET) institutions as the purveyor of skills to the unskilled youth of South Africa. The assessment programme within these institutions requires experiential or vocational exposure for a period. Effectively if the FET programme starts producing at rapid scale, placement should match up. This is far from the truth in our reality as a nation.

 The labour market is not oriented to fulfil such a role. As an idealist I wonder why if sector skills needs in the NSDS says these FET training is needed, where are the employers to close the link. Thus in mainstreaming youth employment the premise would be to seal it in a social contract between labour, government and business.

 Our post 2009 recession reality has taught us that government interventions that stimulate economic growth like the American Quantitative easing require clear deadlines and market buy in. Youth wage subsidies would not be undoing an indifferent past like affirmative action, and thus should not be implemented without time lines and a social gain programme. The existence of cheaper labour should not create an economic rent and business ambition to create new wealth and growth is subdued. The definition of social gain in this regard should be left to parties in the contract.

 Youth Entrepreneurship

 Entrepreneurship is being promoted in South Africa as a possible source of job creation, empowerment and economic dynamism. There has been a migration in policy and the voice of opposition parties increasing attention on the subject. However, despite this attention, there has been no systematic attempt to look at it from an angle of a South African young person with his inherent challenges.

We tend to incorporate the youth into the general adult population when it comes to some of the policy decision that drive business development and we ignore their efforts to forge a livelihood through enterprise activities. We have stopped very short of understanding the potential benefits of youth entrepreneurship as a means of improving youth livelihoods. Can youth entrepreneurship be promoted as a viable career option? What obstacles stand in its way? And what policy measures and strategies can be initiated to support it?

The need to encourage Youth entrepreneurship cannot be understated and below are some of the reasons why it should be encouraged:

1. Employment: Enterprise has the potential to create employment opportunities for both the self-employed youth and other young people;

2. Redress: it has a less centralized platform to bringing the alienated and marginalized youth into the economic mainstream;

3. Socio-economic Solution: it has the potential to impact on some of the problems and delinquency that arise from joblessness including crime and drug abuse;

4. Innovation: Youth resilience is associated with innovation;

5. Local economic development: it has the potential to revive and revitalize local community;

6. Accessing fast paced economic opportunities: Young entrepreneurs may be particularly responsive to new economic opportunities and trends;

7. Skills development: Enterprise helps young women and men develop new skills and experiences that can be applied to many other challenges in life.

Naturally the irreplaceable value of experience and post graduate education has meant that youth owned business will have the following inherent challenges. (Excuse me for generalizing, but SEDA or a similar South African institute should commission a study to verify):


1. Youth businesses face problems of access to resources such as capital, especially if it is to be loaned, given the South African strict loan regiment under the National Credit Regulation (NCR). This is particularly more challenging for young people from impoverished communities, who do not have alternative sources;

2. The result is that young people will start their enterprises with lower levels of initial capital and will operate very small businesses that are at a survival level (from hand to mouth as affectionately referred);

3. The biggest challenge with a low capital business includes lower market value or lower inventory book. This has played into the hands of heavily invested foreign subsidized small businesses, especially in the retail sector (a train vegetable vendor vs. a 500 product tuck shop);

4. The result then becomes that youth entrepreneurs are engaged in a narrower range of activities. They tend to operate from homes or streets (lack of access to space);

When the National Youth Development Agency (NYDA) was found, it was to help redress these challenges and accelerate the youth through this path. But like the journey into space, there were speed bumps and blackholes. These challenges are not unique to NYDA but most Developmental Finance Institutions face them. The commercial orientation of entrepreneurship and the subsequent implementation of business capitalisation by a bureaucratic process has left gaps in the system. The resulting gaps includes lack of mentoring programmes; lack of specialised financing where the youth are treated differently business plan to business plan; supplementary services for the youth like training over and above vouchers and loans or development planning; and lack of employees with entrepreneurship background within these institutions.

 How I pray we can orb into the speed of light and we accelerate this process of empowering the youth. The speed has become more important than ideological differences and political point scoring. The power to create a utopian South Africa is in the hands of South Africans and we are well placed to reverse the ticking and avert the crisis if we pull together.

The Complicated relationship of Big and Small business

After listening to radio interview on Talk Radio 702, where the guest effectively suggested that big business is under no obligation to assist small business implement an idea, if the small business cannot implement the idea on their own. This was in response to a caller that said small business fears big business stealing their ideas.

My small head could not wrap itself around this idea, until I realise that the discourse was created by , my entrepreneurial hat debating with my economics one. Imaginable how this debate can be further complicated if it were to become a political one with racial undertones that characterise both sectors. It is however my intention to limit this debate to an economics one.

1. Rent seeking nature of Broad-Based Black Economic Empowerment

A simple definition of Rent-seeking is the use of resources within an organisation to grow existing wealth instead of creating new one. BBBEE compliance has forced big business to adapt their business practices and has done little to advance small business development.

Scenario 1: It is within the codes of good practice including the newly proposed amendments that two big business can complete an Enterprise Development (ED) project. A big pharmaceutical business can sponsor the training of nurses in a major private health group and attain BBBEE scoring. Thus the pharmaceutical business would adapt their marketing spent, which they would have used to keep the private health group happy as ED spent. No real development in the spirit of the codes is realised by such a transaction.

Scenario 2: The other trend in ED is to turn line functions into ownership schemes. It has become for instance a natural progression that companies with fleet or logistic units to create Owner-Driver schemes and make their ED scoring. The vice with such programmes is the existence of the career transporter that is now being out foxed out of the market by this creation of an economy of scale created by big business. The logistic budget still winds up as salaries and career transport entrepreneur is not growing any more. The spirit of the codes was that the career transport entrepreneur could approach big business to sponsor the buying of a truck for example and they would seek out new opportunities to grow outside that relationship with the big business doing the sponsoring.

Thus at an economic development level BBBEE is not well poised to drive South African economic growth and development. This effectively abdicates big business from a capitalistic responsibility to support economic growth.

2. Industrial Development

Economic diversification is the next frontier in African development. We all agree that we cannot have economies that are anchored on natural resources and we need to branch into new spaces and industries. The biggest boom in my lifetime would still be the information age of the late 70's and 80's and maybe the .com bubble of the 90's. That revolution was anchored on the ability for small business to create new technology with big business.

Scenario 3: Bill Gates was able to sit with IBM as a small business and convince the industrial giant of the time to use his Software. The growth of Microsoft was a facilitation of a healthy relationship between the two sectors. Imagine if IBM said don't worry we will take your idea and developed our own.

This would have stifled innovation, look where both companies are today and how home computing has been shaped by incremental upgrades that followed that IBM meeting. It therefore makes it unfortunate that in South Africa big business can steal ideas from small business and such a genuine fear can be dismissed with a rhetoric from the industrial revolution. Moreover after we have come to appreciate the power of knowledge sharing with the advent of Globalisation.

Scenario 4: Construction sector is driven by a grading system that ensures big businesses complete big tasks and small businesses complete smaller ones. The idea there, is that smaller entities would be subcontracted to big ones and that they would gradually grow up the ranks and the industry would grow. Given the success of 2010 for the sector it would be easy to assume that companies that have climbed up the ladder have increased. But that's not the case, big businesses has kept the development of the sector in check such that only a few companies can sit and form cartels that decide the extend at which the sector can profit.

Do we have a need to diversify the economy and create new Jobs? Yes we do and with that need, big business needs to become a role player.

3. Knowledge Economy

In a knowledge economy, the product produced is an educated population especially in technical skills to become the driving force of the economy.

Scenario 5: Our production of Java skilled people is catching up to demand all be it slowly but we are producing young entrepreneurs capable of producing the next app to revolutionise the communication space. Effectively if a big business was to set-up a testing facility for this young people to test their ideas it would be against the statement above. But if our government meets its obligation to produce an educated public, why would it be a far fetched idea that big business should drive economic gain as employers or business development agents.

The public is quick to place this demand on State Owned Enterprises (SOE) and it unthinkable to expect the same from the private sector. Supplier development colleges in Transnet are to be supplemented by other programmes by the private sector.

Big business have created opportunities for small ones in South Africa before, SAB kick start as an example, but I can't help but wonder what would be the greater extended of growth if they all played ball.

Unlocking South Africa's talent

In my internal discourse, when I looked at the question of unlocking talent, my brain thought of an economy known for its skilled workforce. The Republic of Korea is known for its ingenuity and its trend setting brands like Samsung, KIA and Hyundai. South Korea over the past four decades has demonstrated incredible growth and global integration to become a high-tech industrialized economy. Interesting that in the 1960s, GDP per capita was comparable with levels in the poorer countries of Africa and that in 1980 its economy was the same size as that of South Africa.

In 2004, South Korea joined the trillion dollar club of world economies, and currently is among the world's 20 largest economies. The South Korean system was initially, characterised by close government and business ties, including directed credit and import restrictions. The government promoted the import of raw materials and technology at the expense of consumer goods, and encouraged savings and investment over consumption. 

The table above shows very interesting comparisons between South Korea and South Africa. Both countries have almost equal population sizes, with South Africa having more land. Given the size of the economies South Korea has more Gross National Income per population size at US $20,870 compared to South Africa’s US $6,960. The structures of the two economies are different but the fundamental contrast between the two economies is on the number of post high school tertiary institutions. South Korea has 100 times more institutions than South Africa even with South Africa’s bigger land availability.   

Government has a role to play in the creation of information, intelligence or education necessary for the creation of industrialists. This is called a, "Knowledge Economy". Knowledge Economy is an economy in which growth is dependent on the quantity, quality, and accessibility of the information available. If SA were to become a Knowledge Economy, the biggest reform in education would not be the quality of education but access to institutions of learning from high school to under graduate level. 

The number of matriculants willing to learn towards a degree should not be affected by the limited number of studying opportunities in current institutions. I respect that the National Development Plan (NDP) has recognized the need to build Universities in Northern Cape and Mpumalanga but I believe we still have room to build 30 more specialized institutions outside the Quality Council for Trades & Occupations (QTCO) scope. We need specialized institution to train new graduates in high speed rail, a specialized, Japanese study field which will drive the NDP's transport integration proposals; we need Post graduate institution in Nuclear energy or alternative Hydrogen option to add to the Eskom’s grid; if Fracking takes over the Karoo, then we need to establish a Karoo based Fracking institution up to PHD levels, after all this is the technology that the American President says it’s going to stop the US dependency on foreign oil.    


Just a thought!

Help me Vote!

Defining the political landscape of any economy and finding a way for economic expression has become important for all voters to understand. After 19 years of political freedom, the debate of a maturing country is answering the question of what is the power of franchise and how do I take the responsibility seriously? 

The truth is my grandfather never voted in the country his birth and for years I have gone to the poles, in commemoration to his memory and to the memory of those that died for the freedom that we are taking so for granted today.   This over time I have realized is a noble motivational but not in the design of the electoral process. We do not vote to affirm the memory of those that have died before the privilege but we are exercising an endowment much like the force in the famous Star wars movies, to change the direction of a country.   

The economy has many stakeholders or role players. The famous ones are labour, business and government. I would like to add the politicians and the voter to the stakeholder map and discuss how we can move Mzansi forward.  

The past four years have been very favourable to the labour movement and the tragedy of Marikana has highlighted the importance of organised labour movements in the economic progress of a country. In South Africa it has become clear that the cause for the poor will be fought on the distribution on wealth front. That is if business makes money then the labour force should follow suit and get a significant portion of the money. The fundamental challenges with this assertion is the size of the margins that are being contested. 

During the year where platinum demand world wide was reduced due to many factors including commodity prices, economic uncertainty and a market place that provided better investment options, the tool adopted by business to sustain the sector was to lower production and increase the commodity price and grow margins on low volumes. This means the sector can make profits with less volumes and would naturally retrench employees. This will be studied in MBA programmes as a clever rationalization of an ailing industry and the survival of a mature mining country.

Naturally the labour movement will deem this unfair and unwarranted. Their argument are will be more sentimental than business school approach. The employees that are being off loaded have been part of the success of the given mines in the past, especially when the markets ware favourable. They risked their health, left their homelands at the expense of their families and it's unfair for a mine to let go of them without due consideration to the souls that have helped them in the past.  

In comes Government, an under pressure stake-holder,  who is under pressure improve his employees effectiveness. Their primary view of the mining scenario will be that we cannot allow business to add more people in to the growing list of the unemployed and that of the social grant system. Their argument will be political, and it will carry a more potent opposition view. Business has thrived through the exploitation of the land and that the tax and mining laws have helped business produce high earners. They will further say that, they own the mining rights licensing processes and any damage in relations will have future reparations. 

Government has two tiers the public bureaucratic employees and the politicians that form our parliament. Parliament  oversees the government through cabinet with ministers and the different formations like portfolio committees. In light of our mining analogy  parliament will have the power to summon the ministry of mining and ask them all the various strategic choices that have been explored in the process. Opposition parties will ask hard questions and score points on the direction they moved discussions. The ruling party will insist that their party is fighting the cause for the poor and that all is being done to ensure continued development of the country.

This has a name, its called vote maximisation. Where politicians are proving to the voters they deserve the vote and that they are taking responsibility to the mandate given. This is why most people and commentators believe that politicians will say and do anything to ensure that they are always able to keep the vote. The church in Limpopo proves it every voting year with the wisest, intellectual and charming of our leaders finding a reason to do campaigns there and even do the famous dance.   

There are real life issues to solve in this world and politicians are after my vote to place them face to face with these challenges. They are asking to me to entrust to them the future of this country and for them to manage a multiple level process to solving the mining  challenge without casualty of lives or international reputations. I have the power to make such a decision and I cannot do it because I feel sorry for my grand father who died not vote. 

I demand that in the next election in 2014, the following is important for me to cast an informed vote:   

1. I need to see a televised three part debate between party representatives not leaders but reps in line with our voting system on the economy, community development and foreign policy with the African focus. The economy because I need  to know what the agenda is in trying to grow it. Community development because I need to know we have a programme to reverse social ails like poverty, Crime and health challenges. Lastly I care about what we are doing in other countries, but I think we are over postponing the African redevelopment by making it about the minerals in the continent. The influx of African migrants into this country to do service based jobs is a sign that something is happening and we're not in the know of it 

2. Provincial debates 

3. Report on pocket of excellence on the achievement of the current government 

4. A fact checking website, I hate being lied to. I don't like it when the media does it and when politicians do. Some academic institutions or media house should setup a site to verify facts for the public. 

5. Eliminate ambiguity, please let me know what the idea is but add some meat to it 

6. Take me serious, especially if I don't wear your badge. The idea that badge wearers are more important is alienating and festers corruption sentiments 

7. A standard format for manifestos so that I can compare them to each other. JSE makes companies produce annual reports to a certain standard, I think political parties should be forced to do the same with their manifestos. Let me cast my vote not on sentiment but help me make an informed decision.   

That's my 2 cents worth...