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...

Industrialisation and Knowledge Economy as an option for SA

For a considerable period I have observed carefully what Government is doing to stimulate the economy and encourage a growth trajectory that we all desire as a nation. I have learned to appreciate other projects, while I have also questioned the creation and subsequent failure of certain policy positions. 

In the generation, where entrepreneurship has become the fundamental means of production and the hope for Job creation, I am still appreciative of how the industrialization process of the economy in South Africa can shape our sociology and commerce as a country like it did in the apartheid years.  Industrialization programmes are less entrepreneurial and historically have thrived on the creation of Government sponsored monopolies. 

To illustrate my point, consider the following two approaches to an industrialization process.

In 2012 Passenger Rail Agency of South Africa (PRASA) advertised their procurement of rolling stock as part of the infrastructure development programme by government (an industrialization process). Even before the advert was placed in the newspapers, it was clear that only a handful of business could deliver the fleet locally and that the fleet would be sourced from an international company. Many lobby groups holding to sense of loss used their gender or race as a bargaining chip to be involved in this procurement process, much to their dissatisfaction and disappointment. Most of those aspiring to participate in the programme, were entrepreneurs, who had little technical know how and limited supplier networks.

Rewind back to 1927 when a white paper was tabled in parliament to investigate the establishment of an oil-from-coal industry in South Africa. It was realized then that South Africa did not have any crude oil reserves and that the country's balance of payments had to be protected against increasing crude oil imports. The government facilitated the creation of intelligence and negotiated with international supplier, leading to the eventual creation of Sasol in 1950. This added to national pride of the time and reassured the public of Afrikaner ingenuity. Much like German’s precision engineering is admired world-wide; Sasol became admired, while Sasolburg was the Silicon Valley of its time.

The inference I would like to draw from the two examples is not that, South African government should build trains or that they should facilitate the creation of another Spoornet, which most likely is capable of also delivering the trains. I am also well aware of the fact that we are living in  WTO and IMF days and that we are now signatories of organisation that make us Global players, where any government sponsored process is measured against several ratings.

The comparison I would like to bring is in three folds:

1. Government has a role to play in the creation of information, intelligence or education necessary for the creation of industrialists, especially black ones, without the benefit of international travelling and vocational exposure. 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.

Essentially this is the first major challenge I have with the South African Industrial Policy Action Plan (IPAP). We are currently living in an economy that requires 800 000 services based expertise, while it also has about 900 000 or so unemployed graduates. Literary we have trained the population in areas the economy cannot employ.  IPAP identifies crucial sectors of growth in the economy as follows: 

Manufacturing

•         Metal fabrication, capital equipment and transport equipment

•         'Green' and energy-saving industries

•         Automotive, components and medium and heavy commercial vehicles

•         Plastics, pharmaceuticals and chemicals

•         Clothing, textiles, leather and footwear

•         Cultural industries: crafts and film

•         Advanced manufacturing.

•         Primary production/ manufacturing nexus

•         Agro-processing

•         Downstream minerals beneficiation

•         Bio-fuels

•         Forestry, paper and pulp, and furniture.

Services

•         Tourism

•         Business Process Services.

The exclusion of the services sector in the IPAP is an oversight given how the sector accounts for more than 70% of global output. India has benefited from the globalization of services and has shown how economies can be turned around by embracing the IT and Contact centre services. The main focus of the IPAP is on growing the manufacturing sector. The possibility of utilizing the services sector as the lead sector in economic development was not considered seriously. Especially when we consider that Services includes, engineering consulting and many high skilled expertise. 

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 institutes. 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 a 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 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 is saying it’s going to stop the US dependency on foreign oil.   

2.  The relationship between a vision developed by a bureaucratic process should be harmonised with the interests of existing private sector interest groups and labour. Industrial policy should aim at discovering the competitive advantages in the economy in close collaboration with the private sector instead of prescribing what they should be. The success of Sasol was a crucial ingredient to also the Private sector and thus there was support from both sides. The current us and them sentiment have divided us as a country. The private sector has turned its attention away from government and labour now believes that business is the new mask of the old oppressor and there is growing distrust. This sociology is wrong and should be changed. The first and most important social contract in South Africa, I believe should be between the three parties. Violent strikes have no place in this democracy.   

3. The rent-seeking behaviour of the policy is also worrying. The implementation of the policy is dependent on the creation of rents, whether in the form of direct benefits such as subsidies or indirect benefits such as concessionary finance; it encourages rent-seeking behaviour and corruption. The way to counter these tendencies is to put in place definite performance requirements for the recipients of government assistance, with penalties if they are not complied with. Given the advent of introducing Black Business into the process, Government should make contingencies to build capacity within previously excluded groups to achieve such performance levels. Industrialisation cannot be another platform to create a tower of failed white elephant in the name of appropriation.