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Addressing Inequality

Opinion
The old saying “every cloud has a silver lining” could apply if, after the downgrades by S&P Global Ratings and Fitch, we adopt a two-pronged strategy that firstly gets us out of the junkyard and, secondly, simultaneously deals with the obscene inequality that bedevils our country.

Such an approach could be problematic, but we have no choice. We cannot concentrate on revival strategies that will impress the rating agencies, but reinstate the status quo.

Here are the facts: The Gini Coefficient stands at 0.67 and is the highest in the world (“1” is high inequality and “0” no inequality); National Empowerment Fund calculations reveal that direct black capitalisation on the JSE stands at 3 percent (about R358 billion); only 10 percent of the top 100 companies on the JSE are owned by black South Africans directly; the latest Employment Equity Commission report shows that the private sector lags the public sector in blacks in top management.

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Black industrialists and entrepreneurs should have a bigger representation on the JSE, says the writer. Photo: Timothy Bernard

Transformation

In the private sector, blacks are a paltry 10.8 percent of staff while in the public sector the figure is a whopping 73.2 percent; The most telling indicator of lack of transformation is racially skewed unemployment.

At the end of 2016, Statistics SA reveals that over 12 million blacks (adults and youths) were not in education, training or employment, while for coloureds it was just over 1.2 million. For Indians, it was more than 300000 and for whites more than 710000; and the government-generated social grants lifted millions out of poverty but not economic activities, which questions the private sector’s commitment to growing the economy.

It would be irresponsible to focus only on clawing our way out of the junkyard, without also aggressively dealing with the inequality, as the two are not mutually exclusive.

Ignoring the inequality portends social instability, that would give these selfsame rating agencies more ammunition to downgrade us further. Hence, the Minister of Finance Malusi Gigaba has been preaching rapid economic transformation (RET) since his appointment.

RET means South Africa getting the economic transformation the Solomon Mahlangus and others sacrificed for. Gigaba has addressed groups of investors and meetings since the downgrades and not only promoted RET, but spurred them to join the government in addressing the situation. He referred to township and rural economies which, he stressed, must be part of the revitalisation strategies.

Gigaba is right black South Africa has been getting angrier and angrier over the years and it now “enough is enough”. After all, residents of Alexandra township and those in townships elsewhere simply look across the road and see living conditions, when compared to theirs reflect the very inequality that was the basis of the Struggle.

Oligopolies from apartheid times have in the years since 1994 grown manifold and diversified to even enjoy greater control of the economy. Talk in the townships is that these oligopolies should now, with hindsight, be asking themselves why they resisted change in the first place now that they are major beneficiaries.

Major retailers are now unfairly competing with township retailers when they could not during apartheid, to the detriment of those surviving in the informal sector. Indigenous blacks and the coloured communities, the people who were in the trenches when we fought for change, continue to swelter in the doldrums of the economy, save for a few.

Not that we do not have white organisations committed to transformation, but they are not the critical mass that changes things. Aikona, it is simply not fair as the traditional big companies even dominate new sectors such as ICT and renewables.

This is not surprising as the apostles of resources theory on growth will attest and the major question is: were these major organisations aware or unaware of it? This dire situation of downgrades, in addition to the lack of transformation, has got Small Business Minister Lindiwe Zulu to come the party.

Support

Her department is looking at various options for enhanced support to the small business sector, more so for black-owned ones. There is also greater focus on these small businesses to get into the value add sectors instead of predominating in the retail sector. Hence the support for black industrialists and flagship SMME National Gazelles programmes will be increased.

Read also: Much to be done about economic inequality: dti

A new initiative has seen major black industrialist companies emerge with the PIC (Public Investment Corporation) taking an interest in these.

On Thursday, President Jacob Zuma and Zulu will host small business in Pretoria in which the vitalisation of the sector will be paramount. Zulu, who has her sleeves rolled up, will later on host a colloquium to implement decisions of the Zuma meeting and also identify other approaches for the survival of entities because of the downgrades and the escalation of entrepreneurship, economic revival and transformation.

Entrepreneurship and small business are central to transformation and the restructure of the economy. In any case, economic growth can also only come from enhanced entrepreneurship in black South Africa, with more entrepreneurial black players emerging rather than the existing white and overseas companies getting fatter. But, and this is the rub; black entrepreneurs must be Schumpeterian rather than replicative.

This is how we can turn the downgrading on its head and make the economy work for all of us. (Schumpeterian is described as creative destruction - a term coined by Joseph Schumpeter in Capitalism, Socialism and Democracy in 1942, describes the “process of industrial mutation that incessantly revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one".

This occurs when innovation deconstructs long-standing arrangements and frees resources to be deployed elsewhere.)

Dr Thami Mazwai is special adviser to the Minister of Small Business Development. He writes in his personal capacity.

BUSINESS REPORT

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