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Patel admits red tape limits cash flow to economy

Donwald Pressly

THE Government acknowledged yesterday that it needed to urgently tackle the problems of red tape in order to unlock investment spending by companies that had instead opted to keep hundreds of billions of rand on their balance sheets.

“It discourages the appetite for projects,” Economic Development Minister Ebrahim Patel told a Progressive Business Forum breakfast at the ANC policy conference at Gallagher Estate in Midrand.

At the event Old Mutual’s Crispen Sonn pointed out that the cash equivalent sitting on the balance sheets of large corporates had reached more than R500 billion, “which is not flowing to big capital projects”.

Sonn said the “fragility of the global economy is blamed for this” but he suspected that the answer probably lay more in the need to resolve problems of policy alignment and improve the public service.

“Why is that cash not flowing more effectively into the economy and what is the government’s analysis of this?” he asked.

Patel, a former trade union leader before he entered politics in 2009, said firms sought a mix of opportunity and return on capital. “We (the government) recognise the speed with which we move to unlock some of these constraints on investment… is just too slow.”

He acknowledged that businesses faced yards of red tape, including environmental impact reports and certain licensing, “which take an inordinate amount of time” to process.

It was for this reason, Patel said, that Business Unity SA – the predominantly white big business chamber – had been tasked with finding solutions to these problems. “We are learning where some of the systemic challenges are,” Patel said.

He did believe that as the R850bn infrastructure development plan spearheaded by the government and state-owned enterprisess was rolled out, private sector companies would be convinced to invest. “I believe that if we can speed up our infrastructure build programme we will go a long way to unlock those resources that are currently idle.”

Patel, who faced a barrage of questions on why small black business was not benefiting sufficiently from such programmes as the building of the Medupi coal-fired power station in Limpopo, said that South Africa should not be seen as a series of small economies.

Tenders went out and they were responded to nationally. The winners of tenders, however, had to abide by the empowerment rules that benefit the upliftment of blacks and communities in new business ventures.

Replying to questions from Limpopo businessman Justice Ledwaba and Lephalale Chamber of Commerce president Wayne Derksen about why local business was not benefiting much, Patel said that in the case of the Eskom project in the area, which had led to the development of the first new post-democracy city of Lephalele, one was talking about a mega-project.

“It is complex… how do you localise the supplier base? Any large construction has hundreds of (small) and a few large sub-contractors and we do want the areas where (the project) is located to benefit.”

Yet, he said, “we also have a national economy (governed) by the economies of scale… we don’t want to reduce the country to a series of local economies. Economies of scale (tend to) bring prices down.”

However, the Industrial Development Corporation’s R102bn fund to promote small business was concentrating on supporting groups of that kind.

In addition, the broad-based black economic empowerment framework was being reconsidered to increase the requirements to “acquire more points” by being involved in the “local supplier chain”.

He noted, however, that the roll-out of infrastructure was going to require massive supplies of cement, wood, bitumen – “there is going to be a bitumin shortage if we do these kinds of projects” – and earth-moving equipment. These were opportunities that should be studied carefully by business.

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