Policies create very few, very expensive jobs

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Policies create very few, very expensive jobs

Sidwell Medupe’s election debate article (Business Report, April 30) refers. Just like his power plant namesake, Medupe is way off the mark. Indeed, his article serves only to highlight the failures of the ANC in government – in particular, its dismal record of creating jobs.

By his own admission, the “presidency of Jacob Zuma has spent billions of rand towards job creation”. While this might be true, on analysis it’s not a bragging point.

For instance, according to Medupe’s figures, R50.8 billion has been spent through industrial financing and incentives to create 130 642 jobs. That’s R382 725 per job. A further R20bn has been spent on the 12i tax incentive, an investment which has produced “approximately” 3 326 jobs at a cost of over R6 million per job. The ANC’s interventionist policies have created very few, very expensive jobs.

Medupe, under Zuma the government has deteriorated. Statistics reveal the worsening state of our country since he took over. In the past year alone, South Africa has added 121 000 to the ranks of the unemployed. Over Zuma’s full term as president, 1.4 million more South Africans have been added to the unemployed. Our broad unemployment rate stands at 34 percent.

South Africans have every right to ask “Where are all the jobs, Zuma?”

It’s time to address the real issues preventing job creation through policy changes that focus on creating an environment in which businesses can take the lead in growing the economy and creating jobs, and move away from the ANC’s interventionist approach. The ANC, and Medupe, should stop harking on about the New Growth Path, a clear failure, and move towards the adoption of the National Development Plan.

Through the DA’s red tape initiative, we are helping business to overcome the cost and delays associated with burdensome government bureaucracy. This programme delivers new jobs, and saves us from potential job losses, at very low cost to the taxpayer.

Because we know that receiving quality education is the first step to meaningful employment, we have dedicated over a third of our budget each year to deliver better schooling to our young learners. Since 2009, we have increased the pass rate for maths from 65 percent to 73.3 percent in 2013, and for science from 52.9 percent to 72.6 percent. We have made these, and other significant gains, in just five years in government. After another five years, the impact will be far greater.

I agree with Medupe that South Africa’s challenges are not insurmountable. Under DA governance, the Western Cape is beginning to show signs of positive change, especially in terms of its jobs figures. The DA has the power to change South Africa for the better, for all. If Medupe is switched on, he’ll vote DA on May 7.

ALAN WINDE

Western Cape Minister of Finance, Economic Development and Tourism

Facts and fallacies behind SME develop

Small business ministry: the panacea for job creation? The assertions by the ANC, supported by the National African Federated Chamber of Commerce and Industry (Business Report, Readers’ Forum, April 29) and opposed by AHi (of the same date) that a small business ministry will help South Africa realise its dream of job creation of small and medium enterprises (SMEs) is premature.

The call for or against is like the metaphoric cart before the horse. Before such calls can be made we need to reflect on some basic questions, including can South African SMEs serve as engines of job creation in the economy? What are the required interventions? What roles should public and private sectors play in support of these initiatives?

It is only after these and other pertinent questions are answered will we be in a position to answer the critical question: what entity is best positioned to unleash the potential job creation through SMEs? In support of the deference of the debate about the small business ministry then we need to start at the beginning by seeking to understand whether SMEs in modern economies still possess the perceived exclusive prowess of creating more jobs than other role players.

The global paradigm that SMEs generally create more jobs than their larger counterparts is based on several assumptions and fallacies that need to be clearly understood by policymakers. Unless these and related fallacies are taken cognisance of, we are likely to have ineffective and costly policies that might not have the desired effects.

That there is a generally acceptable definition of SMEs is the first assumption. Definitions vary by country and by industry. The US Small Business Administration defines small business as enterprises that employ less than 500 people. South Africa, like the EU, uses 50 as its benchmark and Australia, 15. It is foolhardy to import lessons from elsewhere without the necessary localisation and adaptation of that underlying definitional assumption.

The second assumption is that SMEs are homogenous contemporaries that behave in the same manner regardless of age or stage in the business cycle. This is false. Research corroborates the argument that as far as job creation is concerned, age matters more that size. SME researchers have found it is the younger, not necessarily the smaller, businesses that generate proportionately more net jobs.

This leads to the assumption that SMEs create more jobs than they destroy. Research and analysis indicate SMEs generally destroy more jobs than large businesses and this rate of destruction exceeds that of creation during economic downturns.

Therefore, policy interventions required to buttress the job creating engines of SMEs necessitate dynamic readjustment and realignment, depending on the state of the economy. During boom times, policies should aim to encourage the creation, growth and innovation within the SME sector; during economic downturns, they should be readjusted to emphasise sustenance, growth or survival of SMEs.

A fallacy is that jobs created by SMEs are of acceptable quality and are sustainable. This is not a given as research indicates a general rule that SMEs pay relatively lower salaries and wages and offer fewer perks and training opportunities, and less advancement and job security. While many countries have policies to provide a steroidal boost to the quantity of job creation capabilities of SMEs, they ignore the need to enhance the quality of those jobs through more specialised support for SMEs. It is important to ensure that economic policies supportive of SMEs encourage the creation of good-quality and sustainable jobs.

Another fallacy is that SMEs are destined to remain small while large companies remain large. Reality contradicts this.

Finally, there is a dichotomous relationship between SMEs’ response to policy intervention that has baffled many researchers. Research conducted in the US and UK found that most SMEs are not spontaneously responsive to most economic policy interventions. This is mainly attributable to the lack of leadership capacity and resource deficiency at SME level. It means policy interventions designed to encourage the development of SMEs have to be well thought out way and interventions have to be longitudinally dynamic. They will not make an immediate impact but it is a gradual incremental process that, hopefully, creates more jobs.

Given all these challenges, what are the required interventions for South Africa to set our economy on an SME-driven growth trajectory? First, we need a legislative framework that removes all impediments to entrepreneurship. Second, we need policy interventions that put SMEs at the centre of job creation through effective financial and non-financial support programmes, small and large business linkages and preferential procurement programmes, among others. Third, we need a national organisation that will co-ordinate public and private sector efforts to engender SME job creation.

Whether this is best situated within government bureaucracy or in private sector liberty seems best answered by using the best of both worlds. That way, the initiative will enjoy the policy support of government and the financial support of business.

Mofasi Lekota

Managing Director, Equal Access Global Leadership Consulting,

Broederstroom

Ministry just a new way to loot coffers

The opinion piece concerning the establishment of a ministry for SMEs (Business Report, April 29) has reference.

The much respected author, Christo Owen van der Rheede, has missed the point. The cynics would have it that the real objective of establishing the ministry is innovative job creation for the well-connected few. It is all about creating yet another way of enabling cadres to loot the public coffers without any value-added component. I agree, leave well enough alone.

Duncan Baker.

DA Cllr Ward 46, City of Tshwane Metropolitan Municipality

Ignorant union bosses hurting members

One of the benefits of having reached that age milestone of threescore years and 10 is that one can look back on certain momentous events in history from personal experience.

One such period for me was the industrial strife that pervaded Britain in the 1970s. Union leaders vying with each other as to who could demand and receive the most outrageous pay settlements for their members, which eventually led to an inflation rate of 18 percent in 1980.

Some would say it was ironic that it took a woman to lead Britain out of this mess when, because of strike action in the winter of 1979, even the dead were not getting buried. Margaret Thatcher was elected prime minister in that year and had to use draconian monetary measures to get inflation and interest rates down.

This all culminated in taking on the National Union of Mineworkers in 1984, over uneconomic pits, having first made sure there were enough coal stocks at the power stations to survive a long strike. Fortunately for Britain, the union was finally defeated.

In South Africa, the same sort of mindset is present in union leadership, where union bosses regard their employers as “the enemy” instead of trying to work together for the benefit of their members and shareholders. Nobody wins in a conflict situation.

One important piece of legislation that took effect in Britain after 1984 was that before any major strike is called there has to be a compulsory secret ballot among the members. This would get around the widespread intimidation occurring here.

There is an ancient Arabian proverb: “It is better for an army of sheep to be led by a lion, than for an army of lions to be led by a sheep.” The degree of ignorance of basic economics by the present Association of Mineworkers and Construction Union leadership is worrying. Arrogance will get you there in the end, it seems. The end point will be mechanisation of the mines, putting many thousands of their members out of work. But then, the leadership will have retired on huge pension payouts, courtesy of the membership.

Peter Hill

St Lucia, KZN


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