“Jobs are important, and the government no longer has capacity to createjobs. Our country needs to focus on creating jobs in order to grow our economy, because there is no way our economy can be stable if there is no job creation. However, people need to work so that they will be able to provide for themselves and their children. So the importance of job creation in South Africa should be looked at as a collective responsibility”
– Ken G Morka Foundation
In March 1991 Business Day published an article by myself, Charles Stride, titled “SA needs a national ‘business plan’ to benefit all its people”. At the time I noted that financial institutions preferred to invest their funds in white shopping centres, high-rise office blocks and shares on the Johannesburg Stock Exchange instead of putting money into wealth creating activities.
I also noted that it was necessary to examine why many black South Africans were skeptical about their chances of earning a place in the sun in a capitalist society. Capitalism was seen as part of a system which prevented blacks from realizing their aspirations in many fields and they had had no access to the countries minerals mineral and financial resources.
Well, the new South Africa has certainly not helped the poor and unemployment is now a time bomb, whilst many of our so called business leaders continue unphased.
There was in 1994, as there is now, an excessive concentration of economic power exacerbated by useless regulators and control boards.
The country’s wealth is still largely in the hands of professional managers in large corporations who are not entrepreneurs and who are averse to risk taking.
Whilst there have been many so-called plans to create employment, they have been, and will in my opinion, continue to have little or no effect for as long as consumers have insufficient disposable income.
No business can exist without a customer. In South Africa we have gone out of our way to kill the customer, this is particularly so since 1994.
In 1995 when I was in the Ministry of Finance, 50% of all tax was collected from companies with the remaining 50% coming from individuals.
Today, following a fruitless international experiment, we have reduced corporate rates of tax and now only collect 20% of the States revenue from corporations as reflected below.
In addition, our Ministers of Finance have continued to increase fuel levies. Since January 2008 the Road Accident Fund levy has increased by 425% and the general fuel levy has increased 225%. I consider the general fuel levy to be a lunatic tax, as it drives up manufacturers and distributors costs. From my search it would appear that for every R5 that the State earns by increasing input costs to businesses they increase their prices, to maintain their margins, by R15 to the detriment of the consumers – thus destroying their spending power which ultimately leads to a loss of employment opportunities.
South Africa introduced a sugar tax, with little or no consideration on how this could adversely impact unemployment. I’m aware of a company that used to make a guava product for the informal market and the impact of the sugar tax would have resulted in the price of a 5-litre box increasing find unsustainable R35. The upshot was that the company stopped making the product, the rural black farmers who grew the guavas no longer had a customer and thus lost sales R2m. The bakkie operators and spaza shops no longer had that product to transport or sell.
I do not intend to deal with the horrific losses South Africa has suffered due to the corruption of current ANC governments and their pursuance of failed Marxist ideologies, exacerbated by having people who simply “do not know what they do not know”. There should be an international criminal court for destroyers of an economy.
Whilst it is a pipe dream, our promotors of a failed Marxist ideology should be required, for each of their proposals, to quote examples of successful implementation of their failed ideology with particular reference to the Soviet Union, Cuba, Venezuela, Nicaragua … Marxism simply fails to deliver what its proponents promise. I was fortunate, to spend a few hours with Yuri Maltsev who, prior to defecting to the US in 1989, held various government and research positions in Moscow and was a member of an economics team that worked on President Gorbachev’s reforms. He told me that Gorbachev had suggested the Soviet Union copy the US and offer large performance bonuses to senior business managers. The programme was adopted, offering treble earnings, but this did not result in increased production or improvements in the reliability of goods produced.
Maltsev’s research was revealing – the reason why greater incomes had no impact was that the average male worker spent over six years of his life in queues to spend his money. Giving him more would result only in more time in queues. The senior management’s greater income certainly failed to incentivise them to match western standards.
The state itself has been a massive destroyer of employment opportunities through following failed ideologies and introducing BEE requirements, which Moeletsi Mbeki described as “an unmitigated disaster, a form of legal corruption that encouraged cronyism and political patronage and stifled entrepreneurship”. Some components of BEE are, in my opinion, simply unacceptable to both local and foreign investors. As an example, just take the impact of delays in granting mining licences – the ANC would rather argue about who will own the shares than what benefits would flow to the state and the currently unemployed workers.
The diagram below was prepared from financial data available to me and illustrates the employment opportunities and losses in export earnings and tax revenues that have been incurred by merely stopping 3 similar mines from being developed. Over the years mining’s share of our GDP has probably halved and today it constitutes only 8% of our GDP.
We can argue as much as we like about corruption committed by the state, state owned enterprises and others, but we seem to be immune to considering whether or not the behavior of the private sector also does not constitute some sort of fraud or corruption. I use the word “fraud” in the context that the action was intended to result in financial or personal gain in a South African context, where greed (or abuse of market share) will ultimately end up in the destruction of our country and all that Mandela and others fought to achieve. Let me give a few examples:
In 2017 one of the large banks’ profits increased by 17.5% whilst the economy only grew by 1.7%. That same bank felt that they were quite justified in charging a customer a fee of R42 per month for copying five years of bond statements. While printing bond statements for five years required two pages , the bank’s customer was charged 60 months x R42 or R2520.
The delay in the transfer of funds between different banking accounts is totally unacceptable and a needless income earner. The abuses are endless.
Our cell phone operators charge rates almost unequalled in Africa.
Hospitals charge for consumables that are often not used and for theatre time when patients are waiting to go into theatre. Some of our medical aids approve procedures like cataract operations on both eyes then renege on paying for the second eye – a tactic tried unsuccessfully on me.
Pharmaceutical companies overcharge for drugs. As an example, the headache tablet Propain was invented by a client of my old auditing firm and initially retailed for the equivalent of R5 per hundred. If you bought Propain today, you would pay R250 per hundred. Much of the overpricing in the local market can be attributed to our useless regulator (who is ignorant of the fact that SA only constitutes 0.4% of world GDP so things are likely to have been approved in the remaining 99.6% of the world) taking many years to approve a drug. In 1995 when I was in the Ministry of Finance, we were offered valium from India at 1% of the price we were paying in South Africa – but we were prohibited from buying it as that valium producer had not been approved in South Africa.
I’m aware that manufacturers generally only change prices for goods supplied to retailers twice a year except where prices have been impacted by international events or currency fluctuations. Yet in South Africa you can go into any of the major chains and will find many instances where prices are changed two or three times a week- consumers have become so confused that they really do not know what price they should be paying – for a product such as two ply toilet paper the price can vary R89 to R149. To see the impact, all you have to do is compare the net profits to turnover in 1995 and now – their margins have in many cases doubled, sucking billions out of consumers’ pockets.
As a country we are huge exporters of almost zero added-value produce and raw materials. Steps must be taken to encourage foreign companies to invest in value adding activities, anywhere they please in South Africa and not be restricted to economic zones and bureaucratic intervention.
It must be accepted that without pressure the business community will not change and investment decisions will still be tax-driven and taken for short-term financial gain. Legislation will therefore have to be passed to:
Increase the Corporate rate of tax to 45% and granting incentives enabling the effective rate of tax to be reduced by say 5% of each 5% real sustainable employment opportunities created.
Create tax disincentives where scarce national resources are used for purposes that are not national priorities (such as the mindless redevelopment of central city office blocks and shopping centres).
Eliminate the fuel levy and if necessary, increase the rate of VAT.
Steps must be taken to limit the loss of employment opportunities by exporting
zero or little value-added products and raw materials. Here are some examples:
There are numerous black farmers who produce vegetables and the like that is sold at the nearest market – almost all at the same time thus resulting in them not achieving a fair market price. They are thus in a commodity trap. There are huge wealth and job creating opportunities to add value in this sector, rather than the chains merely buying their produce and at the same time improve the black sector of our economy.
The difference between what the farmer gets, and the amount paid to consumers must also be investigated and abuses eliminated.
In Reunion they export frozen seafood dinners at 10 times the value of the fish and hundreds of employment opportunities for farm produce, spices, sauces, foil, colour printing and packaging manufactures. In South Africa we exported R2 billion of zero added value hake.
Italy is one of the world’s largest manufacturers of hollow gold chain – name an Italian gold mine, yet here in SA we mainly export zero added value bullion.
Vast quantities are exported with little, or no value added – why are wooden products not manufactured and exported from South Africa?
Regulators like NERSA must be compelled to take the impact of their
delays or decisions on employment into account.
The economic consequence of the delay in granting mining permits should be disclosed and resulting losses to be claimable from the state.
The Companies Act should be amended to force the disclosure of the value of imports by retailers and others of produce or products that could be sourced in South Africa. Banks should also be required to disclose the income they earn from handling cash, from delaying transfers of funds and banks should be held liable to refund misappropriated funds deposited into their clients’ banking accounts.
Where businesses facilitate corruption to obtain business there should be a mandatory prison sentence for the Chief Executive as corruption is a major destroyer of both disposable income and employment opportunities.
We should copy Chile by immediately granting qualifying occupants transferrable title to their properties – experience there showed this created employment opportunities and being able to have title to their properties gave the owners the capacity to borrow against that title and set up their own small businesses.
Without reliable electricity employment is severely restricted and private co-operative electricity generation should be granted as was done by Pres.
Roosevelt in his New Deal.
Unemployed persons should be used in state-assisted schemes to build roads, housing, clinics and to erect electrical power lines etc (using labor-intensive
methods in rural areas).
Administered costs – Increases in costs imposed by government and parastatal institutions must be constrained.
We need a think tank like the Old Mutual/ Nedbank scenario group, of which I was a member with people such as Harvard Professors Bruce Scott and Pierre Wack – a world authority on planning in uncertain times – Michael Walton of the World Bank, Mamphela Ramphele, Professor Willem de Klerk and David Lewis (adviser to Cosatu) of Cape Town University, Professor Willie Esterhuyse of the University of Stellenbosch, Dr Maud Motanyane, Sheila Sisulu and others. President de Klerk and Nelson Mandela accepted our proposals.
A think tank with representatives of international investors and others should be set up to develop strategies to promote investment and employment and to ensure that funds are not disbursed unless certain conditions have been met
A private sector website highlighting the adverse economic impact of corruption (with photographs of offenders), delays in implementation and other adverse actions or inaction may help in shaming those currently immune from sanction.