An overview of outcomes from SACCI's Annual Convention 2011

In this edition, the South African Chamber of Commerce and Industry (SACCI) includes the gala dinner address by Minister of Finance Pravin Gordhan on the South African economy, which he delivered at SACCI‘s Annual Convention 2011; a report on the deliberations during the conference; and a list of the awards presented at the gala dinner.

On 3 and 4 October 2011, SACCI hosted its annual convention and conference at the Sandton Convention Centre. The conference and gala dinner were well attended, and speakers across business, the government and civil society gave fresh insights into the South African economy.

The speaker for the evening of the gala dinner, attended by more than 500 people, was Minister of Finance Pravin Gordhan.

The conference on the second day was equally well attended and also attracted speakers and leaders from all over the South African Chamber movement and the larger business community.

This issue of Opportunity will provide an overview of what was discussed during the event, while a detailed report on the motions tabled in the report will follow in further editions.

MINISTER GORDHAN’S SPEECH AT THE GALA DINNER

“Thank you for this opportunity to speak at the Annual SACCI Gala Dinner. I would like to congratulate you on the topics chosen for the convention, namely: leadership, sustainability and development.

We are living through extremely challenging economic times: the post-recession recovery where leadership will be severely tested, with the sustainability of old models questioned, and the focus on development sharpened.

Our morning coffee, as we open the newspapers, has been disturbed frequently by news of renewed market volatility as well as worsening financial and economic turmoil.

Recent international developments

The confluence of large fiscal and financial imbalances, high debt levels and slowing growth in advanced economies underpin the current sovereign debt crises, particularly in the European Union, and weigh heavily on policy-makers and business leaders across the world.

As captured in the International Monetary Fund’s (IMF) latest “World Economic Outlook”, the global economy is in a “dangerous new phase”. Global growth – which began to moderate in the second quarter this year, following the earthquake in Japan and an oil price shock – has continued to lose momentum.

A worldwide slowdown is evident in disappointing second-quarter growth across advanced economies, while the JPMorgan Global Manufacturing Purchasing Managers Index – an aggregate measure of confidence in the global manufacturing sector – has declined over the last six months to its lowest level in over two years, in August.

In September this year, the communiqué of the BRICS (Brazil, Russia, India, China, South Africa bloc) finance ministers argued that, “the immediate problem at hand is to get growth back on track in developed countries.”

Policy uncertainty appears pervasive, and policy space has been narrowed by the fiscal and stimulus measures of the past. The escalating debt crisis in the EU, and growing concerns over the ill-health of the United States economy – where the housing market is experiencing a double dip and unemployment remains stubbornly high – have started to impact on already fragile real activity in these regions. Confidence measures have fallen, together triggering rising global financial market volatility and bouts of risk aversion.

We went on to state in the BRICS communiqué that “it is critical for advanced economies to adopt responsible macroeconomic and financial policies, avoid creating excessive global liquidity, and undertake structural reforms to lift growth, create jobs and reduce imbalances.”

We have learnt that there is greater interconnectivity; and that what happens at a global level with developed countries has a spill-over effect on developing and emerging economies as well.

Having just returned from G20 and IMF meetings in Washington, there is a developing collective will to act decisively in the best interests of the global economy and prevent any outcome reminiscent of that following the collapse of Lehman Brothers in 2008.

From the IMF communiqué, I quote: “Today, we agreed to act decisively to tackle the dangers confronting the global economy. These include sovereign debt risks, financial system fragility, weakening economic growth and high unemployment.

“Our circumstances vary, but our economies and financial systems are closely interlinked. We will therefore act collectively to restore confidence and financial stability, and rekindle global growth.”

The shifting pattern of global growth

Against this backdrop, emerging economies have continued to grow strongly. Annual growth was 9.5% in China and 7.7% in India during the second quarter.

Emerging markets do not have the same debt or growth problems as many advanced economies. Government deficits and debt levels are much lower, and rates of growth faster.

Emerging markets are expected to contribute 3.2 percentage points to total global gross domestic product growth of 4% in 2011; and by 2015, the BRICS group is expected to account for almost a quarter of global GDP – up from just 8% in 2000.

The idea of a “two-speed” global economy is becoming entrenched, and the traditional perception of emerging markets as a risky investment destination is changing. While this may be subject to sharp reversals in the short term – as a result of swings in investor appetite – we are likely to see large investment flows channelled South and East for years and decades to come.

This represents a huge opportunity that emerging markets can embrace if capital flows are channelled toward productive investments that raise the potential growth rate of the economy.

Domestic outlook

The South African economy has close ties with the global economy, particularly the G7, and our local economic performance tends to rise and fall with global trends.

Following robust growth of 4.5% during the first three months of the year, economic activity at home has mirrored developments in advanced economies, slowing sharply in the second quarter of this year. The economy grew by just 1.3% between April and June this year as manufacturing, mining and agriculture contracted.

The weakening growth performance in developed markets and the escalation in market volatility have cast a shadow over the domestic outlook. Business and consumer confidence readings have declined, highlighting growing pessimism regarding the health of the economy.

There are many channels through which sluggish growth and financial market turmoil in advanced economies affect South Africa. These include weakening global demand for South African exports and deteriorating sentiment; investor uncertainty and rising risk aversion; a more volatile exchange rate and commodity prices; and possible revenue underperformance.

The turmoil may further impact international funding conditions, which are important to South Africa, given that we intend to borrow almost R450 billion to fund our fiscal deficit over the medium term.

Some of the weakening in our manufacturing performance reflects temporary factors, including supply chain disruption associated with the Japanese earthquake, and pockets of industrial action.

It still remains to be seen the extent to which global developments have hampered real activity in the third quarter; however, slowing global demand will put our tradable sectors under pressure.

While global demand has weakened, there are a number of factors that continue to support growth. High commodity prices as a result of demand from the fast-growing emerging economies, strong gains in real disposable income, and a relatively low inflation and interest rate environment, should be conducive for robust consumption and accelerating investment.

The latest South African Reserve Bank Quarterly Bulletin, released in September, shows a fledgling recovery of private sector investment led by mining and the transport and communications sector. Capacity utilisation rates have continued to rise, suggesting there is further potential for strengthening fixed capital formation as spare capacity is slowly eroded.

Ongoing public sector investment into infrastructure will contribute to economic growth, and will help draw in further private investment.

The fundamental challenges facing the economy remain

Against the background of uncertain global conditions, we cannot lose sight of our fundamental socio-economic challenges: unemployment, poverty
and inequality.

The unemployment rate is currently 25.7%, with about half of all young people being jobless.

Income inequality remains high; the country’s Gini co-efficient, which is the typical measure of income inequality, was 0.7 in 2008 – among the highest in the world. Poverty continues to affect millions, with about half the population (25 million people) in 2008 living on less than R524 per month – approximately two US dollars a day.

To confront these challenges, the country needs to achieve higher rates of economic growth and stimulate much faster job creation. Our ambition, as I have stated on many previous occasions, should be to achieve and sustain growth of 7%. This is an appealing number since, at this pace, the economy would double in size every 10 years, bringing jobs and prosperity, and lifting millions out of poverty.

And it has been done before in other countries around the globe.

At the moment, however, 7% is not possible for South Africa. The speed limit of the economy is much lower. Our growth projections at the time of the Budget, and before the current market turmoil, were for the economy to grow by 4% a year over the next three years. To make 7% a reality will require a concerted effort to assess where the bottlenecks and binding constraints to growth exist; identifying the reforms will release these constraints and make South Africa more competitive.

The business environment in South Africa

In the latest World Economic Forum (WEF) “Global Competitiveness Report 2011-2012”, South Africa gained four places in the rankings. As a country, we now rank 50th in the world, out of 142 countries; and second, behind China, among our BRICS counterparts. We continue to hold top spot in sub-Saharan Africa; and the quality of our financial markets, so important given the current turmoil, are among the best in the world.

This is to be welcomed, but we should not rest on our laurels.

Competitiveness is a relative concept, and continuously evolving. As a country, we must work together to improve the business climate and foster further gains in competitiveness.

We should focus on those areas that are consistently identified as constraints to investment and growth. These include our weak performance in basic health and education; and the considerable scope to improve infrastructure such as our ports, rail, electricity and communications; logistics costs; government regulation; innovation; and the efficiency of our labour market. These are cross-cutting factors that underpin the underlying cost structure, competitiveness and productivity of the economy.

The government is aware of these constraints and is pursuing 12 key outcomes that target these very areas, with priorities encompassing education, health, skills, crime and safety, infrastructure, an efficient and effective public service, and the need to create decent employment through inclusive growth.

Increasing exports

With the global recovery waning, tepid growth in advanced economies, and the reorientation of the global economy toward rapidly expanding emerging markets and developing countries, only those countries, industries and firms that are most competitive will achieve success in exporting their goods and services.

This new world is daunting, and raises a number of important questions, but also provides numerous opportunities:

• Given our economy is the most advanced in Africa, how do we create integrated regional value chains (à la Apple Inc.)?

• How do we access the opportunities to sell technology and advanced manufactures that are tailored to the African and other emerging markets?

• Together, can we discover and sustain dynamic export industries that are globally competitive?

• How can we exploit the export opportunities presented by the continent and take advantage of trade agreements such as the proposed Southern African Development Community, East African Community and Common Market for Eastern and Southern Africa free trade area?

• Together, can we identify the development needs of growing African economies, such as infrastructure and mining-
related needs?

• What changes would make our industrial development zones become world-class special export zones and result in fast-growing, productive and job-creating export producers?

• Together, can we release the domestic constraints to exporting, whether this be costs to production in transport infrastructure, logistics or other inputs?

The role of the private sector

For us to make strides toward achieving our national priorities, we need to develop effective partnerships with all social partners. If the economy is to achieve the growth rates needed to create the millions of jobs that will help reduce unemployment, poverty and inequality, private sector businesses have a critical role to play.

The importance of business and the private sector for growth and job creation cannot be understated. It currently accounts for more than 80% of GDP and a slightly higher share of employment.

We need effective partnership between government and business, to invest and grow, to develop the skills base needed to drive the economy forward, to innovate and foster technological progress.

The Jobs Fund, introduced at this year’s Budget – with its challenge fund approach – seeks to institutionalise these types of partnerships with the aim of creating viable and sustainable employment.

The government has a critical supporting role to play in growth and job creation through the economic policies it sets. These include sound macro-economic management that provides certainty in the economy, and the framework and foundations for strong, sustained and inclusive growth; but also the provision of efficient, effective and appropriately priced network infrastructure, and promoting an environment that is conducive to private sector growth and investment, including appropriate regulation and micro-economic reform.

Increasing product market competition

One critical avenue for reform is to raise levels of product market competition in the economy.

Many of our major industries are characterised by high levels of concentration and low levels of competition. Shielded from the discipline imposed by market competition, businesses in these industries have been able to set large markups that translate into high prices for consumers. In the case of primary and intermediate goods industries, high concentration reduces the competitiveness of downstream industries.

Lowering concentration and raising competition will increase efficiency in the economy, stimulating productivity and accelerating economic growth. This can work through a number of mechanisms: higher competitive pressures force better company management, stimulate investment and capital deepening, and encourage innovation that together raise productivity levels and allow firms to fend off competition.

There are many ways to encourage greater competition. The IMF, in its annual Article IV consultation and assessment of the South African economy, argued that the accent should be on “broad-based reforms to improve competition and competitiveness” through trade reform and attracting new entrants into the key network industries (energy, telecommunications, and transport and logistics). This highlights an area that could provide a huge boost to growth and competitiveness through enabling significant efficiency improvements and lowering the costs of production in South Africa.

Supporting the activities of the Competition Commission and adopting measures that lower regulatory and administrative burdens, particularly for small businesses, would support new entrants, encourage new firm start-ups, and the expansion of existing small businesses.

The importance of SMMEs

Small, medium and micro enterprises (SMMEs) are critical for overall employment and job creation. They account for the majority of employment in the South African economy.

Labour force data shows that about 70% of private employment is in firms with fewer than 50 workers. In addition, smaller firms account for a disproportionate share of gross job creation, with almost 80% of all new jobs being created in firms with fewer than 50 workers.

Addressing the employment challenge facing our country will be difficult without a sustained upward shift in the number of firms operating in the country and the expansion of jobs created in smaller firms.

New firm entry stimulates enterprises and encourages productivity gains through pro-competition effects. New firm entry further engenders technological progress, given that cutting-edge innovation often derives from new market entrants.

Since firms are smaller, regulatory burdens impose a disproportionately large cost. Smaller firms are unable to have dedicated teams to comply with the rules and regulations they may face related to labour issues, trade issues, licences and permits, and taxation. These act as effective barriers to entry for new firms, and discourage the expansion of existing firms, limiting their job creation potential.

Regulatory compliance cost as a percentage of turnover is much higher for smaller firms. The compliance cost is about 8% of turnover for firms with turnover of below R1m, but less than 1% for firms that have a turnover of more than R10m (Organisation for Economic Co-operation and Development, 2008).1

Surveys of South Africa’s investment climate have shown that the delay in waiting for telephone, water and electrical connections, construction permits, and import and operating licences are longer for smaller firms.

Working alongside small business in a process of discovery, the government needs to ensure the regulatory and administrative burden is appropriate and does not unduly impinge on small firm creation, growth and expansion.

Fostering entrepreneurship

Critical to developing the SMME sector in South Africa is fostering greater entrepreneurial activity.

In 2010, South Africa ranked 27th out of 59 countries in terms of early-stage entrepreneurship.

Total early-stage entrepreneurial activity rate grew from 5.9% in 2009 to 8.9% in 2010, partly reflecting the boost provided by hosting the 2010 Fifa Soccer World Cup. Despite this improvement, South Africa’s entrepreneurship performance lags comparator economies including Argentina, Brazil, Chile, China, Columbia, Mexico and Peru.

This is perturbing, and raises the following questions: Where is this entrepreneurial dynamism in South Africa? And, how can we as government and as existing business help stimulate and support entrepreneurs to start businesses and create more jobs?

While early-stage entrepreneurial activity has improved, there is poor sustainability of start-ups.

The Global Entrepreneurship Monitor for South Africa shows that the established ownership rate is just 2.1% – that is, only one in 50 of those aged 18 to 64 owns a business that has existed for three years or longer. This is just a quarter of the average among South Africa’s peers, where almost 8% own existing businesses. This suggests there is a need for more effective interventions to allow greater competition and ensure new start-ups translate into sustainable firm development.

Key constraints to entrepreneurial activity in South Africa include education and training, government policies to support entrepreneurs and SMMEs, and market openness. Providing appropriate support to allow new start-ups to develop into established firms will be important as well.

The government’s decision to consolidate and strengthen small business financial and advisory support, drawing on both public and private sector capacity, should help contribute to more rapid growth and job creation in this sector.

Improving the quality of basic and further education is important, but more targeted reforms could assist in cultivating entrepreneurship. Early exposure to entrepreneurship in schools is essential through teaching business skills and encouraging entrepreneurial activities, and helps create an awareness of entrepreneurship as a viable career option. Strengthening further education and training (FET) colleges and other institutions to foster enterprise development is important as well.

Conclusion

In concluding, I must reiterate that South Africa needs to achieve and sustain strong and inclusive growth to deliver the millions of jobs we need and make progress on our focal challenges of unemployment, poverty and inequality. The developments in the global economy make these challenges even harder, but we should not and cannot lose our focus and passion for creating a better South Africa.

I have spoken here about the need to create effective partnerships between business, labour and the government, backed by a new social cohesion, a new single-minded approach, an energetic work ethic and, lastly, a focus on “us” and not just me: the important role that the private sector has to play to help release the bottlenecks to growth; and the role of entrepreneurship and a flourishing small business sector to achieve growth and faster
job creation.

The diagnostics and focal areas for policy are relatively clear. What we need now is to come together as a country, public and private sector, business and labour, to develop and implement the policies that start addressing these constraints and releasing the chains that currently restrain growth and employment.”

Reference:

1. Strategic Business Partnership, “Counting the cost of red tape for business in South Africa”, 2005

REPORT ON DELIBERATIONS DURING THE SACCI 2011 ANNUAL CONFERENCE

Chose Choeu, president of SACCI

The unity of purpose in business is very important, and the business community needs to work with the government – and not have the situation of “us versus them”. This is especially true in the case of dealings with local government.

The recent service delivery protests across the country point to frustration among South Africans with everyday problems such as rampant potholes, and water and electricity service disruptions, among others. We need to work with our elected officials to solve these problems.

One good example of co-operation is at the Department of Home Affairs. Ms Nkosazana Dlamini-Zuma showed expert leadership, and now the department has earned its first clean audit since 1994.

South Africa has a range of advantages that the business community needs to take recognition of.

Firstly, South Africa is a democratic country that has successfully achieved a peaceful transition.

Secondly, South Africa has proven to the world that we are able to host major sporting events such as the Fifa Soccer World Cup.

Finally, South Africans enjoy debating issues, and this is evidenced by the renewed debate on nationalisation. Even though the debate is old, we entertain it precisely because we enjoy debating so much. In this regard, the business community is appealing to the government to introduce an Economic Convention for a Democratic South Africa (Codesa).

Sudhir Sooklal, director for trade in services at the Department of Trade and Industry (the dti)

Trade policy is one instrument within the greater policy mix; for example, the New Growth Path and industrial policy forms are part of this mix. These policies seek to accelerate economic growth and to diversify the growth within the economy.

However, trade policy individually must support the objectives of industrial development. Trade is a very important contributor to GDP in and of itself, and exports form a key sustenance for domestic production.

Apart from supporting the level of trade, another important policy objective is to shift the export pattern to products with higher local value-added content.

The dti has learnt some of the key lessons in policy design:

Firstly, it is important to consult with stakeholders. For example, certain tariffs between South Africa and India can be lowered to the benefit of both countries, and would serve to deliver more benefits than a wide-ranging, across-the-board lowering of tariffs.

The business community should go to the minister of Trade and Industry and ask him about service export agreements. Why can we not export more services to India?

Secondly, although much focus is given to tariffs, policy-makers should be aware of non-tariff barriers. These would be regulations on trade in the form of domestic sanitary requirements and technical standards, to name a few.

South Africa’s joining of the BRICS multilateral discussion forum will help us in shaping the global governance structure going forward. In this regard, South Africa should use the BRICS engagements to foster local and African development.

Although developing economies such as China offer huge potential, the importance of trading partners within the northern hemisphere should not be ignored. These developed economies, such as the US and eurozone, still play a critical part in South African trade.

Peter Draper, senior research fellow, South African Institute of International Affairs (SAIIA)

The global economy is facing threats of financial implosion in the EU, and a new Great Depression.

At present, the focus is on containing the crisis and stopping the danger of a so-called creeping protectionism. Similarly, the US senate is considering sanctions against Chinese because of its intervention in its currency.

At the same time, there are opportunities for new markets and new investors in Africa and Asia, to be found amid these uncertain times. China is, for example, changing its model from an export-based economy to foster greater consumer expenditure, and South Africa can obviously supply to the massive Chinese consumer base.

Recently, a few business consultancies and international organisations have released reports on South Africa and Africa’s economic prospects, and most of these reports are very optimistic about future growth.

Domestically, there is a host of concerns. Although South Africa’s joining to BRICS will allow us some say in global government structures, our domestic economic growth is still muddling along, and unemployment remains high.

In addition, politics is becoming increasingly fractious. At this point, it would be nice to see strong leadership on economic matters, among other things.

In terms of South African trade policy, the conventional view of the dti, to protect whole industries, is out of date. The department is very conservative, and has blocked the ambitions to trade liberalisation. South Africa should rather look to plugging into complex international supply chains.

On the negative side, the labour policy currently before the National Economic Development and Labour Council is anti-employment, and the nationalisation debate is corrosive to investor confidence.

Furthermore, South Africa faces higher cost structures and regulatory burdens in an increasingly competitive international market. Small and medium enterprises (SMEs) do not export; and because of the rising cost of regulatory compliance, it is becoming more difficult for them to develop to a bigger size and be able to export.

There is a clear need for more regulatory impact assessments to be carried out.

Carlman Moyo, regional director for sub-Saharan Africa: DuPont de Nemours Africa

Business needs to position itself in order to take advantage of changes to global systems. Similarly, environmental degradation indicates that business needs to do something different and needs to understand what is driving the current change in political mood.

The growing world population wants more and better food, more abundant and clean technology, and security.

Business thrives on fulfilling unmet needs. This can only be met through increased collaboration, better and more focused industrial policy, and innovation in problem-solving. Collaboration between the government and farmers is essential in achieving these goals.

Dennis Dykes, chief economist at Nedbank and director at SACCI

South Africa is currently in an ironic situation because our future depends on providing resources to the East and goods and services to the rest of Africa. But at the same time, our own resources are constrained, and South African industry faces higher energy costs and low human skill levels. For example, we do not have enough electricity, which is hurting mining and manufacturing.

There is other binding constraint: South African carbon emissions must be 34% less by 2020, so we need to see usage peak by 2025.

South African energy production is dirty, and our dependence on coal is not likely to change in the short term. South Africa continuous to depend on heavy industry precisely because we had low energy costs for so long. The transportation of products from the heavy industry imposes further heavy energy usage.

In order to meet the emissions target, certain major structural changes need to be forced on industry. South Africa needs to become less reliant on heavy industry and use more labour-absorbing industries in order to address the problem of unemployment.

The deadlines on carbon emissions can be used to force industry to change its ways: the next few years must be used to move to lighter industry and exploit technological opportunities. Similarly, beneficiation cannot be based on the old model.

Richard Pike, chief executive of Adcorp

In 1994, South Africa had a 13% unemployment rate, but this has risen to the current 25%. By adding together the officially unemployment figure with discouraged job seekers and underemployed, one arrives at 8.5 million people who are without a full-time job. That means 46% of the adult population is not economically active.

Unemployment is South Africa’s most pressing problem, particularly if taken into account that the bulk of these unemployed are young, poorly educated previously disadvantaged individuals.

The fact that job creation serves as the highest priority in the New Growth Path is encouraging, and the National Planning Commission identified unemployment as a main concern. However, the New Growth Path does not diagnose the problem of unemployment, since there is no examination of the drivers of unemployment.

Skills shortages among the high numbers of unemployed leave about one million vacancies in the South African economy across various skill levels. Currently, the country has 260 000 vacancies in the manufacturing industry, 178 000 in professional services and a further 10 000 in the technical industries, among others.

The introduction of the Skills Development Act of 1998 created a host of problems in training and education, and has worsened South Africa’s unemployment problem. The goal of the act was to improve skills in the workplace by replacing the artisans system with sector education and training authorities (Setas). The Seta system diverted money to training, created bureaucracies and offered very little training.

Around 50% of all funding went into the establishment of the Setas.

Prior to the Skills Act, FET colleges were flourishing and artisanships were in full swing in the mining industry, the military and state-owned enterprises, but the Skills Development Act stopped it all.

The National Skills Fund (NSF) has since grown to R5.2bn: this is a national scandal amid our high unemployment. The former minister of Labour admitted that the money from the fund would not be spent for fear of it falling into the wrong hands.

At the moment, South Africa is in a crisis mode, and business is asked to come to the party, after already contributing R2bn to the NSF. At present, South Africa has all the ingredients: trainers, young talent and the money. The country needs less red tape, and we need to dismantle the Seta system.

A fundamental problem of these interventions by the government is that it holds a paternalistic view: The assumption is that the government knows what is good for business. Business, in fact, knows what is good for business.

Some of the recommendations include: incentives such as tax deductions for training, and the creation of a Department of Unemployment within the Cabinet.

Anne Bernstein, executive director at the Centre for Development and Enterprise

The Department of Labour is currently closing factories in Newcastle because these factories are not paying the minimum wage. Hundreds of garment workers will lose their jobs due to the strict enforcement of minimum wages. The textile industry in Newcastle has grown while the rest of the country has shrunk.

Instead of recognising this industry, existing regulations are destroying it.

The employers in Newcastle are not fat cats; most of them live on the same ground as the factories, and are entrepreneurs. They are well aware of the fact that plants in Swaziland and Lesotho will cost them less to produce.

The general problem with South African labour policy is a failure among politicians to understand the Asian success story: For the vast majority of female factory workers in Asia, a factory job provides an escape from back-breaking rural and domestic work. Working in a factory further provides a toehold to the modern economy, and skills are learnt on the job.

At the moment, workers are pushing up wages in China and the country has a labour shortage. The big questions are: who will get those jobs, and why is South Africa not competing?

There is a pretence that another way exists for South Africa to move from high unemployment and low skills base to prosperity. No such alternative exists. We have to employ what South Africa has to offer at the moment, and not base labour policy on imaginary skills.

Of course, education and training needs to be improved. In this regard, performance incentives need to be introduced, since teachers are not coming to school. In addition, training institutions are not good enough, and there is no way that public institution can create enough teachers: this is, in fact, an enterprise opportunity.

The regulatory barriers to employment need to be removed. The experiment with the wage subsidy shows that it is the first time the government recognises that the cost of employment contributes to high unemployment.

South Africa needs to make a choice: we can either have a narrow and highly skilled labour base, or have as many people as possible working. SACCI needs to play a larger role, and the voice of smaller business needs to be heard in this regard.

Brian Armstrong, senior managing executive at Telkom

The global order is changing, and technological industries are changing. Reputation is a dynamic quality, and perceptions drive business decisions. We must ensure South Africa turns around its malign international perception.

The shift in Telkom, away from being a monopoly, has taught the organisation certain lessons:

• Competition is good and benefits the company as well as the country;

• Leadership matters, and therefore stability and continuity are important;

• Small things matter, for example, improved customer service makes for much better revenue; and

• Execution matters – the difference between success and failure lies in the execution.

SMEs are the most confident and optimistic of all sectors. Staff numbers stayed relatively constant and even saw small increases through the economic turbulence. However, there is a significant skills constraint as well as red tape, difficult procurement policies, and other regulatory barriers such as labour legislation in South Africa that needs to be addressed.

South Africa is well positioned to take advantage of our position in Africa, particularly with Africa as the pole of
new growth.

The following quote needs to direct our policy-making process: “Countries are judged by what they make and what they do – not by what they say.”

Professor Mike Morris, director of Policy Research on International Services and Manufacturing (PRISM) at the University of Cape Town School of Economics

South Africa cannot ignore globalisation, so the questions are: What should be the policy focus? Which markets that you export into matter more than just exporting i.e. do they build capability? (How you export matters much more than what you export i.e. focus on how you produce.) What are the institutional relationships between industry and the government i.e. which build partnerships?

The issue is not whether to participate in globalisation, but rather how. The primary focus of industrial policy should be the following:

• To raise firm level competitiveness through building capabilities and skills;

• To create systemic competitiveness through facilitating value chain alignment; and

• To foster innovation or technological capabilities – help firms move into higher value-added production space.

A critical question for industrial policy is: who should lead the policy formulation process? The government cannot force business to align with its political objectives if the state does not align with the economic objectives of business.

It is important to differentiate between stakeholders and interested parties in terms of industrial policy. Firms in the sectors targeted are stakeholders, but unions and civil society are interested parties.

The government must build public-private partnerships with stakeholders, and consult interested parties. Furthermore, the government should listen to the concerns and problems of interested persons, but not allow them to drive industrial policy.

The reality of government and industry negotiations on industrial policy is that the state does not recognise the key drivers of the value chains. The industrial base has been downgraded, but the state has not recognised this adequately.

In addition, the government assumes we have managerial skills, technical capability, and deep manufacturing culture. But, in reality, it is only present in select pockets, and not in the scale or concentrations to provide systemic competitiveness.

A second fundamental problem with South African industrial policy is its extremely wide range: it includes most sectors and 83% of manufacturing employment.

Industrial policy is supposed to foster international competitiveness, but South African industrial policy crowds out this priority with ancillary objectives. The two biggest are employment and broad-based black economic empowerment.

Ronnie Kasrils, MP and Member of the United Nations Secretary-General’s Advisory Board on Water and Sanitation

An error has been made in placing politics and economics in silos – they must merge.

It is said that South Africa has unique challenges, but what are those challenges? To name a few: skills shortages, wealth disparities, and lack of opportunities.

A key element in analysis of South Africa’s economy and policy position is the transition from a colonial relationship. I am a casualty of the ANC Polokwane conference, and no one realised the generational aspect of the change in power. Polokwane was the Thabo Mbeki generation being wiped out.

We need to understand the energy and ambition of the youth. The younger generation is already in the echelons of economic power. The political radicalism is a manifestation of youth describing the world and this colonial aspect in the rawest way.

Amid this seeming political radicalism, however, the new leaders tend to relax when they reach the top. South Africa needs to mentor our youth, and we need to put faces on boards and teams, which are not based on colour.

Unfortunately, I do not see sufficient mentoring of the youth within the ANC. A split within the ANC will not be good for South Africa: we need a cohesive ANC to mentor the youth and assist those youth who have come through great difficulties.

We have taken shortcuts to get a reflection of our demographics and, in many cases, people are pushed to the fore. There are many people in senior positions not based on their merit.

SACCI is grateful for the generous sponsorships that made the 2011 Convention possible. Our appreciation goes to Telkom, Transnet, Eskom, Business Report, Sowetan, the Industrial Development Corporation, Safmarine, Nedbank, Absa, Global Sourcing Fairs and Ulwazi Group.

SACCI editorial team