by Brian Joffe

Investing in SA

Small businesses could fix the unemployment problem

Business is rightly worried about the government’s response to the fiscal deficit and debt burden
Fundamental mismatch

Business is rightly worried about the government’s response to the fiscal deficit and debt burden - the hands guiding policy seem to have slipped off the wheel in the past year by letting spending get out of control when it was clear revenue would not be as strong as expected.

Without a savings rate of closer to 25% of gross domestic product, from the present level of little more than 15%, raising the funding that is needed becomes almost impossible. South Africa needs between 2 million and 3 million small businesses to fix the unemployment problem. Instead, we have seen 440 000 small businesses fail between 2006 and 2011.

The government’s protectionist tendencies are more worrying for South Africa’s companies than international companies. But companies need to do more, too. There seem to be too many business groups in the country, all trying to curry favour for their vested interests. The government simply does not know who to call on at critical moments.

Corporate cash deposits now exceed R500bn and there are no indications the spigots of spending and investment are about to open. The government has a point in asking for more investment from the private sector, but businesses are drowning in red tape. They face inordinately long waiting periods to get licences and work permits.

Our inflexible labour laws are among the most limiting in the world and ratings agencies are rightly concerned that social pressures could cause further instability this year. For all the government’s cajoling of business to 'come to the party' by aiding growth and creating jobs, the environment is simply not attractive. There appears to be a fundamental mismatch between what the government wants and what business needs.

This year’s tax commission could be a good place to start establishing a more friendly regime for businesses by identifying bottlenecks and unblocking them. It would also help if one clear, unambiguous economic policy could be agreed upon, and a single ministry chosen to take up the fight for private enterprise. The government does not have the resources to address all the economic and social difficulties facing the country at once. It is good that a recent global survey among chief executives found that companies accept this and will therefore be increasing their social and sustainable investment over the next three years.

The worst survey outcome for the government came when business was asked whether the government had been effective in helping to create a skilled workforce. A total of 87% CEOs thought it had not. When asked if the government had reduced the regulatory burden on corporations, 84% either disagreed or strongly disagreed.

Companies were also critical of the government for not doing enough to help them secure access to natural resources such as water and energy. Eskom’s request for a 16%-a-year tariff hike met with a chorus of discontent, with many companies saying they would face failure if this transpired. Eskom has lost that battle for now, although the war continues, as its limited generation capacity could still lead to blackouts this winter. However, this was a good example of business getting its message across and the state taking heed.

No fewer than 70% of local CEOs intend to make at least some change to their organisational structure in the next 12 months. Cost restructuring has trumped strategic alliances for companies in the past year, indicating how tough the environment is.

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Issue 58