Centre for Development and Enterprise (CDE) executive director Ann Bernstein believes that South Africa is headed for a “catastrophic unemployment crisis” if it does not urgently remove barriers to economic growth.

“We’re in deep, deep trouble, and just doing what we’ve always done, or carrying on with reform in a hesitant, not very fast, manner is not sufficient,” Bernstein said.

“Our challenge is that so many things are wrong and hindering growth and employment, so many things we have to fix to get the environment right for faster growth.”

“We’re in desperate crisis, so we’re saying, speed the whole thing up. Let’s move from the talk to actually doing something.”

Bernstein raised her concerns in an interview with the Sunday Times following the publication of the CDE’s latest ACTION report on what it regards as priorities for the government of national unity (GNU).

The CDE’s Let the private sector drive small business development report argues that the government’s chief priority should be creating the conditions for faster economic growth.

The lack of growth is one of the major factors driving unemployment — which officially stood around 31.9% in Statistics South Africa’s latest Quarterly Labour Force Survey.

That percentage only considers people who express a willingness to work. The actual proportion of unemployed is much larger when counting those who have no intention of seeking a job.

The CDE’s report states that the government’s efforts to develop the small business sector were not working and were undermining the potential for job growth.

“Many of the core assumptions that inform these efforts are wrong. They are based on an over-estimation of government’s capacity to create businesses and to foster their development,” the report states.

“They tend to be premised on a view of small businesses that implies that they are separate from the rest of the economy.”

“And they assume that increasing the relative size of the small business sector is a good thing in itself, without considering how we can get faster growing, labour-creating firms.”

“Based on these misconceptions, the government has chosen to focus resources on public schemes to support small businesses, especially in areas with very little potential for economic development, instead of building better-integrated cities with opportunities for all businesses.”

Just shut it down

Bernstein said the first priority should be to eliminate the idea that government officials with no experience starting businesses are qualified to grow the small business sector.

She called for the Department of Small Business Development to be scrapped entirely and the private sector to take over its work.

“The facts show that over 15 years they haven’t delivered,” Bernstein told the Sunday Times.

She said that the R6 billion a year the government has spent on small business development has achieved nothing.

Bernstein acknowledged although the private sector was not perfect, it certainly had more experience in how firms work, how to grow them from small to medium, and what support they needed.

She said another issue holding back businesses was regulation and forced localisation.

“We need deregulation. Let’s get beyond the rhetoric of the president’s red tape reduction task team and let’s actually do it. It’s not like South Africa’s in normal times, we’re in desperate crisis.”

“Forcing government departments to buy local encourages higher prices and inefficiency and, as we’ve seen, is a great conduit for corruption.”

She pointed out that the government’s own procurement efforts were often exempted from localisation and Black Economic Empowerment requirements.

One major state-owned institution that has benefitted from such exemptions is Eskom, which is working directly with foreign-based original equipment manufacturers on its generation recovery plan.

“If government thinks they have to do this to fix Eskom, what makes them think these are such great policies for the rest of the economy?” Bernstein said.

Bernstein said that despite much rhetoric, there had been no meaningful shift towards creating a more enabling regulatory environment.

“There isn’t sufficient urgency or boldness about what has to change.”

GNU is more of the same

Bernstein also asserted the GNU had largely carried on with a “whole lot of things” from the ANC-only administrations that got the country into its current predicament.

She said the fact that the Donald Trump-led US government now had its sights firmly on South Africa exacerbated the risk of a fiscal crisis.

“This is all very tricky for a country that has no reserves and no cushion for economic shocks,” she explained.

“We’ve got to send some big, bold signals that we’re going to try to do things really differently to get growth.”

“To the investment community, to our citizens, to the world.”

The CDE’s report also calls for concerted efforts to improve the institutional environment and restore the rule of law, factors which impact business growth and South Africa’s perception abroad.

“Weak state institutions, corruption, crime and extortion ‘mafias’, diluted property rights, and slow, overburdened courts all impact negatively on the growth of existing firms, as well as the emergence of new firms,” it stated.

“In addition, attention must be paid to addressing ongoing infrastructural challenges in electricity, water and transportation, which continue to hold back all firms.”

source:South Africa in deep, deep trouble – MyBroadband