Chief Executive Officer at SEIFSA
Globalization: Does It Present Opportunities Or A Threat for African Countries/ Can African Countries Compete On a Level Playing Field?
There is no doubt that globalization has successfully turned the world into a global village, with minimum trade barriers between the different countries in all four continents. It has eased international trade and commerce and facilitated foreign investment and the flow of capital. There is also very little doubt that globalization has presented opportunities for African countries to reap benefits by, among other things, exporting locally-manufactured goods to the rest of the world and earning foreign currencies in the process.
South Africa is one of the African countries that have reaped the rewards of globalization. The country exports many of its goods and services to countries beyond its boarder ranging from China, through to Australia, the European Union and the United States. But are African countries taking full advantages of the opportunities presented by globalization? Do they have what it takes to compete on a level playing field with the world’s largest economies such as the United States, Japan and China?
Given the current state of South Africa’s and other African nations’ balance of payments, the answer is No… African countries import more goods and services from the rest of the world than they export local goods and services to the rest of the world. Recent developments in the South African steel sector also indicate that globalization can cripple some sectors of local economies. While some sectors can compete, there are those, especially in manufacturing, that are extremely vulnerable. Sometimes this is because they are faced with unfair competition. Some countries in the East give incentives to their companies to encourage manufacturing. Then products land in South Africa at ridiculous prices. Some of this is nothing more than dumping.
Some critics of globalization go as far as suggesting that economically globalization has reinforced the economic marginalization of African economies and their dependence on a few primary goods for which demand and prices are externally determined. This has, in turn, accentuated poverty.
They also believe that by insisting on African countries opening their economies to foreign goods and entrepreneurs, globalization limits the ability of African governments to take proactive and conscious measures to facilitate the emergence of an indigenous entrepreneurial class.
Whether one is an opponent or a proponent of globalization, the reality is that globalization is here to stay and we need to find ways to take full advantage of the opportunities it presents and minimise its threats.
Corruption and Its Impact on Economic Growth
Corruption Watch defines corruption as “the abuse of public office for private gain.” It is a barrier to economic development for many countries. In South Africa, corruption is believed to account for a significant chunk of business activity. Allegedly there are companies that survive and grow by offering bribes to Government officials, with some of them led by people who rely exclusively on tenders from the public sectors, disparagingly known as “tenderpreneurs”.
In a number of cases, the projects allocated to the “tenderpreneurs” because of alleged cronyism and patronage are never completed because of exorbitant upfront bribes eroding the operating capital. In other instances, these projects are completed but never used because they are so poorly built that they will need continuous repairs and their output will be disappointing. In these circumstances, capital expenditure fails to generate the expected economic growth.
In 2013 reports by the Auditor-General, the Public Protector and other Chapter Nine institutions showed that public-sector corruption robed the public purse of an estimated 10% of the Government’s annual procurement budget. According to Advocate Willie Hofmeyr, former head of the Special Investigating Unit, between R25-billion and R30-billion of the Government’s procurement budget is lost to corruption each year.
Corruption is undoubtable one of the key contributing factors that hamper South Africa’s economic growth. In addition to hindering the country’s economic growth, it also discourages foreign direct investment as foreign investors tend to shy away from countries that are deemed to be corrupt.
Corruption steals the wealth of a nation and, in the process, impoverishes its people. How much longer are South Africans likely to stand by and watch as corruption festers?
Transformation as a Strategic Weapon/Business Enabler in South Africa
That is what the ruling party promised in the run-up to the 2014 general elections, and what President Jacob Zuma stressed in his post-election State of the Nation Address in Parliament that year.
It is important that we understand why economic transformation features so prominently in the Government’s plans, what is intended by it and how business – but especially the metals and engineering sector – stands to be affected by it. Failure to understand the strategic importance of this matter and the urgency with which it is approached would leave our sector ill prepared for the changes that certainly lie ahead.
For understandable reasons, political freedom was prioritized above all else both in the run-up to and after our founding democratic elections of 27 April 1994. Given our ignoble history and background, it made sense for our political leaders to focus all their energies on securing political freedom and equality for all, with the black majority whose rights had previously been trampled upon with impunity over the years suddenly enjoying the same rights as fellow citizens.
Regrettably the rate of economic change has been relatively slow. This is the case not only when it comes to general business ownership patterns, but also with regards to occupation of senior leadership positions in the private sector.
While there are commendable exceptions, by and large the majority of private-sector executive appointments announced in the media each week continue to be those of white compatriots, especially males. Admittedly, some sectors of the economy are more transformed than others, with our own metals and engineering industries being among the poorest performers.
It is very important, therefore, that companies within the metals and engineering sector appreciate the fact that economic transformation will be one of the Government’s priorities over the next five years. In particular, there will be an emphasis placed on the need for transformation when it comes to business ownership, in addition to the other areas of the Broad-Based Black Economic Empowerment.
Failure to embrace and implement transformation at the work place will not only have legal and financial implications, but it will also negatively affect companies’ ability to compete for public-sector business. The latter point would mean that these companies would not be able to take advantage of opportunities that will arise as part of the ambitious infrastructure development programme envisaged in the National Development Plan.
The Impact of Government actions and Policies On The Economic Environment
It goes without saying that Governments’ actions and or policies can have a major influence on a country’s economic environment. The stability of a country’s political landscape can affect the appeal of that particular country’s markets. An unstable political environment can crowd out potential investors while a stable political environment can attract direct foreign investment. Government’s policies can also either stimulate or hamper a country’s economic growth.
The recent imposition of a 10% tariff on imported steel following an appeal to Government by South African steel manufacturers to put in place protection measures aimed at saving South Africa’s ailing steel sector and employment in that sector is but one of the many examples that an impact of Government’s actions can have on the business environment.
Whether through an increase or decrease in company taxes, an introduction of a bill, or tariffs and trade control, Governments’ actions or policies can affect the economic environment. It is, therefore, of paramount importance that business keep track of the political environments of countries in which they do business.
Government and the Economy: Should Government’s Economic Involvement Be Limited to Regulation?
This is a highly contested debate. There are those who take a classic economic view and believe that social well-being is maximized by minimizing Government’s involvement in the economy. This school of thought is of the view that Government’s involvement should, infact, be limited to ensuring good government, maintaining law and order, and the defence of free societies.
On the other hand, there are those who believe in the Keynes school of thought that justifies Government’s intervention through public policies that aim to achieve full employment and price stability. They believe that Government can use its financial strength to acquire goods and services, while at the same time improving the health, welfare, and security of its population, while communists and to a certain extent socialists believe in an even stronger role for Government and government ownership of the means of production and distribution.
The reality in South Africa and in many other countries in the world is that no economy can function without any sort of intervention from the State. But in a developing country such as South Africa where unemployment is rife, should Government’s role be limited to mere regulation or should Government play a more active role that entails contributing towards employment creation?
THE IMPORTANCE OF FORGING STRONGER RELATIONS BETWEEN GOVERNMENT AND BUSINESS
There is very little doubt that Government and business need to resuscitate meaningful and regular engagements in order for the South African economy to grow and reach its full potential. It is critically important that the ruling party have robust and constructive discussions with the entire South African business community.
It is, infact, only when the Government recognises the business community for the partner that it is, and works closely with it, that South Africa will realise its true economic potential. The ruling party needs to accept that a stagnating economy is not in anybody’s interest: not the Government’s, not business’s, not labour’s and certainly not the poor’s. Instead, South Africa needs a growing economy in order to ensure that more jobs are created, more people are employed and more taxes, both corporate and personal, are paid to the national fiscus.
This would enable the Government to reduce its burgeoning spending on dependency-encouraging grants and spend more money on delivering much-needed social services like water and electricity and on building the necessary infrastructure.
It is when we have a flourishing economy that the Government will be able to drive lasting transformation in all sectors and levels of our economy, with effective transformation legislation enforcement and Government and State-owned companies’ procurement expenditure leveraged as an effective tool.
The ruling party also needs to accept that they don’t have all the answers to South Africa’s economic challenges and that the Government cannot do everything on its own. Yes, Government can stimulate the economy, as it will no doubt do through the National Development Plan but lasting economic growth will take place only with the full and active participation of a private sector that feels appreciated and valued.
Entrepreneurship: Are Entrepreneurs Born or Made
Entrepreneurs are a backbone of any country’s long-term economic growth. In South Africa entrepreneurs were responsible for creating an estimated 2.8 million small businesses that made up the SMME sector in 2012. This sector, in turn, contributed between 52% and 57% to South Africa’s Gross Domestic Product. During that period SMMEs also provided about 61% of the country’s employment.
History shows that economic progress has been significantly advanced by pragmatic people who are entrepreneurial and innovative, able to exploit opportunities and willing to take risks. For example, it is reported that the United States of America realises more than half of its economic growth from industries that were not in existence a decade ago. This is directly attributable to innovative entrepreneurs and their start-up businesses.
It, therefore, goes without saying that the vital importance and positive contribution of entrepreneurship and an entrepreneurial culture in economic and social development cannot be overstated.
But are entrepreneurs Born or Made? While some will argue that entrepreneurs are a special breed, born with a drive to succeed that most people lack, others are adamant that entrepreneurs can be created through education, experience and mentorship – whether born or made, there is no doubt that entrepreneurs have a pivotal role in economic development and every effort must be made to ensure that entrepreneurs thrive.
Competitiveness and Intra-African Trade Critical in Realizing Africa’s Growth Potential
Intra-African trade is critical in realizing Africa’s growth potential. Turbulent economic conditions that the world is currently experiencing make it even more necessary for African countries to trade with one another in order to boost economic growth, create employment and ultimately eradicate prevalent poverty in the continent. Africa is the last frontier for growth owing to its rich mineral resources. This is evident in the number of international companies conducting exploration and mining activities in the African continent. Mining activities create opportunities in other economic sectors such as retail and manufacturing. Therefore, it is of critical importance that African countries create and enhance opportunities for intra-African trade.
Although intra-African trade has increased over the years, a lot still need to be done to improve in this regard. According to various research findings, exports by African countries to their peers on the continent have surged by 32% since the 2008 economic downturn, compared to growth of just 5% in exports to the rest of the world. Nevertheless, in 2011 intra-African trade accounted for merely 9% of the continent’s total trade with the world, compared to 25% for Latin America and almost 50% for Asia.
Infrastructure, red tape and boarder frictions are but some of the serious challenges currently halting intra-African trade from thriving. These challenges need to be addressed and ultimately eradicated in order for trade among African countries to thrive.
To benefit from Intra-African trade, however, South Africa needs to be internationally-competitive. South Africa needs to modernize production capacity and stabilize the labour market, among other things, for it to be more internationally competitive.
The African market is very highly-competitive. This is due to the fact that the rest of the world is experiencing stagnation as far as economic growth is concerned. For us to benefit from the rising African demand, we need to make sure that we are internationally-competitive by using new technologies to do more with the capacity that we have and to reduce production costs by, among other things, stabilizing our expensive labour market.
Socio-economic ills: Does Business Have a Bigger Role to Play?
It goes without saying that the lack of education is one of the main contributing factors to South Africa’s socio-economic ills such as unemployment, crime and poverty, among others. It also goes without saying that education has a crucial role to play in providing sustainable solutions to the socio-economic ills that South Africa currently faces.
However, education, especially university education is beyond the means of most South African households. The recent spate of protests, for fees to fall, by university students across the country raise very crucial issues and should be a cause for concern not only for Government and institutions of higher learning but for the private sector as well.
Does business have a role to play in addressing the socio-economic ills of communities within which they operate and to what extent should their involvement be?
The formalising of CSI, however, has not resulted in universal acceptance of the value it offers. For many companies, CSI remains on the periphery, a nominal expenditure of 1% of company profit. For others, CSI is an important part of the business, providing long-term solutions to the socio-economic ills of South Africa, and an effective vehicle to uplift surrounding communities.
But should the addressing of social ills that contribute to the slow growth of the South African economy be solely left to Government or should the private sector play a more active role in ensuring the well-being of the people who live in communities in which they operate?
Mr Nyatsumba is currently the Chief Executive Officer at SEIFSA. A Certified Director (IoDSA), Mr Nyatsumba holds an MBA from the University of Hull, a BA Honours degree from Georgetown University in Washington DC, a Post-Graduate Certificate in Economics from the University of the Witwatersrand, an Advanced Management Diploma from the University of Pretoria’s Gordon’s Institute of Business Science, a Leadership Development Diploma from the Harvard Business School and a Diploma in Journalism from the Newspaper Institute of America.
A regular commentator on issues pertaining to the South African economy and political landscape, Mr Nyatsumba’s comments and thought leadership articles have been published in most of South Africa’s major publications including Business Day, Business Report, Financial Mail, Finweek and The Sunday Times. His comments have also featured on international newswires such as Bloomberg and Reuters, among others.