On Business in South Africa: The Flagship has a Few Battles more to Fight

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By Elton Plaatjes

 

South Africa still dreams of being a winning nation? This flagship of Africa needs to confront some areas recognised as mediocre.

 

SA’s recovery is fragile and has a suppressed outlook for the economy. The slow rate of global growth and rising domestic inflation is proving a toxic mix for the country, government and specifically, the treasury. Here and in the next article, we will look at pragmatic business analogies that can aid small business growth.

 

It is important that one thinks logically about the state of an economy. Yes, sure there are many success stories in Africa, in South Africa as a matter of fact. But in South Africa we have a contagion from:

 

– The persistent Eurozone crisis

– Very low savings and investments

– Comparatively non-competitive innovation introduced to the international market

– Deep structural inefficiencies thwarting growth planning

– A non-competitive, cut-throat manufacturing and production industry

– Ever-increasing pressure on the small business sector and an employer

 

So why would we be speaking about this? Well if we look back to the introduction of Alan Greenspan to the US economy, we’ll find that economic research and understanding were the cornerstones of the US economic growth. Something South Africa lacks to say the least.

 

But let’s not be too negative! What we want to do is break down the WAR that we need to fight for economic survival into small BATTLES. More so, small enterprises need to be cognisant of these battles and how to position within the South African economy.

 

Let’s have a look at some of these smaller battles.

 

1) Policies – Economic and otherwise

South Africa seems to believe policies only have the potential to break the stalemate they are in and bring about economic stability and (a bigger dream) growth. South Africa still has a destitute education system and an ailing healthcare system.

If we calculate an adequate growth trajectory for South Africa we will find that the country requires at sustainable growth rate of at 8% for at least four years. Small businesses find it difficult to find skilled workers that can help it gear towards becoming more competitive. Labour laws are fairly restrictive compared to European and US markets and serves a deterrent for small business owners. South Africa is well known for having some of the best drafted policies, globally. However the implementation thereof has consistently been detrimental.

 

Supply chains in South Africa as restrictive, depending on the sector in questions and this limits competition. The South African government would like to see more growth (a dream) and much more labour intensive job opportunities created but simply do not understand the complexities of labour legislation, as a lever to help win this battle.

 

2) The Role of Government in Creating Jobs

In a democracy, it is important to understand the basic premise that a government develops legislation and governs accordingly. Doing this translates into implementing sound economic policies and creates the opportunity for a trading environment. It is a conducive, trading environment that allows an economy to weather economic shocks. South Africa does not have a good trading environment. How can it? Only about 10% of the population pay tax.

 

3) Economic Activity Levels for Business

There are three categories for business interaction in a normal, capitalist economy; that being;

In South Africa there are more informal and micro-level enterprises that any government or country would wish to have. The strategy that should be employed is to continuously create growth at small and medium levels to expand the sector, creating more competition and room for upward movement for growth oriented micro-enterprise.

 

This allows for more supply chain growth at small and medium level of economic activity for competitive businesses that can contribute to job creation.

 

The micro-level will always exist, but a method of graduating micro-enterprises needs lots of tweaking. Economic growth for any country cannot depend on the few brave entrepreneurs to carry the economy and call that growth! There also needs to be pragmatic approaches adopted that make economic and business sense when establishing SMME Business Development Services interventions. The growth experienced in the South African economy is not the result of BDS.

 

4) The Economic Disconnect

South Africa cut unemployment from approximately 30% in 2003 to 24% to date. Whilst there is reported job creation, we managed the loss of 1 million jobs during the recession. The plan to create jobs as stated by the government is far disconnected from the global economy and inherent domestic quagmire. There are just not enough opportunities for employment or for small business to be sustained.

 

5) Interest Rates and Supply Shocks

You could consider South Africa to be a cork in the ocean, pegged against the deflated but, larger economies (Ships) of Europe and the US. South Africa is thus deeply and easily affected by the swells of passing ships. This makes it difficult for our economy fix in one direction. Added to this is the impact of supply shocks, specifically, oil has on the South African economy.

 

Having highlighted some of the most significant battles South Africa faces, it is very possible for small business owner to plan around these challenges. After all, the Flagship has little room to err. All of the successful entrepreneurs in Africa have. This is very good indication that given the right climate there is a place in the suns for all Africans.