The need to reform the South African economy

THE impact of artificial intelligence, robotics and the digital revolution is bound to worsen economic, income and class inequalities. Rogan Ward Reuters/African News Agency (ANA)

2019, as we all know by now, will be an election year in South Africa. Between now and the elections, campaigns will be run by dozens of political parties but it is important for the ANC to keep perspective. It will be very easy for the ANC to get into the mud slinging meted out so easily by other political parties whereas we must be able to rise above personalities and deal with the issues.

Lack of trust, corruption, crime, health, racism, decent human settlements, public transport, inequality, poverty, education, social welfare, among so many other issues will remain at the centre of the ANC’s elections campaign. Unlike many of our opposition, we must try and avoid falling into the trap of attacking persons rather than interrogating these issues faced by our people.

It was Eleanor Roosevelt after all that gave us that seminal quote: great minds discuss ideas, average minds discuss events while small minds discuss people. The small minds within the opposition will no doubt once again focus on President Cyril Ramaphosa, Deputy President David Mabuza and others in the leadership of the ANC, this once reflects the small-mindedness that dogs our opposition in South Africa.

Unemployment remains one of those central issues that the ANC will be addressing during the election campaign, as it has been focusing the issue in the last two decades. At its National Conference at the end of last year, it highlighted a number of measures needed to pursue in order to restructure the economy and for our economy to become more labour intensive. Sectors and industries that will be prioritised are those ones which absorb more jobs.

However, we are aware that in many developing countries and emerging economies, the role that small to medium enterprises as well as cooperatives play in mitigating unemployment is pivotal. Businesses need to be created in order to create more jobs but even more so the environment needs to be conducive in order to break down monopolistic tendencies and allow for small to medium enterprises to thrive.

In this respect, the latest “Doing Business” Report for 2019 published under the auspices of the World Bank is useful. The Report itself is subtitled: “Training for Reform” and suggests that it is the sixteenth such report which investigates “the regulations that enhance business activity and those that constrain it.”

A quantitative study, the Report rates South Africa 82nd out of 190 countries globally. According to the Report, it is easier to do business in Africa in Mauritius (20), Rwanda (29), Morocco (60), Kenya (61) and Tunisia (80). If the first African country on the Report is only in the 20th place, one can well imagine how difficult it is to do business on the continent.

For interest sake, African powerhouses Egypt and Nigeria are ranked 120th and 146th respectively. Somalia is the most difficult country in which to do business whilst New Zealand is said to be the easiest. As far as our BRICS partners are concerned, Hong Kong came in as the fourth easiest place globally to do business, Taiwan at the 13th place while mainland China came in at 46th. Russia ranked 31st, India (77) while South Africa was ahead of Brazil (109).

There are ten criteria in which countries are judged in terms of reforms; areas in which the Report highlights as those factors which will stimulate business growth. These include: the ease with which to start a business, dealing with construction permits, getting electricity, registering a property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

As a result, Rwanda, as the second best African country to do business in, scored seven out of ten in reforms of these areas in 2017/18. China, the world’s second largest economy, also introduced seven out of ten reform packages in these areas which assist in doing business easier. India introduced reforms in six categories while Kenya, another African hub, introduced five. Other African countries to introduce reforms included Djibouti (6/10), Togo (6/10) and Côte d’Ivoire (5/10). In other words, while it is seems that it is not yet easy to do business in Africa, African governments account for fifty percent of the top ten reformers in 2017/18, according to the Report, in order to facilitate change in doing business.

Some of the factors in which recognition was given to South Africa in the Report included the fact that preregistration and registration for a business was simplified as well as a more reliable energy supply with a transparent tariff system. Yet these were the only two areas in which reform took place and hence the low ranking as well as low prospects.

As a result, it is with the necessary urgency that government, especially after next year’s elections and based on the overwhelming mandate given by the South African electorate, implement the resolutions of the 54th National Conference of the ANC and which the upcoming ANC elections manifesto will give concrete proposals to.

For example, in respect of getting credit which is an enormous impediment for many of our people, the ANC resolved that the use of a state bank as well as development finance institutions need to “give greater emphasis to employment creation, empowerment, industrial diversification and development, small businesses and cooperatives, small-scale agriculture, micro-enterprises and local and regional economic development.”

According to the “Doing Business” report, South Africa ranks 73rd out of the 190 countries for getting credit. It has a sixty-percent score in this respect and more attention needs to be given to this area. At the same time, we have a low score in dealing with construction permits (96th/190), registering a property (106th/190), enforcing contracts (115th/190) and trading across borders (143rd/190). Protecting minority investors (23rd/190), paying taxes (46th/190) and resolving insolvency (66/190) are our best areas.

In respect of working on the area of trading across borders, for example, to export goods New Zealand, the easiest country to do business in globally, takes 3 hours in order to get the necessary documents to comply, costing US$67, and border compliance takes 37 hours, costing US$337.

Comparatively, it takes 68 hours in South Africa to get the necessary documents to comply, costing US$55, whereas border compliance takes 92 hours and costs US$1257. In other words, documentation compliance to export from South Africa takes 22 times longer than it does to export from New Zealand while border compliance takes more than double the time in South Africa than New Zealand while costing four times more.

These are the finer details that we will need to start concentrating on in order to ensure that South Africa becomes an economy which is self-employment intensive and “open for business”. Creating jobs is but one facet in defeating unemployment. While government has the obligation to create the necessary environment to facilitate growth in small-to-medium enterprises, it must be assured of the confidence of the private sector when it introduces such reforms. Thus, reforms are necessary in South Africa, especially to unlock the ability to do business.

Faiez Jacobs is the Provincial Secretary of the ANC in the Western Cape