This job creation plan is doomed from the get go
How do you solve South Africa’s unemployment problem? Put this question to a dozen economists and you’ll get a dozen different answers. But you’ll identify a common thread from which you should be able to formulate a workable long-term plan. Their wish li
Instead of carving out this enabling regulatory environment and letting the private sector get on with things, government remains stuck in a vicious “growth plan formulation” cycle. It’s as if they’re stuck in a pattern of pipedreams and unattainable goals. President Jacob Zuma’s promise of five million jobs by 2020 is a case in point. As he uttered these words the very people tasked with delivering jobs were still squabbling over ideologies. It’s going to be very difficult for Cabinet Ministers with labour backgrounds (Minster of Trade and Industry, Rob Davies and Minister of Economic Development, Ebrahim Patel) to agree policy issues with the likes of Minister of Finance, Pravin Gordhan and various business organisations. Job creation will once again take a backseat as individuals struggle to push through their own agendas and ideologies.
Some positive first steps
Although we’re still waiting for a comprehensive growth plan the ministers in question have taken the first tentative steps on the long road to sustainable employment. They agreed on six critical industries to drive the process over the next decade. And they’ve already tabled an incentive (to be called the 12i Tax Incentive) in an effort to “place the economy on a more labour absorbing path.” This incentive is designed to reduce the tax bills across the manufacturing sector.
What does government expect in return for these tax concessions? They want businesses to boost skills development, increase investment in environmentally friendly or “greenfields” manufacturing plants and reduce energy usage... In return these companies will receive an “allowance” of between 35% and 55% of their taxable income, capped at R900 million. Businesses will have to know their stuff to benefit from the initiative. For example, the tax deductible allowance for skills development is a maximum of R30 million. The 12i Tax Incentive will replace the existing Strategic Investment Program (SIP) and run until the end of 2015. It’s a bold step in the right direction, but it’s not going to go a long way towards creating five million jobs. Davies admits the SIP created approximately 6 000 direct jobs and R13 billion in direct investment. Even if the 12i program triples this result we’re not in a “raining jobs” situation.
Manufacturers will queue up for the incentive – but its impact will be limited against the backdrop of South Africa’s often militant labour organisations. The environment is so skewed toward labour many of our small and emerging businesses – the backbone of employment in developing economies – avoid new hires at any cost. Have the honourable ministers spent much time in discussion with entrepreneurs employing between 5 and 50 workers? Do they know how many of these employers would employ more people if labour legislation was relaxed? And do they understand how many small businesses have simply thrown in the towel due to government read tape?
The wrong point of attack
Davies, to our mind, dedicated far too much of his recent press conference to finding blame for the country’s lethargic job creation in recent years. He blamed the banks for not extending enough funding to the industrial sector, said the Industrial Development Corporation would have to re-model along Brazilian Development Bank lines and then latched on to Cosatu’s favourite scapegoat, the strong rand. “We all know that it [the strong rand and strong currencies in general] is a big challenge particularly for productive sectors,” Davies said.
Everyone we’ve spoken to agrees – the rand is overvalued! The problem is if you’re not competitive at R7 to the dollar there’s not guarantee you’ll compete at R8. So how far would the minister have us weaken the currency? What the hot shots in these economic think tanks forget is the minute you weaken the rand significantly you’re back to fighting inflationary pressures. The typical manufacturer ends up smiling from ear to ear thanks to the larger export revenues, but sulking gloomily when rand-based input costs go through the roof and workers demand 15%-plus wage increases at year end. An uncompetitive firm will remain so regardless of the currency crosses.
Concentrate on new jobs
Forget everything you’ve read to this point and consider the following comment. The reason South Africa isn’t creating new jobs is because our policies focus on protection rather than expansion. We should be implementing policy to create thousands of new jobs in exciting new-age industries rather than spending billions of rand to prop up specific sectors. Minister Patel should’ve learnt this lesson already, burning wads of cash in an attempt to “save” the ailing textile industry.
Government is making a mistake by acting as an employer rather than an enabler. Case in point, since 2007 the private sector has shed jobs while an already bloated public sector has added thousands to the payroll. If government is serious about creating jobs they need to focus on infrastructure (roads, railways, ports, power, telecoms, water reticulation etc) and aggressively revise the existing one-sided labour legislation. They need to sort out government departments which hamper growth and replace deployed cadres with competent businesspersons. And they need to lead by example in eradicating corruption and reinforcing the concepts of productivity and accountability. If they tackle these issues over the next two years we have a real chance of adding five million jobs by 2020.
Editor’s thoughts: Another day – another opportunity to rant about job creation. I’m really frustrated by the feedback I’ve been getting from small business owners. Too many entrepreneurs are losing hope as lazy and belligerent employees abuse their “rights” to the detriment of the company, knowing they’re virtually untouchable. Have you met any small business owners who are happy with current labour laws – and are actually expanding their work force? Add your comment below, or send it to gareth@fanews.co.za
Comments