Since the idea of replicating Silicon Valley in SA isn’t a practical option for our politicians, as I illustrated last week in Building an ‘entrepreneurial state’, they might be wondering what they can they put their weight behind. We must hope they are.
In pursuing an entrepreneurial state, leaders will have to move beyond the rhetoric and fix the bottlenecks caused by bureaucratic red tape that are choking entrepreneurship and small business.
The state will have to face the fact almost 60% of small businesses collapse within the first five years. For those providing products or services to the state, their failure is often due to late payment from the state.
Neighbouring states are more entrepreneurial
According to the 2016/17 Global Entrepreneurship Monitor (GEM) survey, South Africa has “persistently low levels of entrepreneurial activity relative to other countries” and “entrepreneurial intentions in SA are significantly lower than for the African region as a whole – the regional average is four times higher than for SA – while the average for the efficiency-driven economies is more than double SA’s score.”
Based on politicians’ speeches about policy, can SA claim to be rational in its utterances of a developmental state, emerging economy and now entrepreneurial state? Can the country really claim to be an emerging economy given its underwhelming performance of the past 13 years? If the policy or programme theme is one that is shifting towards an entrepreneurial state, as recently said by President Cyril Ramaphosa, how is this going to be achieved? What about the National Development Plan (NDP) and the New Growth Path (NGP) – have they been abandoned?
These are vitally important questions that must be answered by those leading policy development and the direction of the state. The answers will either help fix the glitch or, with the passage of time lead, to economic collapse.
Some would argue that SA lacks the crucial components often used in relation to a developmental state. These include the ability of the state to be a conduit in purposely directing resources to the areas of the economy where they are needed most, while at the same time being able to use open markets and price mechanisms to remain competitive and enforce discipline.
On the face of it, this reads like something SA is already doing or should be doing because it seems easy. However, political rhetoric about an entrepreneurial state must be cognisant of the aforementioned traits of a developmental state. Our politicians should also take note of how the states of other Brics (Brazil, Russia, India, China and South Africa) emerging economies have developed – while being aware that what has worked elsewhere will not necessarily work in South Africa.
For leaders, and especially for a president, to ‘gooi’ phrases such as an ‘entrepreneurial state’ about makes me jittery.
Goals, objectives, plans – and focus
It also leads me to wonder – if the state was a person, and considering its current behaviour, could it be considered rational as it jumps from one catchphrase to another? Rational individuals have goals and objectives they seek to achieve or obtain. They will use available resources, means and time in ways they think will best enable them to attain those goals or objectives.
The same can be said about a state that is pursuing its goals. South Africa, in running with the pack of the big economies of the Brics nations, has positioned or portrayed itself as a powerful emerging economy. However, the reality check of a 3.2% drop in GDP in the first quarter of 2019 and unemployment at 27.6% forces the state to reckon with its aspirations versus reality.
Seeing that the country is a Brics member, perhaps it is prudent to consider the examples of China and India, notably with regard to the role of the state in their respective progression and development trajectories.
China’s success and economic progress may be driven by the state, but India’s was not.
China, for example, has undertaken major infrastructure development; driving many state-owned companies to kick off development and attract investment. In other words, the state did the heavy lifting, including supporting business ventures it deemed capable of advancing growth and job creation. Of course, we cannot ignore that other factor; trade being the driver of China’s economic growth, as evidenced by increases in both exports and imports.
India’s rapid growth, however, had little to do with infrastructure, state-driven programmes or government-supported state-owned enterprises. Between 2003 and 2005, India experienced growth of 7-8% a year, despite no reforms by the state or significant public investment. It was during this period that India’s entrepreneurs and businesses flourished, expanded, acquired assets from all over the world and invested more; invested back into India.
The subtle approach
Yet closer interrogation reveals that India’s subtle function has been effective in ensuring economic growth and a thriving entrepreneurial sector, even without large-scale state investment. This was only possible because successive Indian governments have ensured stability and flexibility. The former in managing its micro-economic environment by carefully managing inflation-related aspects as well as its broader monetary framework. In stabilising them, investment flowed.
Aware of the impact of globalisation and economic interdependency, India recognised the need for flexibility by lowering trade barriers and eliminating the regulations that hindered business development, investment and the establishment of new businesses.
The point is that although undertaken differently, both China and India provided two crucial elements – flexibility and stability.
This enabled economic growth, facilitated a thriving entrepreneurial culture, and resulted in the progress that we have witnessed in the past 15 years.
In aiding and abetting a period that lifted their economies and their people, the respective roles of the Chinese and Indian governments played out differently based on conditions known to them. Each chose an approach and pursued it until the goal was achieved.
There is a lesson here. The hit-and-miss, clutching at straws, all-over-the-place approach of South Africa will not do.