This article is an abridged version of an article that appeared first on the website of the Enterprise Observatory of South Africa.
In a week with tensions building up around university enrolment, the ANC Top Six under Cyril Ramaphosa sought the blessings of the ancestral spirits of previous ANC leaders Pixley ka Isaka Seme, Albert Luthuli and Josiah Gumede with ceremonies at their graves.
Having chosen Ramaphosa as leader by a whisker and unanimously embracing land expropriation without compensation, the ANC appears to be far more concerned about pleasing the ancestors, than providing policy clarity that will stave off a Moody’s downgrade and committing to growth.
An increasingly unfriendly business framework has driven post-apartheid ANC economic policies. Most recently, the ANC conference policy positions make mockery of Ramaphosa’s New Deal claim to make growth the priority.
Three of the main causes for this growing anti-business sentiment are:
- The still strong revulsion in the restrictions that apartheid had placed on black entrepreneurship and the conviction that established businesses were beneficiaries of unjustified privileges and should be restrained as much as possible, enabling black-owned enterprises to step into the gaps.
- The combined genes of populism and Marxism in the DNA of the ANC.
- Scapegoating business to avert the attention from failing policies and the deterioration of services by a bloated and increasingly ineffective administration.
The arsenal of strategies to achieve a reversal of the enterprise landscape of 1990 had placed transformation by pursuing racially defined targets in the economy at the centre: growth was a mere also-ran participant.
The mass establishment of black businesses is a central plank in Ramaphosa’s New Deal that he had announced during his leadership campaign. This approach was tried and failed magnificently. For more on this read this article.
The ANC however ignores available evidence on whether creating lots of enterprises actually has a significant effect on economic growth. The World Bank’s latest data on New Business Density (NBD) is relevant. NBD is viewed as an important indicator of a positive entrepreneurial and enterprise environment.
However, EOSA compared the NBD data on 68 countries for a ten-year period with 2006 as a basis. If a sustained annual high NBD would be meaningful, it should result in a higher improvement in GDP per capita than in the case of countries with a lower NBD. Figure 1 indicates there is no correlation between a higher NBD and an improvement in GDP/per capita.
NBD figures are based on formal businesses incorporated on a limited liability basis and therefore exclude the more than 130 000 cooperatives that were also incorporated in this period. Read here for more information on this.
The three countries with the highest peaks (Figure 1) of respectively 517, 251 and 227 new businesses per 10 000 of working age population per annum are ranked in per capita improvement in positions 6, 31 and 67. The three countries with the lowest NBD average, namely 0.4, 1 and 1.8 per 10 000 of the population, ranked in positions 37, 1 and 14 for improvement in per capita GDP.
SA had 2.975 million registrations from 2006 to 2016 with a ten-year average of 81.07 new firms per 10 000 of the working population.
Of nine African countries (Botswana, Mauritius, Morocco, Namibia, Nigeria, Rwanda, Senegal and Zambia), SA had the lowest improvement in GDP/capita with 6.37% with Rwanda achieving 60.78%, despite the fact that SA’s NBD rate was nine times higher than that of Rwanda.
Growth has far less to do with new firm establishment than with good governance, policy certainty and ensuring a globally competitive environment for businesses.
SA, Botswana and Mauritius had a NBD-rate in excess of 80 new firms per 10 000 of the working age population, but SA recorded a substantially lower per capita growth rate (6.37%) compared to 45.44% for Mauritius and 25.5% in Botswana.
The irony is that the ANC, through its policy mix, is exporting successful entrepreneurs to Mauritius and Botswana. The registers of the Mauritius Corporate and Business Registration Department and the Botswana Companies and Intellectual Property Authority indicate South African citizens are quite active in registering companies there.
Some of the surnames of directors in Mauritian companies younger than ten years are Botha, Basson, Coetzee, De Bruyn, Meyer, Van der Walt. Certainly not names that would garner any BEE points in the South African context.
They went there because of a more business friendly environment. It is no Van der Merwe joke that South Africa. through demographic-driven economics, has been exporting entrepreneurship and talent that could have contributed locally to economic growth and job creation.
Mbeki tried to walk the ideological tightrope between the diverging ideological constituencies of the ANC by trying to balance transformation (which has drags on company focus and investment) and growth. Mbeki had realised that transformation with charters, preferential procurement and racial targets would slow down growth and had to be balanced with high growth initiatives like GEAR and ASGISA. SA experienced a push-back of poverty during the Mbeki presidency due to his attempts to balance the negative implications of the demographic driven economics, but the ANC in Polokwane sawed off the ASGISA and GEAR end of Mbeki’s balancing pole and added weights to the demographic-driven end.
The much-celebrated policy milestone of Polokwane that pits the ANC against big capital and growth policies and strategies, became the millstone around the neck of the poor.
Many in the ANC now refer to slow growth as an unintended outcome. That is self-delusionary: slow growth is a direct outcome of policies pursued despite expert advice about the consequences. The ANC’s NEC and Parliamentary caucus closed their ears to the advice by Ricardo Hausman, as chairperson of the International Panel on ASGISA, that all should be done to retain the skills of white South Africans. Hausman argued such skills were essential for growth and job creation.
The anti-business choir sings the refrain about the market and growth not narrowing the wealth gap. By rejecting Hausman’s advice, the ANC killed off two approaches that would have resulted in a lower inequality:
- The scarcer the skill, the higher the remuneration package. The gap between the highly skilled and the semi-skilled or unskilled therefore increases as highly skilled people emigrate. That impacts negatively on competitiveness.
- Policy and strategy limitations on skilled people within drove them to jobs abroad, often establishing businesses that contribute to growth (as in Botswana and Mauritius).
No-one in the ANC since 2009 has had the courage to openly address this fundamental flaw in economics of exporting highly required skills due to a policy that is as steeped in racial preference/prejudice as was job reservation. The criticism that did emerge from within the ANC focused on corruption and poor service delivery.
While getting rid of corruption and better governance would improve the economic climate, growth that will roll back poverty and unemployment requires a radical revision of prevalent economic policy and strategy. Ramaphosa’s New Deal talks growth but details shackles. Read further on this here. It is in itself a lopsided balancing staff and has all the potential to reinforce the skills flight.
Johannes Wessels is a director of The Enterprise Observatory of SA (EOSA)