Transforming South Africa’s Economy Through Enterprise – Toby Chance MP

The below speech was delivered by Toby Chance MP in yesterday’s DA-sponsored debate in Parliament:

House Chairperson.

In two successive mini-plenaries the DA has had an opportunity to present our policies for stimulating growth and creating jobs.

Last Friday our finance team focused on fiscal and macroeconomic levers and measures to fast-track reforms in infrastructure provision and our network industries, among other things.

Today, the focus is on companies and value chains, how policies aimed at redressing past discriminatory practices have failed and what measures are required to support enterprise, growth and job creation.

South Africa’s viability as a functioning state is at risk because 11 million people, mostly black, are excluded from the economy and are dependent on the state for their survival. And potential entrepreneurs are not starting and growing businesses in numbers, so the rate of business ownership in South Africa lags our peers.

I want to say at the outset that the DA believes in the need for a transformed and an inclusive economy. By this, we mean increasing the participation of more black people in productive enterprise accompanied by broad prosperity and rising living standards for all.

There is an ethical and aspirational dimension to the case for transformation and inclusive growth, as well as a practical dimension. Both are urgent. This is why we are sponsoring this debate.

Transformation in the public service and state-owned enterprises has led to poorer service delivery, massive government debt, cronyism, patronage, corruption, and a culture of welfarism. Government now wants to impose the same transformation agenda onto the private sector through three main legislative instruments: the BBBEE codes of good practice, the Employment Equity Act and the Public Procurement Act. All three use clumsy race-based measures of disadvantage and impose heavy administrative burdens on business at the very time calls for reducing the cost of doing business are getting louder. How does this make sense?

President Ramaphosa’s response on Tuesday to a question in the National Assembly about investment in infrastructure, saying we must focus on transformation, making it inclusive so that no one is left behind, is a tired refrain we have heard year in, year out. The Department of Trade, Industry and Competition has put transformation front and centre of its industrial policy objectives for the 7th Parliament. This is a laudable objective, but the facts present a depressing catalogue of underperformance as the economy staggers along and unemployment continues to rise. Transformation remains a pipe dream.

The recently released World Bank report, Driving Inclusive Growth in South Africa, cited current policies as major impediments to growth and job creation. It recommends two main policy shifts to transform the economy through inclusive growth – strengthen and broaden market competition and make institutions more efficient and supportive. These are not rocket science, but they go against the ANC’s impulse for more government control and intervention in markets.

It is in this context that the proposed Transformation Fund must be assessed. Its stated aim is to address market failure by providing more funding and support for black-owned businesses. But it is wishful thinking to imagine another fund will miraculously transform the economy for the better.

We already have funding and support mechanisms through the DTIC, the Department of Small Business Development, the Industrial Development Corporation, the National Empowerment Fund, the Small Enterprise Development Finance Agency, the Land Bank, the SA SME Fund, provincial development funding institutions and various funding instruments run by government departments. Conservatively, these provide 20 billion rands of public funding annually to mainly black-owned businesses.

In addition, funds mobilised by the enterprise and supplier development activities of companies as part of their BEE scorecard amount to between 20 and 30 billion rands, annually.

That’s anything up to 50 billion rands every year spent on supporting black-owned businesses. And then there are the tens of billions provided by banks and other lending institutions.

Yet we are stuck with economic growth of less than 1%, more business failures and steadily rising unemployment.

And now the ANC wants to spend another 20 billion rands every year for the next 5 years.

Why have these funding and transformation efforts missed the mark and what alternatives are there?

We must begin by listening to what business owners are telling us.

Gary Bell, chairman of Bell Equipment who make big yellow dump trucks and tractors, came to see me last week. Bell employs 3,500 people and their suppliers another 28,000. Bell is 45th in the global league table of firms in his industry. He wants to grow the business and buy components from more black-owned suppliers, contributing to transformation. He told then minister Ebrahim Patel he could double exports to the US in two years with the right support. Patel sent him to the IDC which came back with a loan offer – at 14% interest. So ended that conversation.

Bell told me that when compared with their free-market global competitors they have grown at a third of their potential rate. Imagine how many more businesses and jobs created if Bell Equipment was three times the size it is today! To quote Mr Bell, ‘the only way to economic growth is to remove unnecessary regulations and legislation that currently inhibit business growth and employment growth.”

Less growth, less transformation.

At the other end of the scale, a black female owner of a business making towers for cell phone companies is approaching the R50 million a year turnover threshold for qualifying small enterprises under the BEE codes. If she goes above that, all her BEE benefits end and she has to compete with the big guys, spending precious resources on ticking boxes on compliance. Is this an incentive to grow her business and employ more people? Increase the turnover threshold, people will say. This just ratchets up the barrier, it doesn’t remove it. No growth, less transformation.

Both of these business owners are telling us their efforts at growth, job creation and thus transformation are stymied by over-regulation, short-sightedness and mis-understanding of what drives entrepreneurs.

Alienating large sections of society and business through the proposed Transformation Fund is counterproductive and will not speed up transformation. The many sceptical reactions from black business owners shows this is not a black vs white issue. It reflects the fact that years of interventionist policies have done exactly the opposite of their promise of inclusive growth, by accentuating an unlevel playing field and failing to create an enterprise-friendly economy.

The DTIC and the NEF, which came up with the idea of the fund, should press the pause button and instead institute a review of legislation and regulations holding back growth and job creation. The cabinet has already approved a funding policy providing, and I quote, “a holistic, coordinated, and pragmatic framework for strengthening the provision of development finance for MSMEs and Co-operatives”. It contains many sensible proposals and should form part of the more comprehensive review we are recommending.

In a portfolio committee meeting on February 19th Minister Tau committed to a full-blown review of triple BEE to establish what has worked and what has not worked in public and private sector efforts to increase black participation in the economy. The DA fully supports this as part of the wider review we are calling for, on condition it is independent of the DTIC and the BEE Commission. They have a vested interest in a review that supports the ANC’s ideology underlying the triple BEE Act.

To build confidence in business owners and turn things around, the DA’s participation in such a review would advocate a fresh approach that will foster enterprise and a truly inclusive economy. This would prioritise reducing the regulatory burden, capacitating a capable state, supporting our global champions, stimulating the formation and growth of new businesses and creating new opportunities with a level playing field for all.

This is real transformation, the DA way.