Economy

South Africa must ensure

2011-03-02T08:51:00.000+02:00

I have reproduced this article by kind permission of Ed Bricknell.

It all started in Tunisia where the population, driven initially by the high unemployment rate and rising food prices, rose up in revolt against their government. In just a few months the flames of revolt have spread to 10 other Arab states.

South Africa, with the extended unemployment rate standing at 35.8% (17.5 million people), food prices set to escalate dramatically, and widespread dissatisfaction with the lack of service delivery by the government, is a prime candidate for similar occurrences. We simply can not afford the risk of this happening. Our already fragile economy would be decimated over night, threatening our way of life if not our very existence. Unless we, the business community of South Africa, step up to the plate, pool our resources and take meaningful action we will be adding fuel to the fire through non-action. The probability is extremely high that we will find ourselves in a position where we are simply unable to do business – we will become a second Zimbabwe!

We can take little solace from the fact that the government recognises the seriousness of the situation, as reflected by their latest initiative to create 5 million jobs, at a cost of roughly R6,000 per job, by 2020. Although the initiative is well intentioned, the likelihood of the campaign being successful is remote because it flies in the face of sound economic principles. Other countries in the past have faced similar crises and their governments were successful in not only creating jobs, but in simultaneously creating the right environment for business to prosper – I refer to America after the great depression and Germany after the Second World War. In both instances the focus was on state-sponsored infrastructure developments and improvements in public services.

In South Africa our infrastructure is deteriorating rapidly and public services are in disarray yet the government is attempting to incentivise the private sector to employ more people. Surely the first step is to create the right environment for businesses to actually take on more people, such as drastically amending the draconian labour laws which only serve the purpose of incentivising the business community to reduce the number of jobs they place on offer. The job of private enterprise is to make sustainable profits, not to create jobs!

Yes, we can criticise and complain until the cows come home in the belief that we are powerless to persuade the government to take appropriate and intelligent action, but all we are doing is fuelling the fires of inertia. What we, as the business community of South Africa, need to do is to get off our pity potties and do something about the situation, not continue each day acting as if there is no real threat to our existence in the false perception that it is not our problem – this is no time to be sticking our heads in the sand!

But what can and should be done!? There is in fact plenty we can do, but let’s first crystallise the realities with which we are faced …

The masses in our country are largely under-educated, politically charged, easily influenced, and emotionally driven. Add to this the fact that their expectations of a better life have been dashed and you end up with a powder keg, the fuse of which is burning.

The vast majority of our population, except for the few elite, have little to absolutely no understanding of business, economics, and how the world works. There are many reasons for this unfortunate state of affairs but these are of little consequence as only we, the business community of South Africa, can clean up the mess by rectifying this lack of appreciation and understanding.

In addressing these two realities we, as a business community, need to …

Do everything in our power to broaden the base of business ownership amongst the previously disadvantaged peoples of our country thereby creating a shared economy which advantages a broad spectrum of people.

Create the right environment for these newly formed businesses to flourish and in the process allow them to create the much needed jobs - a process which will improve the lives of all South Africans.

In the interests of protecting our future in South Africa our only hope is to make a unified, concerted, effort to seek out competent people from amongst the masses and transform them into competent businesspeople – create not jobs, but small, medium and micro business enterprises which will, in turn, create jobs. We all recognise that this is a viable solution but to date efforts have been fragmented and largely ineffectual. According to government’s own research, the majority of business owners in South Africa are black, but these businesses are overwhelmingly in the informal sector. As we know these are not businesses in the true sense of the word but subsistence trading.

To facilitate the establishment of thousands of sustainable businesses it is our responsibility to ensure that some critical issues are meaningfully addressed and rectified. Once more, we need to …

Advance the levels of business and economic understanding amongst the previously disadvantaged peoples of our country. This will not be achieved through classroom training however. It will be achieved only through assisting people to establish businesses and then mentor, coach and train them in how the business game is actually played – you can read a library of books on how to swim but until such time as you jump into the water at the deep end you will never actually learn how to swim!

The types of businesses I refer to are not just any business but those which will contribute to socioeconomic stability in our country - mere trinket manufacture does not satisfy this criteria. We must focus on the establishment of a multitude of small retail outlets which make available to the people essential products manufactured by a plethora of small manufacturing operations across the country. This was, after all, one of the key techniques employed by the Chinese when they first kick-started their economy.

There are many different techniques that can be employed to achieve the stated objective of creating these thousands of sustainable businesses but the task is enormous and has to be carefully orchestrated and coordinated. This is where we, at Ophir Enterprise Development, come into play. We have created a platform for companies throughout South Africa to become involved in enterprise development, scoring Enterprise Development points on their BBBEE scorecards, equal to between 15 and 25, in the process. Since we started operations in November 2010 we have created 27 individually owned businesses amongst the previously disadvantaged which we are in the process of nurturing into a state of sustainability. Up until now we have funded the establishment of these businesses out of own pockets and at an average cost of R20,000 per business this is not an insignificant sum. With each business destined to create at least 6 jobs, our cost per job created runs at R3,333 – almost half the government’s figure of R6,000 per job!

Investments placed with Ophir Enterprise Development are used to find and then develop entrepreneurs. I urge you to back our initiative, thereby also ensuring a healthy and safe business environment for yourself and your business.

There is a lot more I will be sharing with you in the coming months but in the interim please feel free to contact me at any time, by way of reply to this mail, to find out more about what we are doing and the approaches we deploy.

The kindness of strangers

2010-04-29T17:44:00.000+02:00

I have reproduced this article written in the Kathimerini
By Nikos Konstandaras

It will take us a long time to come to terms with our new place in the world, with the new road that our country has taken. This is the first time that Greece has suffered such a defeat without any heroic excuses, without a war, without a natural disaster, without foreigners meddling in our affairs or some great national vision leading us astray. We arrived at a dead end because of our own weaknesses, our own inability to handle our independence and fulfill our international obligations. Like Blanche DuBois, the disoriented former beauty in Tennessee Williams’s “A Streetcar Named Desire,” we muddled on with our weaknesses, relying on the memory of a bright past that only we remembered – until the moment of absolute surrender. Then, like Blanche, we had to bow our head and accept the charity of others, the “kindness of strangers.”

Even though this was the only possible outcome for our mad spending of the last few years, the shock of defeat is unprecedented for a nation that until now was stubbornly ensconced within its myths and bad habits. The fact that many of these myths conflicted with each other did not seem to trouble us.

How could we be both a nation that had no friends and a nation that felt everybody else owed it something? How could we be careful about our own spending and not care that the state was squandering our money and the money that it borrowed? How could a people that questions everything (a quality that helped it reach great heights in the past) surrender completely to a political, economic and media elite that looted the country while flattering us with fairy tales regarding our uniqueness and buying our silence with borrowed prosperity? Once the most rational of people, we now wanted magic, not reality.

And now this proud nation is waiting for charity so that we can pay wages and pensions, hand out unemployment benefits, keep the now mute marketplace alive. This is the result of the fatal alliance between politicians who gave the people everything they wanted in return for votes, and the people who voted for politicians who promised them the impossible, as if no one ever expected the bill to arrive.

This fake prosperity created a cloud of indifference to reality and the delusion that we could tolerate politicians’ incompetence, business leaders’ greed and a useless public sector without fearing that this would lead us to disaster. The way the country was (not) governed in the past few years will go down in history as a case study in what happens when politicians do nothing but pander to the citizens and ignore chronic problems.

Now we are ashamed at our fall, at our being suppliants at the International Monetary Fund’s door. We, who organized a successful Olympic Games, who raised our living standards to the EU average, with our great history and past civilization, with a diaspora that is doing so well in academia, business and the professions across the planet – we are now the butt of jokes, our name a synonym for profligacy and corruption. Without excuses, without thinking, we came to this.

After the first shock of these historic days, we can expect anger. Not the everyday shouting of the professional demonstrators but the silent, brooding fury of a nation that will blame itself and those who governed it. The true cost of what we will pay is not so much in the wages lost and expectations dashed but rather in the fact that the name of Greece and every Greek is tainted. This is the heavy burden that we must bear.

If there is any reason for optimism, it is that the help from the IMF and the EU will force us to evaluate ourselves and our country and fix things. Finally. This is a unique opportunity and the only way for us to take our future in our own hands. We have to demand a better Greece and we have to work to create it. Only in this way will we salvage some dignity. For our own and our children’s sake.

Greek impact on EU recovery perception

2010-03-19T22:06:00.000+02:00

This is an article done by one of our partners, Media Tenor, which I really like. I hve therefore republished it with their permission

International perception of EU economies

The Greek crisis has hampered the perception of an EU recovery in foreign reporting. Furthermore, it has damaged the reputation of other indebted EU economies and brought the language of the financial crisis back onto the agenda. A Media Tenor study of the foreign perception of EU economies investigates the damage caused to international media sentiment regarding EU economies.

Greece troubles bring peripheral economy state debt onto the agenda

Perception of the Greek economic crisis peaked in January with Greek Prime Minister Papandreou’s appearance at the World Economic Forum in Davos. Here, the Greek Prime minister presented a key message – Greece needed help. Fiscal policy and EU solidarity for over-burdened states have since brought the perception of the so-called peripheral EU economies, Portugal, Ireland, Italy, Gree ce and Spain, under the spotlight.

Media Tenor data shows that, as a group, the economic perception of these economies as a group fell from a slight positive 0.1% balanced rating in foreign news reports in November to -72% in February. Interestingly in this group, Greece’s balance was not the worst; Spain showed worse ratings for its economy in US, Middle Eastern, Asian, German and UK TV reporting.

The EU faced with fundamental debate: is Greece too big to fail?

The Greek crisis has also weighed on the perception of the so-called “core EU economies” of Germany, The Netherlands, France, Austria and the UK. The reason for this is that European stability, and the stability of the Euro was fundamentally called in question.

As Media Tenor researcher Michael Gawthorne puts it, “France and Germany have to decide to either bail out dissident economies, or take the hard line. In the case of Greece, Western media perception may make any decision to kick it out of the Euro, or enforce austerity messages relatively easy – Spain and Italy would be a totally different dilemma”.

Green shoots in foreign perception eroded by the crisis – return to crisis language

Media Tenor’s study shows a further unfortunate by-product of the Greek crisis for French and German perception: the rollback of positive reporting on their economies. The 2009 month by month data show that both France and Germany had been perceived in significantly positive terms since August and July 2009. However, the Greek crisis has been occupying up to 10 times the raw volume of economic coverage in non-European media - masking perception of recovery.

Gawthorne suggests that with the news that France and Germany would be the key sponsors of a bailout, positive perception of the French and German economies has been turned into a repetition of the financial crisis – but with more at stake. “Germany is once again bei ng described with the crisis vocabulary – ‘bailout’, ‘too big to fail’, ‘system relevant’. Yet these references are now not being used for rescuing companies, but rescuing whole countries – and that is not the type of threat people like to see hanging over recovery.”

Download results here.

Media Tenor / InnoVatio Verlag

Zuzana Beluska

Rothstr. 54

CH–8057 Zürich

phone: +41-43-25519-26

fax: +41-43-25519-29

http://www.mediatenor.com/

If the Reserve Bank does not do it, Gordhan should.

2010-03-16T16:33:00.000+02:00

The ANC alliance partners have often stated that they want a drop in the bank rate but the South African Reserve Bank is mandated by Government to curb inflation and keep it at a rate of between 3 and 6 percent. Being one of the few banks worldwide owned by private shareholders (who have no say in its operation and policies), reinforces the reality that the independence of the South African Reserve bank cannot be controlled.

Currently, 5 million employed individuals are paying taxes and are therefore the productive resources in the country. With these tax payers supporting 22 million unemployed people, their role in continuing to be productive is imperative, however the fiscus paying out more than it receives is not sustainable long-term.

In order to increase tax revenues it is important to point out that government must focus on economic growth. This will reassure markets and build confidence. It will increase the tax collected and reduce spending on unemployment benefits. One cannot just tax the employed people who are the ‘productive resources’ in the economy. The more they are taxed, the less motivated they will become. By taxing them less, it will result in them spending more and there will consequently be an increase in job creation. Companies will be able to employ more people.

Politicians should therefore focus on developing policies that increase the growth potential in the country, make it easier to hire and fire people so that businesses can take that chance to employ as they know they will not be burdened with that person if he/she does not perform.

The positive impact on the Government and ultimately the country will be:

Earning more tax through PAYE, VAT and company tax;
Government will have less people to support through grants;
People will feel less dependent on the state and feel more dignified and have more confidence in themselves;
Through spending more and increasing employment opportunities, the state will be less burdened.

But what do governments do, increase the public sector, increase the deficit. And who would pay for this, the next generation who had nothing to do with the crisis or the fact that government overspent.

Tax increases can kill any recovery, as it did in Japan in 1997, but governments like these tax incraeases as it is an easier fix on the problems they created.

To conclude, Government should interfere less and have an ‘out-the-box thinking’ approach. Productive people should be rewarded and once again, by lessening taxes, consumption will increase. By improving policies and focusing on growth it will result in vital employment opportunities taking the pressure off government and growing the economy.

IMPROVING ECONOMIC FREEDOM IN ORDER TO INCREASE UNEMPLOYMENT

2009-11-29T18:38:00.000+02:00

“The world recovery has started but the challenge is to sustain it”, says a World Bank research article http://www.imf.org/external/pubs/ft/weo/2009/02/pdf/text.pdf . Sentiment often drives confidence which IN TURN drives actual recovery. Sentiment in South Africa has not seemed to change dramatically as can be seen from the recent business confidence index.

What policies has government put in place to ensure recovery? The Economic Freedom of the World: 2009 Annual Report has stated that South Africa has improved from 7.03 to 7.06 (out of 10). This ranks them 57 out of 141 countries. On the surface this looks good but South Africa has declined from 54th in 2008 as they were overtaken by Armenia, Botswana, the Czech Republic, Greece and Kenya. http://www.freemarketfoundation.com/ShowArticle.asp?ArticleType=Issue&ArticleId=2691

So what is it that we need to do to keep improving our rankings? The Mauritius government made a concerted effort to improve its ranking and make Mauritius more investor friendly and to reduce unemployment. It is now the highest ranked country in Africa and one of the freest in the world (ranked at 16).

How can South Africa, who has the largest economy in Africa, make improvements which I believe we can. Some of the areas that South Africa improved on from last year were:-

• Size of government: improved from 6.97 to 7.20
• Freedom to trade internationally: improved from 6.71 to 6.77
• Regulation of credit, labour and business: improved from 7.02 to 7.09

“Even though a banking crisis can be very painful, it is an illusion that they can be fully ruled out by better government regulation. In fact, a case can be made that perverse regulations in combination with the creation of too much liquidity played a key role in the creation of the current crisis,” said Fred McMahon, director of the Centre for Globalisation Studies at the Fraser Institute.

The short term response from governments after a banking crisis is to reduce economic freedom but as the experience from Norway and Sweden shows that this is not necessarily the case and in the long term governments can improve economic freedom after a financial crisis.

I believe that the South African government is on this trajectory of improving economic policies. We have no choice as South Africa has to bring in long term investment and not only money from the ”carry trade” as it is currently doing. Better policies will also improve employment as will better BEE policies. The future will give us that 20:20 vision but I feel quite positive.

Bail outs are wrong for the consumer

2009-09-13T18:46:00.000+02:00

I have always said that the bail outs governments have given companies are erroneous, if not bordering on the immoral.

A statement made by International Monetary Fund Managing Director Dominique Strauss-Kahn confirms what I have been thinking and saying for a while now.

Sure we need banks to survive, but if they are inefficient they should be left to die. Some people may have to take some short term pain but if this is not done then all people will have to take long term pain.

Strauss-Kahn stated on Sunday that governments will have to have an exit strategy. When asked how this will be done by Der Spiegel, Strauss-Kahn said “a combination of higher interest rates and ending direct intervention of central banks would be needed.” http://www.reuters.com/article/newsOne/idUSTRE58B0K620090912

In the end who will suffer by the bank bail-outs? The consumer - we will be paying higher interest rates so that governments get their capital returned. By using the money to bail out banks denies government with money they could have used for health care, schools, roads and infrastructure. All these items will increase competitiveness of the country and provide much needed and improved human and social capital.

Centre left

2009-08-02T18:58:00.000+02:00

I read an article in the 1st August 2009 edition of the Economist that the centre lefts are gaining ground. Looking at South Africa it seems that the unions and communist are the one’s setting policy. Thank goodness, I must say, for pragmatists like Max Sisulu, Trevor Manual and Ben Turock.

Nationalisation of the mines would undermine South Africa’s ability to compete for Foreign Direct Investments. The argument, by the leftists, may be that this is not forthcoming during the world economic meltdown. This meltdown will be short lived and boom times will be back again. The recession may take a while to turn into a recovery, but it will be back either this year or next or the year after. A policy of nationalisation will have a long term effect on business confidence and FDI, two of the main driver of the economy.

A country needs to use it resources productively. This includes, people, capital and assets. Nationalisation has not allowed this to happen. Some prime examples in South Africa are Eskom, SAA and Telkom. These nationalised assets hold the country back rather than feeding the purses of government who in turn promotes poverty alleviation. In-fact it increases poverty due to the inefficiencies these state owned assets have.

I know times are tough, money is in short supply and people need to be employed. Building a large middle class in South Africa is of paramount importance. CSI (Corporate social investment) initiatives, upliftment projects and educational development by the private sector must be encouraged. It is to their benefit. As more people move out of the quagmire of poverty so does the private sectors potential for growth increase through an increase in the market size.

Companies must be involved with CSI projects because it is the best thing for the country and its people in the short term and good for the company in the long term. Companies must not engage just to look good. (See article on Brand legitimacy on http://ornicomediainformation.blogspot.com/ )

Governments, especially those in the developing markets, must remember that growth can only occur if the government enables business to grow. This will allow them to invest. The less risks and higher returns business has, more likely they will employ, the more taxes they will pay and the more government coffers will increase. This increase in taxes then can be used on enabling the economy with better education for it’s people, better healthcare and better infrastructure.

Unions destroy jobs

2009-07-22T09:57:00.000+02:00

The World Economic Forum (WEF) recently stated that the “most problematic factors for doing business” in South Africa was an inadequately educated workforce, infrastructure and crime.

The unions in South Africa are constantly lambasting Tito Mboweni for his stance on inflation targeting. Unions should be more focused in getting our workforce more globally competitive.

This will enable us to sell our locally produced products internationally thereby creating more jobs.

The strength of the Rand and the state of the global economy has not helped either. South Africa has many of the raw materials needed for manufacturing products that are consumed. Government has also been calling for beneficiation to take place.

Beneficiation should benefit many of the workers and increase the workforce. This cannot be done if we are not globally competitive and our workforce is inadequately educated.

Investors will only invest if they can see a return on their investment. Globalisation has allowed us to distribute to the world, now we need our workforce to be globally competitive.

If we are not globally competitive, the country will not be able to create jobs, something the unions should focus on.

The cry against inflation targeting by the unions is really short sighted as goods and services will become more expensive for everyone if inflation is not kept in check but will hit the poorest of the poor more than the affluent. Lets hope tha Gill Marcus will not bow to unions demands

The free market system still works

2009-05-17T20:33:00.000+02:00

Bail outs, protectionism, social unrest, failure of the free market system, inflationary fears are some of the words that are been used to describe the current economic crisis. What are the politicians and fringe economists accomplishing with those words?

Firstly certain politicians want more power to control the population. Larger governments, more control, more power means more corruption and inefficient industries.

I am trying to recollect when government run businesses are efficient, well run and profitable. Not in too many cases. Let’s look at Telkom, Eskom, SAA and the Post Office as examples. Telkom may be profitable but that is because Vodacom, a free market company, brings in all the profit. SAA keeps asking for more of our tax payer’s money to be bailed out.

Governments must be an enabler to allow business to flourish and employ people and create jobs.

Failure of the free market system

The fact that the world economy has grown so quickly is one of the reasons for the success of the free market economy. That is why, slowly, countries like China, India Russia and South Africa have begun to embrace it. Down turns are part and parcel of the free market system that corrects the excesses, greed and inefficiencies of the past.

Part of that unfortunate cycle is that jobs are lost. But there are also many advantages as people who have lost their jobs begin to start their own entrepreneurial companies. Competition will increase and therefore prices will stabilize and the monolithic companies, who have not been given bail outs and therefore failed or become smaller, will now have more competition.

Government should look to enable people who have lost their jobs to start their own businesses, make it easy to licence them and start trading quickly. Easy access to capital for starting a business must be given rather than supplying UIF and money for the dole. Human beings want to feel useful rather than be reliant on the state. It is better for their self confidence.

Protectionism

Some governments and fringe economist endorse protectionism. If a country is ineffective in a particular industry it should not operate in that industry and must be left to the country that producers the product or service more efficiently. This should happen even in the world of job losses such as the one we have now as we know it will be only temporary.

How much poorer would the consumer be if we did not have Chinese clothes that we buy for a fraction of the costs that we can produce it.

We need to find where our strengths are and use them. I still suspect that our medical industry and medical tourism can compete will any in the world including India, that is if our minsters do not add too much red tape and kill the industry and the opportunity to be one of the top private healthcare centres in the world, and cheaper than most in the first world.

Inflationary fears

The bailout and government interference will create inflation. Printing money, near zero interest rates, increased debt repayment due to increased lending will increase the prices and that will not be good for the consumer.

Therefore the free market must be allowed to clear itself of the inefficient companies and people, without the interference of government in controlling the finances. Government should be there to enable a much more competitive environment, easier access to finance and less red tape in stating a business.

The free market system, if allowed to work will not disappoint us in the long run, if central planning is allowed to prevail, we as consumers will suffer in the long run.

Written by:
Oresti Patricios
C.E.O.
OrnicoGroup
www.ornicogroup.co.za

Xenophobic attacks on the increase

2009-05-01T19:47:00.000+02:00

Watching the Mayday celebrations shows an increase in xenophobic attacks internationally. In Russia 50% of the population are against any foreign workers in that country. This was done on a day that was supposed to unite workers all over the world.

How will governments respond to this? Do they go back to closed societies and kill globalization or do they try and come to an agreement that suits all countries?

In the past the G7 decided how the world economy should be addressed. Now the G20 is trying to make decisions for the rest of the world. The problem is that the western economies are still trying to hold onto that power, even though it is slipping away from their grasp.

Downturns are important both for businesses and governments and they need to run their course.

It is important for businesses as the strong survive. This is the same in the animal kingdom when there is a drought in the bush.

The down turn helps governments to realise where they are going wrong. Governments need to relook at education, healthcare, climate change and caring for the populace and not themselves.

What is happening is that they are clamping down on businesses, adding more red tape and therefore more costs.

What should happen is that governments should make it easier for businesses to hire staff, allow the unemployed start their own businesses and ensure that businesses are also adhering to the triple bottom line. This triple bottom line red tape in place, the authorities should just enforce it rather than add more red tape.

When this economic down turn changes, will governments regret what they did or will they blame the previous administration.

Xenophobia is created because we as human beings do not care for our neighbours. These neighbours could be next door to us, in the next suburb, city, country or continent. We are one human race that needs to care for each other.

Written by Oresti Patricios
C.E.O.
OrnicoGroup

Fiscal Policy

2009-04-30T08:06:00.001+02:00

The Government announces that fiscal policy will remain. The new adminatration will concentrate on service delivery and the poor. Both are nobel ventures. Service delivery can be done without changing the fiscal and monatary policies but subsidies for the poor cannot be done without increasing debt or taxes as less revenue is currently been collected.

Government should look at making it easier for companies to do business. This will create jobs and increase taxes. They can then spend this on the poor.

Service delivery needs only proper systems and proceedures in place as money has already been allocated

Mathew Phoza

2009-03-26T10:24:00.000+02:00

Bailouts of any nature are wrong as they reward inefficiencies, mismanagement and set a bad example. The other reason is who should be bailed out and who should not. If you are a large organisation and you hire thousands or a small one employing just a few.

Mathews Phoza made a comment yesterday that he would not bailout private companies. The reason is that he cannot reward those enterprises for mismanagement and the huge bonuses that are paid to these executives. I agree with him.

He also stated that they would consider bailout for public enterprises. This is just as unacceptable and government are setting a bad example. One of the ANC election manifestos is to have a government that is accountable to the people, is efficient and implements the policies of the ANC.

Better governance, is the key for economic growth and a better life for all. That indicates that government should also not bail out public enterprises and go back to the late 90’s or early 2000 when these enterprises were been privatised.