THAMI MAZWAI: ‘Creative destruction’ will lift SA from the mire

The social unrest that rocked Gauteng and KwaZulu-Natal two weeks ago has again put the put the spotlight on SA’s vulnerabilities: the failure of the economy to deal with growing levels of poverty, unemployment and inequality.

Despite this, the violence has to be deplored in the strongest of terms. In the meantime, let us urgently design remedial action to deal with the poverty and marginalisation, as opportunists and rabble rousers will always take advantage of them.

Fortuitously, President Cyril Ramaphosa has raised the alarm, and among several issues he stressed two stand out: dealing with new challenges in the affected areas and, more importantly, restructuring the economy to deal with our glaring fault lines.

Taking the cue from the president, the most urgent next step is the promotion of entrepreneurship in marginalised communities, the township and rural economies. Gauteng Premier David Makhura has rightly prioritised this, but there were unsurprising islands of opposition. Nonetheless, Makhura’s township initiative continues in full flight as he has not bowed to the pressure. 

Let us first deal with some uncomfortable facts as, judging by the current debate in the media, one gets the sinking feeling we have not learnt from the past 27 years. The fact is our government has since 1995 made interventions to deal with poverty, unemployment and inequality. The ANC’s blueprint for restructuring the economy, the Reconstruction & Development Programme (RDP), even prioritised small business development.

In 1995 then-trade & industry minister Trevor Manuel hosted the president’s Conference on Small Business and our first democratically elected president, Nelson Mandela, was guest speaker. Experts on small business from other parts of the world were in attendance.

This national conference was followed by provincial ones at which policy initiatives were taken and new institutions came into being. Unfortunately, the interventions moved in fits and starts and did not rise to expectations. Hence, while we inherited an 18% unemployment rate in 1994, it has now ballooned to 32.6%.

The reason for the poor impact is that we ignored the embedded dynamics and constraints in the economy. After all, according to Entrepreneurship 101, strategies must be based on the realities of the environment and their embeddedness in the economy must be taken into account. We operated in good faith and best-case scenario planning.

Thus, the big question today is whether these dynamics have ultimately been taken into account. The narrative in the country does not indicate this. Yes, there is increasing talk on township and rural economies but little is said of these dynamics. Yet we must deal with these as they will affect plans.

The embedded dynamics include heavily concentrated sectors; value chains controlled by major players making entry difficult; and, not exhaustively, the incumbents have deep pockets, the latest technology and a superior understanding of markets or products. Their operations in the market, such as mergers, discounts and/or sales, simply blow many competitors out of the lake. Emergent players have no chance.

Last Sunday evening Ramaphosa mentioned that he is discussing economic reconstruction with the private sector, but with all due respect the strategy must be implemented at two levels. Besides partnering on broad strategies, but there must be a second level in which government restructures the economy through interventions and institutions such as the Competition Commission, the Industrial Development Corporation, and other state-owned companies and multilateral partners.

Business people, black and white, are not proactive in programmes that will lose them market share. Hence some in the private sector do not cheer Makhura’s interventions in townships. It is natural — the turkey seldom looks forward to Christmas. Thus, if the private sector becomes a 100% partner of the 2021 restructure we should not expect different results from what happened post-1994.

The above does not imply opposing or excluding the private sector. Instead, we are talking of growing it. The current strategies in the private sector must continue as we are not talking of exclusivity. We are talking of new and independent paths and value chains which, naturally, will integrate into the economy. The multiplier effect will then kick in and as the economy grows and everybody benefits.

To repeat, the critical issue is opening up the economy. South Korea has a population of 55-million and a small business population of 7-million. Its unemployment rate is 3.94%. We have a population of 59-million and a small business community of just below 3-million, with a hefty 1-million being informal.

In 1977, at the height of the student unrest, major companies in the private sector created the Urban Foundation and got into partnership with the apartheid government to come up with new interventions. These wise men from entities such as Barlow and Anglo American stated that people who do not have a stake in the economy will not care about it.

Thanks to the Urban Foundation in partnership with the hated apartheid government, progressive policies were put in place and this included the emergence of upmarket areas for the black middle class. Specific policies were put in place to fast-track black business. SAB’s Kickstart youth entrepreneurship programme emerged in 1995; other initiatives included the Sowetan starting a business section.

The likes of Don Ncube, Eric Mafuna, Rick Menell, Peter Vundla and Bobby Godsell can corroborate the dramatic changes heralded by the Urban Foundation. The critical point is that the business people were clear that it was not about their companies. They were taking out an insurance policy. It worked, and the Maponyas grew.

Fast track to 2021 and we can again think creatively, with specific eyes on townships and rural areas. For instance, just as Bosasa was given contracts to prepare food for numerous prisons, this concept can be improved in line with the District Delivery Model. Qualifying co-operatives of black women and youths in each of the 52 districts and municipalities can prepare the food for the local prison and hospitals.

This would result in the creation of more than 150,000 new jobs nationally in one fell swoop as the value chain would need quality control processes, logistics and new ways of doing things, also breathing life into black emergent farmers. Throw in the schools feeding scheme and another 75,000 or so jobs can be added to the 150,000. In terms of empirical evidence, Malaysia implemented this in its built environment and infrastructure rollout. Its unemployment rate is 4.5% and falling.

The name of the game is creativity and disruption, what Joseph Schumpeter called creative destruction. Unless we get our act together by thinking out of the box, the opportunists and rabble rousers in the wings will continue to take advantage of the anger in marginalised communities. We then all suffer, black and white.

• Dr Mazwai chairs Mtiya Dynamics, which specialises in skilling entrepreneurs.