THABILE WONCI: SA’s unemployment numbers call for a new social contract

Stats SA’s most recent Quarterly Labour Force Survey provides dire confirmation that the economy continues to languish in deep paralysis. The reported number of unemployed people is sitting at 7.8-million, resulting in an official unemployment rate of 34.4% in the second quarter. In this regard the title of Friedrich Nietzsche’s 1872 work The Birth of Tragedy is apt.

This state of affairs ought to challenge us to ponder deeply on the declaration made by former US president Ronald Reagan on June 4 1981, that “the highest order of business before the nation is to restore our economic prosperity”.

The most striking fact about the latest unemployment numbers is the staggering jobless rate among the black African population, now at 38.2% — a stark reminder that this demographic group, and black-owned SMMEs and other black-owned enterprises, are still marginalised from the mainstream economy.

This calamity should prompt the government to initiate a new form of social contract with the private sector, especially the banks. Needless to say, banks have generally served as the drivers of economic activity and wealth creation in developed markets, with their lending products and credit policies tied to the prevailing economic realities.

The new social contract that must be negotiated between government and the private sector needs to provide a job creation stimulus to the unemployed and access to credit for black-owned businesses for the purpose of acquisition(s) and expansion. This form of capital allocation will go a long way towards creating the job opportunities and economic stimulus the country so desperately needs. To achieve this goal demands effective co-operation between the government and economic and market players.

The latest unemployment numbers show that unemployment among black Africans, coloureds and Indians/Asians is still unemployed between three times and twice that of whites. Unfortunately, the prevailing economic structure and lack of access to funding opportunities provides no conceivable path out of this quagmire. Instead, the current economic structure drives a wedge between those who are playing outside the mainstream economy and the current market players. This system cannot be protected any longer.

The financial isolation of black-owned businesses needs to be addressed as part of the new social contract, to create a path for economic justice. The political freedom we are enjoying today must also be conceived within the prevailing economic framework. Sadly, the unemployment numbers for the second quarter of 2021 confirm that the burden which black Africans, coloureds and Indians/Asians are bearing is much heavier than that of white population.

This financial isolation of emerging black-owned businesses, must be destroyed so as to foster their integration into the mainstream economy. Our journey to prosperity will be too costly if it excludes the participation of black businesses in our quest to create more job opportunities. This consequently magnifies the pertinent role of the banking sector as the key driver of economic activity — there is no business that can achieve its potential without full access to funding and credit products.

The solution will be the new deal between government, economic and market players, as we need to redefine the terms of engagement in our quest to build a prosperous SA for all. The equitable provision of capital will likely lead to equality of access to business opportunities which should lead to job creation.

The economic ravages of Covid-19 and, more recently, the protests and looting in KwaZulu-Natal and Gauteng — especially the extensive damaged suffered by many businesses — further deepen the vulnerability of small and black-owned businesses that otherwise do not have many funding options.

The potential of SMMEs to contribute meaningfully to alleviating SA’s high levels of unemployment, poverty and income inequality is undeniable. However, the key question is: how does the country create and sustain a vibrant SMME sector that is able to rise above the challenges of our society and help create the much needed jobs?

The government’s new social contract with the private sector must ensure the creation of policies that support the commercialisation of small businesses, enhance their ability to access markets, access funding from traditional banks and improve their attractiveness to development finance institutions for credit extensions, collateral and loan facilities. Most importantly, banks will have to update their credit-scoring systems so that their funding products are more accessible to SMMEs and black-owned businesses in general.

In conclusion, the participation of SMMEs and black-owned businesses in the mainstream economy needs to be promoted beyond business services, trade and personal services to financial services, mining, utilities, transport and manufacturing, as these sectors are key to driving economic growth and development. This will strengthen the quality and sustainability of the jobs created by SMMEs while bringing everyone into the mainstream economy.

Wonci is CEO of Kogae Rainbow Investment Holdings and a Senior Partner at Kogae Advisory Partners.