Tar­get

Plough­ing in­vest­ment into the small busi­ness sec­tor is the only way to boost growth, says Gold­man Sachs

CityPress - - Busi­ness - XOLANI MBAN­JWA xolani.mban­jwa@city­press.co.za

South Africa’s econ­omy can grow by 5% over the next five years if gov­ern­ment and the pri­vate sec­tor in­vest R12 bil­lion in 300 000 new small busi­nesses. Ac­cord­ing to global se­cu­ri­ties firm Gold­man Sachs, this should be cou­pled with re­cruit­ing and skilling 300 000 un­em­ployed youths through the SA Na­tional De­fence Force’s na­tional youth ser­vice pro­gramme – gov­ern­ment’s new project to con­tain spi­ralling youth un­em­ploy­ment.

Colin Cole­man, the firm’s head of the in­vest­ment bank­ing di­vi­sion in sub-Sa­ha­ran Africa, said such an ap­proach, to­gether with a fo­cus on sta­bil­is­ing the min­ing and man­u­fac­tur­ing sec­tors, would tackle un­em­ploy­ment, which he said was the main im­ped­i­ment to the coun­try’s eco­nomic growth.

Sup­port­ing the es­tab­lish­ment of small busi­nesses was also the best way to tackle un­em­ploy­ment be­cause the sec­tor cre­ated the high­est num­ber of new jobs to ab­sorb idle youth.

The ANC-led al­liance ear­lier this year called for gov­ern­ment to ex­pe­dite the con­tro­ver­sial na­tional youth ser­vice pro­gramme – which has split opin­ion among com­men­ta­tors on whether it should be com­pul­sory – and to be­gin re­cruit­ing un­em­ployed youths from June next year.

Cole­man, who dis­cussed the find­ings of the re­port with Fi­nance Min­is­ter Nh­lanhla Nene be­fore mak­ing it pub­lic this week, said that while a fi­nan­cial cri­sis was un­likely in the near fu­ture, the busi­ness sec­tor’s big­gest fear was so­cial un­rest sim­i­lar to the Arab Spring.

This, said Cole­man, was the sen­ti­ment shared by most busi­ness­men in re­search that spanned more than four months of in­ter­ac­tion with the coun­try’s cap­tains of in­dus­try.

At a brief­ing with busi­ness lead­ers in Jo­han­nes­burg on Wed­nes­day, Cole­man said South Africa’s sav­ing grace was its depth of fi­nan­cial mar­kets, low lev­els of dol­lar­de­nom­i­nated debt, re­spected in­sti­tu­tions such as the SA Re­serve Bank and Trea­sury, and high re­port­ing and trans­parency stan­dards, which were key in­di­ca­tors in the event of a loom­ing fi­nan­cial cri­sis.

The re­port, ti­tled South Africa’s Eco­nomic Man­age­ment and Lead­er­ship, warned, how­ever, that a lack of po­lit­i­cal lead­er­ship and de­ci­sive­ness, a 41.5% debt-to-gross do­mes­tic prod­uct (GDP) ra­tio, sim­i­lar to that of 1994, and fail­ure to re­struc­ture the un­pro­duc­tive al­liance be­tween labour fed­er­a­tion Cosatu (as the rep­re­sen­ta­tive of civil ser­vants) and the ANC (as the em­ployer in gov­ern­ment) had cre­ated a pub­lic sec­tor con­sumed by salaries but not of­fer­ing value for money.

Govern­ment said it was aware of the “struc­tural” prob­lems in the tri­par­tite al­liance, where unions were too fo­cused on in­creas­ing salaries while re­fus­ing to be mon­i­tored or eval­u­ated by the ANC-led gov­ern­ment.

While South Africa’s debt-to-GDP ra­tio went down to al­most 20% at the end of Thabo Mbeki’s pres­i­dency in 2008, it rose sharply to 41.5% this year.

Gold­man Sachs es­ti­mates that the ra­tio could rise to 49% by 2017 as a re­sult of gov­ern­ment hav­ing to find $11 bil­lion (R157 bil­lion) to fund the 3.9% deficit, which will place South Africa close to the un­com­fort­able 50% debt-to-GDP thresh­old, seen by the World Bank as a pre­cur­sor to a fi­nan­cial cri­sis.

Cole­man pre­sented two sce­nar­ios that the gov­ern­ment, busi­ness and labour sec­tors could fol­low to im­prove eco­nomic growth by ei­ther 3.2% or 5% within five years of im­ple­men­ta­tion.

Trea­sury, said Cole­man, would be forced to seek a bailout from the In­ter­na­tional Mone­tary Fund within two years if for­eign di­rect in­vest­ment and for­eign port­fo­lio in­vest­ment came to a “sud­den stop”, within 18 months if “so­cial un­rest” turned into an Arab Spring, and within six months if the “Ar­maged­don” of fi­nan­cial crises hap­pened – where all for­eign­ers sold ev­ery­thing they owned in South Africa, which would re­sult in the in­tro­duc­tion of cap­i­tal con­trols.

Unem­ploy­ment, re­ported at 25% last month, was one of the high­est in the world in emerg­ing mar­ket coun­tries.

But re­cruit­ing 300 000 un­em­ployed youths an­nu­ally for five years into the na­tional youth ser­vice pro­gramme for skills train­ing could see that fig­ure re­duced by 10% within five years, said Cole­man.

He pre­dicted that gov­ern­ment could in­tro­duce a min­i­mum wage of be­tween R3 500 and R4 000 within the next 18 months.

Cosatu this week called for a de­cent min­i­mum wage at its con­gress this week.

But Cole­man warned that a min­i­mum wage higher than Gold­man Sachs’ es­ti­mates could re­sult in job losses if it was un­af­ford­able for the pri­vate sec­tor.

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