How relations between business and Gigaba soured

07/09/2017 | By Admin

SA’s business leadership is trying hard to do the right thing. It has re-engaged with government; formally pledged to create jobs, and support transformation, entrepreneurship and skills development; and it is rallying a national consensus that will make it part of the solution to SA’s mounting crisis.

The decision to attempt rapprochement with government comes after much soul-searching by the CEO Initiative, a body of 80 CEOs formed to salvage SA’s reputation after President Jacob Zuma’s axing of former finance minister Nhlanhla Nene almost two years ago.

The initiative worked hard with his successor, Pravin Gordhan, to stave off SA’s sovereign downgrade to junk status, but its efforts were scuppered when Zuma fired Gordhan in March this year.

The body beat a retreat, further bruised by the Zuma faction’s attacks on “white monopoly capital” and a resurgence in populist rhetoric.

But with the country facing a growing crisis on several fronts — a fiscal shock due to failing state-owned enterprises (SOEs); a macroeconomic shock due to slowing growth and mounting unemployment; and the white-anting of state institutions due to widespread corruption — the CEO Initiative has come back into the game.

Last week it met finance minister Malusi Gigaba for the first time, suggesting a softening of its stance towards government.

“I wouldn’t describe it as going ‘soft’ on government,” says Goldman Sachs MD Colin Coleman. “We have to engage with the realities, use the strength of the financial sector to stop the bleeding in SA and use the expertise and thought leadership in business to help government take the most constructive road forward. Without that engagement, we’d be leaving government to its own devices and we would suffer.”

Business Leadership SA (BLSA) has also staged a comeback. On August 23, it signed a contract with the country, pledging to harness the capabilities of business in partnership with government and civil society to make SA a prosperous nation.

“After being [pilloried] and shown up as the enemy, we are putting our shoulder to the wheel and have enlisted the support of civil society and all social partners to say: ‘Let’s pull ourselves out of this recession’,” BLSA CEO Bonang Mohale said on radio.

BLSA’s message is that “business can do so much more” in skills development and in partnering with government, but for business to fulfil its contract to SA, government has to create the right conditions for the country to succeed.

This is where the logic begins to unravel. For how can business promise to create jobs and invest when the investment climate is in the hands of a government that offers no credible economic leadership and whose economic model of state-led development has failed?

The jury is still out on Gigaba’s performance as finance minister, but confidence is beginning to wane.

Counting in his favour have been his moves to appoint a credible director-general, suspend Eskom CFO Anoj Singh and instruct Denel to terminate its deal with the Gupta-linked VR Laser, among other things.

On the other hand, he removed Singh only under pressure from the Development Bank of Southern Africa, he hasn’t resolved the situation at Eskom, and is allowing disgraced SA Airways chair Dudu Myeni to remain on board longer than necessary. Last week, Gigaba allowed Schalk Human to be removed as acting chief procurement officer — for many the ultimate barometer as to whether he has the will to act against corruption.

The emerging consensus in business is that Gigaba is smart and understands the gravity of the challenges he’s facing, but the perception is growing that he is a deeply political animal who will shrink away from making the tough political trade-offs required to restore confidence and growth.

Meanwhile, SA’s economic crisis is getting worse. “There are pressures on growth, tax collection and the budget. It’s been loaded with a R10bn hole [from SAA], and then there are the looming public-sector wage negotiations and the higher-education fees issue, plus a governance crisis at Eskom,” says Coleman. “If Eskom were to implode it would cause a national fiscal crisis.”

The worst outcome, he feels, will be if Gigaba doesn’t manage to use the political capital he possesses to get things done.

For business, having promised growth and job creation, the danger is that as job losses continue to mount, business and free enterprise will become the scapegoat, and populist policies the solution.

“Yes, the climate is very poor for stimulating growth and creating jobs,” concedes Business Unity SA CEO Tanya Cohen, “We have no illusions in that regard, but that doesn’t mean business mustn’t do what it can. All we can do is look forward and, as constructively as possible, resolve the problems facing us.”

To its credit, there are growing signs that business is embracing the idea of responsible capitalism — from SA Breweries’ new plan to create 10,000 jobs over five years by supporting entrepreneurs, to Standard Bank’s crowd-funding platform, Feenix, which matches donors to indebted university students.

Wits University has noticed the difference, having enjoyed a surge in corporate funding over the past two years despite violent student disruptions on campus. “There is a growing sense of corporate responsibility,” says Wits director of development & fund-raising Peter Bezuidenhoudt. He believes it is tied to the realisation by corporates, brought on by external pressures (such as #FeesMustFall) and by internal pressures from their own staff, that they need to be part of the solution.

Clearly, with unemployment and poverty on the rise, many local businesses are going to battle to remain sustainably profitable unless SA’s deteriorating fundamentals can be arrested. This suggests that there is an element of enlightened self-interest in the upsurge in responsible capitalism.

“Business in SA has definitely become more aware of its social responsibility and come to realise that it can’t afford to disengage and still have a sustainable society,” says Investec economist Nazmeera Moola.

She believes that, starting for some companies with the jolt caused by the Marikana massacre, business has finally got to grips with the fact that it has to finance transformation in the broadest sense so that, in 20 years, a significant percentage of black South Africans rise up into the middle class.

“Business reached this conclusion not because it’s philanthropic, but because it’s realised the cost of not doing it is too high in terms of social instability, which eats into growth and profits and gives rise to populism and [calls for] nationalisation,” she says.

For Coleman, “Nenegate” was the shock moment when business realised that the sovereignty of the country and the sustainability of business was at stake. He thinks that this, coupled with the global attention being placed on inequality and youth unemployment, forced SA business to undertake some deep introspection. “It is what’s driven Investec CEO Stephen Koseff and I to put real content behind the idea of assisting [the] youth [to obtain] work experience and to go the extra mile in terms of what’s beneficial to society and also to business,” he says.

Coleman and Koseff are the driving force behind the Youth Employment Service, an ambitious plan to create 1m youth internships in private companies over the next three years.

The Manufacturing Circle has devised its own plan to create 1m jobs in manufacturing — its estimate of how many jobs could be created if the sector’s contribution to GDP were raised from its current 13% to 30%.

Its Map to a Million initiative sets out a roadmap of practical policy changes and an investment incentive package that it believes would create the right conditions to reindustrialise SA.

“It’s an admittedly bold and audacious idea, but it is time for bold and audacious steps to be taken to address this national crisis,” says Manufacturing Circle chair and Nampak CEO André de Ruyter. “We can bemoan our fate or we can do something.”

Among the plan’s proposals are that depreciation allowances be accelerated; that no new taxes be imposed on the sector; that regulatory bodies be properly skilled; that trade measures be employed with fewer delays; and, most controversially, that one mega industry ministry be created out of the five economic cluster departments to co-ordinate this push.

At the same time, manufacturers accept that they can’t expect hand-outs from government without offering something in return.

De Ruyter cites the section 12i tax incentive as a good example of the kind of quid pro quo envisaged, as it requires recipients to create a certain number of jobs, undertake skills development and meet energy targets in exchange for support.

This is not to say that business will refrain from retrenching workers if that’s what is needed to remain profitable, though calls for business “to do more” often seem to imply that it is socially irresponsible for business to shed jobs.

“The objective of business should be sustainable profitability, not short-term profitability and not just sustainability,” says De Ruyter. “You have to have both elements.”

In short, it makes good business sense to adopt a long-term view. Just ask Mercedes-Benz. Through its East London plant, it was one of the first companies in SA to extend free antiretrovirals to employees and provide housing. Today that plant has one of the lowest absenteeism rates of any of the company’s plants worldwide, and it enjoys world-class productivity.

If more firms adopt this kind of approach, SA can only become a better place. But until government comes to the party in a big way, nothing is likely to shift the needle on growth.

Published in Financial Mail