Stable credit rating leaves door open for turnaround | Business Day

Read coverage of CDE’s panel discussion on credit ratings and what will happen to SA if we are downgraded to junk status here at Business Day.




Op-Ed: Business silence is not a good strategy for country in trouble

BY ANN BERNSTEIN, MARCH 09 2015. Originally published in Business Day. Read this article on BLive.

SA IS slipping into deep trouble. From the state of the nation address and the budget, it is clear there will be no attempt to change course. In almost all respects it will be business as usual.

SA faces the most severe energy supply crisis in its history. We are asking large industrial users to minimise electricity usage and are deterring investment because of our erratic supply. Yet the government refuses to behave any differently.

Instead of appointing a world-class team of engineers and managers to turn Eskom, Medupi, Kusile and the country’s energy supply around, we repeat the many mistakes that have led us into this disastrous situation in the first place.

The fastest growing item in the budget is debt-service costs but the assumptions underpinning the forecast of a falling budget deficit between now and 2017 appear to many to be optimistic. The country does not have a strategy to deal with our huge unemployment challenge and we are still failing to deliver quality education and training to the vast majority of young people.

Economic growth was a dismal 1.5% last year and with rolling blackouts and no fundamental policy shifts SA looks set for prolonged stagnation.

The paradox is that, faced with this deteriorating situation, many people retreat from public life and civic engagement. But countries in trouble need more engaged and organised citizens: to defend the constitution, to express indignation, to develop and promote alternative approaches.

In this context let us turn to a key component of civil society and ask some questions about business. Is the right strategy one of public silence from leading business organisations? We know there are conversations going on in private, at the National Economic Development and Labour Council and elsewhere but is that sufficient and is business being tough enough?

Business in SA today is a complex sector. It ranges from crony capitalists to colluding cabals to struggling small enterprises to world-class companies. My remarks are aimed at those very many honest executives and managers who run great local and international businesses, small and large.

The country is preoccupied with diversions. It is not focused on the central issue of how to get back to higher growth and build an economy that creates many more jobs. Business leaders and organisations should play a key role in driving the public focus of attention back to strategies for higher growth and the reforms required to make this possible. Behind-the-scenes discussions have their use.

Nonetheless, it is hard for those on the outside to see their value and the country’s parlous situation does not inspire confidence in this approach. Business needs its own priorities for reform. What do business leaders and representative organisations see as the key measures vital to return SA to higher growth and build a more labour-intensive economy? In developing such an agenda, there are some things to bear in mind.

• For many South Africans business is not seen as an innocent bystander in the predicament of enormous poverty, mass unemployment and great inequality. Thus, for some, when you talk of higher growth, they worry the fat cats will be the beneficiaries. The case needs to be made and then communicated for inclusive growth.

• The case against state-led development needs to be made. Though the performance of the state in the past few years would seem a definitive argument against a dirigiste approach, there are many who do not see this. The compelling evidence and international experience for a market-led approach to SA’s future growth needs arguing. The National Development Plan is correct on the reforms required to meet the country’s need for a professional public service. However, little is said about the necessity for this reformed public service to appreciate the power of markets and how to create a business-friendly environment.

• Business is good for society and essential for sustained development. And yet companies that are so skilled at “selling” their products and services and creating new needs and demands are incredibly weak at communicating the overall benefits of a market economy and the positive contribution they make to society. Companies are continually being pressured to “do more”, to demonstrate what benefits they provide SA in addition to just doing business. But the debate about “responsible” corporations takes for granted the everyday activities of companies and their contribution to society. This is what makes it possible to focus so much attention on what else a company must do to contribute to the social good.

• Companies should stop apologising for their existence; stop overemphasising their social investments. They should much more creatively and imaginatively devote time and effort to communicating the good they do by “just doing business” and running profitable companies.

• Ignorance about what business has achieved in 20 years of democracy is profound. Considering the small pipeline of talent coming out of SA’s education and training system, it is remarkable what progress has taken place in corporate SA. Instead of letting the “nothing is good enough” brigade drive public perceptions, companies should find compelling ways of telling this story.

• Finally, business should acknowledge the challenges to “free enterprise” and to good business in SA. They should engage more on these issues. They should get their own house in order — by promoting more effective labour relations in large firms or using resources and influence to ensure much more effective business organisations.

Business silence is not a good strategy for a country in trouble. Strategic engagement in public by the largest component of civil society can help to lead a stronger set of voices for growth, jobs and quality education. This is not the only lever available to business leaders but collective silence punctuated by sporadic comments from individuals totally frustrated or “betrayed” is not the most effective approach. SA is in trouble but this is not the time for business leaders and key organisations to stand down. They need to step up.

• Bernstein is executive director of the Centre for Development and Enterprise and author of the award-winning book, The Case for Business in Developing Economies.




SA’s disparate growth strategies criticised | Business Day

CDE’s report Policy Gridlock? Comparing the proposals made in three economic policy documents was covered by Business Day.

SAs-disparate-growth-strategies-criticised




Why businesses do good just by doing what they do best | Business Day

19 May 2010, Katy Chance, Business Day.

The Case for Business in Developing Economies is published by Penguin Books, available at all good book stores.

I do a lot of work looking at how business can be more effective in corporate social investment,” says Ann Bernstein, founding director of the Centre for Development and Enterprise (CDE).

“If I look at schooling reform, businesses spend something like R1,3bn on educational projects, but I have to ask what impact this has had on the schooling system in SA.” And she has to answer: “Very little.”

When researching her latest book, the internationally acclaimed The Case for Business in Developing Economies, which includes the chapter If Global Poverty is the Challenge, Corporate Social Responsibility is not the Answer, Bernstein studied “every speech across the globe” from major brands.

Not one of them was devoted to why business is good for society: “If lucky, there’d be an opening paragraph, then it would be a litany of all the schools they support, the clinics, the mentorship programmes, all the extras.”

Businesses, it seems, have become personal apologists for just being good at doing good business; and businesses have taken on a note of what Bernstein calls appeasement. Rather like battered women, if you’re told you’re bad long enough, you’ll start believing it.

“Businesses are talked about as if they’re immoral, but modern businesses, through just doing business, impact enormously positively on any society, but especially developing ones,” says Bernstein. “Yet there is a relentless barrage of criticism and demands to ‘account’ for what they do and ‘redress’ situations they didn’t create. So corporate social investment, particularly overseas, became a sort of movement to help business co- ordinate what were seen as ‘reparations’!”

Bernstein understands first-hand the power businesses have to change society. In the early 1980s she worked for the Urban Foundation, then the largest nongovernmental organisation in which English and Afrikaans business people worked together, and which had “very senior black members on the board”.

At the foundation she designed and ran the campaign for the abolition of influx control, which was the linchpin of apartheid. “Long before apartheid ended, big companies acknowledged and negotiated with trade unions. Companies became zones of liberation — not because they were altruistic, but because their business means treating people as valued and equal. It was, and is, in their interest to do this.”

This doesn’t make businesses “evil”; as Bernstein notes, Oxfam has an interest in its own survival: “Yet there is this notion that just by being a nonprofit organisation you are somehow pure and more moral than a business doing its job well.”

Bernstein grew up politically in Helen Suzman’s constituency, worked for her in Parliament and became a friend. After studying at Wits she received the Ernest Oppenheimer Memorial Trust Fellowship and studied development in developing countries for two years in the US.

She started the CDE, “an independent policy research and advocacy organisation — essentially a policy think-tank”, in 1995, with just her and a desk. “There were no think- tanks in SA at the time, nobody was discussing liberal market principles or thinking about the very big challenges that would face a democratic SA.”

But not all countries are as democratic as the companies that do business in them. Part of Bernstein’s book is about the direct and indirect consequences of business.

“The modern business is the most powerful organisation ever invented for innovation, knowledge transfer and creating empowerment opportunities,” she says. “This is its direct impact on society. It is taken for granted, or overlooked, that businesses pay taxes, and create employment and wealth.

“The competitive element of business is what has driven, and drives, society forwards, but it is either not talked about or undervalued.”

She cites many regions, but particularly Asia, as a beneficiary of the direct impact business has: “In the last 50 years this area has opened up new markets and enterprises and more people have moved out of poverty more quickly than ever before, and in larger numbers.”

She explains the indirect impact businesses have with an example. “When companies went to China, interested in doing business, they became transmission belts of modernity into that society. Inside the factories were signs saying: ‘Your views count, speak out if you have problems at work.’ Outside may have been entirely undemocratic, but inside, people were told they were valued — by the company, if not the country.”

She remembers one black woman saying to her, during apartheid, that when she went to Pick n Pay, she was treated like a human being, an equal with the white shoppers. “That’s because they wanted her as a customer, but it made this woman think about why the rest of society couldn’t be the same.”

Bernstein maintains that something profound happens when successful businesses come to town, often due to the way modern, western companies treat their employees compared to some authoritarian regimes.

If a western company wants to list on the Shanghai Stock Exchange, for instance, they won’t do so unless there is a “reasonably free media” and they are able to report on what they do and how they do it reliably.

“Because of their interest in doing business, the laws of the company investing need to be closer to the rule of law, in a western sense. The process of implementing these corporate values creates what I once heard described as a ‘thickening’ of civil society. The company is contributing to better laws, civil society and independent institutions — all through simply doing business.”

Bernstein holds little truck with the antimarket forces and antiglobalisation protestors who put their considerable energy — and resources — into “brand jacking” multinationals.

When the protestors claim that (the admittedly not fabulous) factory jobs in some parts of the world are corporate exploitation, it is more likely ignorance on the part of the protestors. “These are often the best-paying jobs in town,” Bernstein says. “I would say to these protestors — who liaise on their cellphones, wearing their top-of-the-range running shoes and go back to houses with running water — that the evidence indicates the opposite of exploitation.

“Often it’s the best job people have ever had and after five to seven years, they commonly leave the factories and set up their own small service companies or go back to their rural roots, but now with money. And who are these protesters, representing rich, western society, to make a decision on some poor person’s life?

“Many adherents, including those of corporate social responsibility in the rich west, do not understand what poverty and such depths of poverty are really about, nor the choices people face. Nobel laureate Paul Krugman put it this way: The alternative to low-paying jobs is not high-paying jobs, but no jobs at all.”

Before anyone has the conversation of what more business “must and should” be doing, Bernstein says, the naysayers need to have a deep understanding of what business does, and what good profit- making contributes to society.

“Business and society are not separate. Business is a fundamental part of society and has an intense interest in society being successful. And the benefits of good business are more profound than funding preschools. There will always be a need for charity, obviously, but corporate social investment funds are very precious and should be used wisely. Often they’re a Band-Aid for bad government policy and corporates end up funding things the state should be doing.”

To business, Bernstein would say stand up for what you do and regain confidence, because “a better society is a side effect of doing good business”.

To critics of business, Bernstein says they don’t understand the profound good just doing business contributes to a good society. The consequence of constantly besieging business, of making it feel guilty for doing its job well, is to run the risk of companies upping sticks and moving on.

“We take the existence of business and its merits for granted. But we need the creativeness of competitive market processes, because that leads to innovation and risk, and that’s the only way for developing countries, especially, to move forward.”




Business must play its part to expand vocational education

By ANN BERNSTEIN and JEFF MCCARTHY

 

Based on VOCATIONAL EDUCATION IN SOUTH AFRICA: Strategies for improvement

SA’s attempts to achieve accelerated and shared growth over the past decade or so have been thwarted by shortages of artisan, technical and other vocational skills. The basic problem is poor educational quality despite high expenditure. In addition, the disappearance of apprenticeships, shortcomings in training by sector education and training authorities (Setas) and the inadequacies of further education and training (FET) institutions have made their own contributions to this blockage to growth.

At the same time, the country is haunted by the waste of youthful potential represented by about 3-million young people between the ages of 18 and 24 who, according to the Department of Higher Education and Training’s recent green paper, are not in employment, education or training.

Unlike basic and general education, the point of post-secondary education, at institutions such as FET colleges, technical high schools and technikons, is employability. Since the private sector is the engine of job creation, qualifications that are highly regarded by business should be the goal.

This has not been the case up to now. Despite government attempts to expand vocational education, qualifications from vocational schools often fail to inspire employers’ confidence; teachers at vocational schools and colleges don’t have enough experience; and students are often uninterested or unable to cope.

What business and industry need in order to create employment is people who can “hit the ground running” and be productive in the workplace immediately. The key to this is good quality, vocationally oriented education in which school-leavers are exposed to occupations in technological, commercial, agricultural and other fields and receive further post-school training before they can enter the labour market.

How can this be achieved? The Centre for Development and Enterprise’s new research in this area makes it clear that a strong role for the private sector is desirable. We have identified several successful vocationally oriented programmes in which the education or training institution works closely with business or industry.

One example is the Middelburg Higher Technical School near the industrial hub of eMalahleni (formerly Witbank) in Mpumalanga. Partnerships between the school and industry give pupils training opportunities that address two critical shortages – technical and artisan skills – and a diversity of appropriate education pathways after Grade 9 to help develop these skills.

The private sector, including companies such as Toyota, invests heavily in the school, provides after-school training and considers pupils favourably for employment. It has also devised a modular, after-school training course for interested pupils and has appointed teachers to lead this. Once pupils have successfully completed the first modules and their schooling, they can apply for employment at Toyota, where they will complete their training as employees.

Employment is not guaranteed, but pupils who complete the course can apply to any Toyota dealer in SA for a job.

Another Middelburg company, Samancor, a ferrochrome-producer, also uses the school for specific, after-school training. This training is Seta-accredited and focuses on pre-artisan training for Grade 10 to 12 pupils. Successful pupils are employed by the company and given further training once they finish school.

Research on international experience also underlines the importance of private sector involvement in vocational education. Partnership arrangements between the government, education institutions, organised employer bodies and trade unions demonstrate that no one sector can solve training and unemployment problems on its own. Germany and Switzerland are prime examples of successful, dual-track, vocational education systems. In Germany, learning at a vocational school is combined with apprenticeship training at a host company. The success of some of its famous companies may partly be attributed to this partnership.

In Switzerland, most companies are small enterprises, employing fewer than 10 people. Public funding amounts to about 55% of all funding for this sector, while private funding makes up the balance. This suggests considerable business confidence in the education provided – not yet the case in SA.

In Australia, the National Partnership on Youth Attainment and Transitions facilitates the transition of pupils into technical and further education. This includes the Community Partnership Brokers Programme, which is aimed at improving community and business engagement with schools, to extend learning beyond the classroom.

Successful outcomes such as these require a high degree of collaboration between the government and industry at the planning stage. Effective partnerships combine a mix of knowledge and skills, drawing on general education, as well as vocational education. One important aspect is that appropriate mathematics and science syllabuses are devised for the technical subjects. Another is that teachers have knowledge and understanding of the workplace and its demands, as well as their own subject expertise.

SA lags far behind on many of these criteria. Strengthening vocational education so that it can play a strong role in economic development and employment creation will require four key elements.

First, the country needs to develop a specific policy framework for expanding vocational education, particularly at identified focus schools. This requires the government to reprioritise the role this type of education should play in our school system.

Second, the role of business needs to be clarified and extended. The businesses involved should meet certain conditions. For example, the company involved should be a leader in its field, and the schooling process should meet the norms and standards of that industry. This will help students become potentially preferred employees.

Third, maths and science education must be improved countrywide.

It is difficult to understand why pupils who want to become artisans and those who want to become engineers and engineering scientists are expected to follow the same maths and physical science syllabus, as is now the case. The great task of making maths and science schooling fit for purpose needs much greater focus, urgency and leadership from the two departments involved, and engagement with the private sector, which has so much at stake.

Fourth, these proposals are based on the assumption that the private sector will be given the opportunity for constructive, meaningful participation and engagement in strengthening and developing vocational education in our school system. If the links between vocational education and youth employment are to be improved, business should be central to any rebuilding.

Until this rebuilding is well under way, vocational and vocationally-oriented education will continue to be seen as second best. The idea that this type of education is inferior should be addressed urgently.

Unless the public and private sectors are encouraged to work together to solve the numerous and onerous difficulties that beset our education system, the result will be poorer education, higher unemployment and lower economic growth.

 




THE WORLD TURNED UPSIDE DOWN: Business innovation from the South

 

April 2012

Adrian Wooldridge, management editor and Schumpeter columnist of The Economist, addressed an invited audience in Johannesburg on 30 August 2011 on innovative companies and entrepreneurs in countries like Brazil, China and India. The inventions and new business processes produced by the wave of innovation emerging from those countries are ‘turning the world upside down’. Such rapid changes create new challenges and opportunities.

The discussion that followed focussed on how South Africa’s education system is undermining our ability to participate as much as possible in these recent trends, the role of self-reliance and individual responsibility in generating innovation and entrepreneurship, the role of the policy environment, the impact of climate change on innovation and the potential of ‘frugal innovation’ to promote rapid growth in a place like South Africa.

DOWNLOAD REPORT

 




Transformation: Racial myths stand in the way of entrepreneurship

Herman Mashaba for Business Day, 6 April 2011.

Responding to widespread expressions of concern about the track record and future prospects of transformation policies, the Centre for Development and Enterprise (CDE) invited a number of prominent South Africans to share their thoughts on transformation with Business Day readers.

These are being published in the leader pages of the Business Day over the course of February and March 2011. They are also being made available here.

Herman Mashaba-Racial myths stand in the way of entrepreneurship

Click to enlarge

Twenty years after the release from prison of Nelson Mandela and the unbanning of our liberation movements, and 16 years after the birth of our hard-won democracy, our nation still faces a number of significant challenges.

Unemployment is very high, especially among the youth, mainly as a result of our education system not producing the right calibre of people needed by SA’s modern economy. High unemployment is contributing to the high crime rates among our youth. HIV-AIDS is a major problem. About 6-million people are infected with HIV and about 3,8-million children have lost at least one of their parents to AIDS.

A key tool being used by the government to reduce poverty is the payment of social grants. More than 15-million people receive social grants. This is by no means a sustainable model. Having to depend on grants as a source of income takes away our people’s dignity. The only way of reducing poverty in the long term and i n a sustainable way is through job creation.

A key way of creating sustaining employment for the country is to encourage and harness the integration of black and white business people – to work together as South Africans. SA’s unique history gives us a comparative advantage, which we need to leverage. The country has a highly developed economy in the areas of mining, manufacturing, retail, communications, agriculture and tourism.

The banking sector ranks among the top 10 in the world.

There is a significant tradition and legacy of white business expertise in the country – a reality that cannot be denied.

In the same way as the white and black keys of the piano have to be played together to make melodic music, so must black and white entrepreneurs work together to create a competitive economy that can hold its own against the best in the world and thereby create jobs and reduce poverty.

This partnership between the races has been my own experience throughout my business career. This is the model I used in 1984 when I conceived my first business, Black Like Me, the hair products company.

My white partner provided the technical skills the business required and the white face that was politically needed to deal with officialdom during the days of apartheid.

It is the same model of partnership that I have used in my subsequent investment companies – the Leswikeng and Phatsima Groups. These experiences have informed my dealings in business and in my personal life, where I deal with people on the basis of what value they add and never on the basis of the colour of their skin or their race.

Although the conditions since 1994 have changed significantly, the business community is not taking full advantage of this unique enabler in our country to create more businesses and to make a number of existing companies more productive and profitable and, in so doing, contribute to sustained cohesion between the different races of our rainbow nation.

For this partnership to work effectively, there are certain myths that need to be debunked.

– Myth one is that, as far as whites are concerned, blacks are lazy and don’t want to work hard. Blacks are seen as wanting short cuts. At the back of their minds, whites think that blacks are corrupt.

Such perceptions will lead to a hardening of attitudes – laziness, or corruption for that matter, exists across the board (the apartheid government and apartheid business, some would argue, was particularly corrupt). It is the governance structures that we put in place, the best practices, the ethics of how we do business, that determine what goes right and what goes wrong.

– Myth two is that blacks believe whites are out to hoodwink them, to pull the wool over their eyes. According to this, whites cannot be trusted and will act only in their own selfish interest at the expense of blacks. Black people need to understand that, despite our past, white people can be trusted and they need to have faith in the abilities of others.

– Myth three is that whites have come to believe in their own superiority, a certain God-given right to lead others and to control others. If the truth be told, apartheid is dead and with it should have died myths of superiority. Colonial mentalities must be exposed for what they are and excellence of all kinds determined by the quality of work done and by goodness and by the content of our character. Leadership qualities exist across the board.

– Myth four is that blacks have come to regard themselves as perpetual victims. Victimhood thus becomes the name of the game, which leads to a culture of entitlement, but also a sense they cannot overcome obstacles.

– Myth five – which blacks and whites share – is to blame the other for any wrongdoing, failures and so forth. In a relatively short time, SA has developed a rather advanced culture of finger-pointing and blame, instead of everyone taking responsibility for the realities and actions of their own making.

– Myth six: white or black business can go it alone. Capital has no colour. A range of business partners is necessary – black can learn from white and vice versa; men can learn from women, youth from the elderly and the elderly from the youth.

Depending on the product you sell or the services you offer, you may wish to take on a range of suitable, hard-working and highly skilled individuals to be part of your dream.

These are some of the myths that exist. These are the generalisations that we repeat at our own peril and that will be our downfall as business.

The reality on the ground shows something different and can demonstrate how wrong these perceptions and stereotypes are when it comes to forging real and permanent partnerships. These mind-sets will have to change and to change fast; the masks must be removed to see the real flesh-and-blood human beings beneath.

We need to have a common confidence and belief in each other, to cultivate a vision that is shared, to awaken to a new reality, in which we realise that our survival as a people depends on us working together.

We need to go beyond what the government wants, because what we want is what will take this country into economic prosperity. What we want as entrepreneurs will bring about a golden age.

The country requires new partnerships. The new challenges require new solutions. We need to create a reality for ourselves where we are actors and not acted upon, where we shape the economic ground on which we walk and not depend on others to clear the way. Business must wake up to this new positioning – how we forge links, how we actively position and market ourselves favourably as players in our local economies and in the world market.

Our history has written itself in black and white. Our present and future are far more multicoloured and magnificent than we can possibly imagine. As entrepreneurs, we need to start a new chapter in our history, no longer as black and white, but as South African business asserting itself nationally and in the world.

The future prosperity and social cohesion of our country require us all to act decisively, and now. We can be the agents of change.

 Mashaba is executive chairman of Lephatsi Investments. This article forms part of a series on transformation supplied by the Centre for Development and Enterprise.




Transformation for a better South Africa: To what end?

Responding to widespread expressions of concern about the track record and future prospects of transformation policies, the Centre for Development and Enterprise (CDE) invited a number of prominent South Africans to share their thoughts on transformation with Business Day readers.

These are being published in the leader pages of the Business Day over the course of February and March 2011. They are also being made available here.

Click here to see all articles in this series.

 

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Transformation: Business is not playing its part in the change SA needs

Sipho Pityana for Business Day, 18 March 2011.

Responding to widespread expressions of concern about the track record and future prospects of transformation policies, the Centre for Development and Enterprise (CDE) invited a number of prominent South Africans to share their thoughts on transformation with Business Day readers.

These are being published in the leader pages of the Business Day over the course of February and March 2011. They are also being made available here.

Sipho Pityana-Business is not playing its part in the change SA needs




Transformation: It’s time for a fresh and innovative approach to BBE

Jenny Cargill for Business Day, 11 March 2011.

Responding to widespread expressions of concern about the track record and future prospects of transformation policies, the Centre for Development and Enterprise (CDE) invited a number of prominent South Africans to share their thoughts on transformation with Business Day readers.

These are being published in the leader pages of the Business Day over the course of February and March 2011. They are also being made available here.

Jenny Cargill-Its time for a fresh and innovative approach to BEE