Productivity Leader - January / February Issue

february 2011

Official publication of Productivity SA

Promoting productivity in Africa

SA needs to grow its economy faster Top companies receive productivity awards er 40 years ov

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contents

contents

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02 03

CEO’s desk

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Letters to the editor

05

News

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16

Ed’s note

• Top performers notch Productivity Awards • Corporate Sector Winner • Emerging Sector Winner • Public Sector Winner • Productivity Movement in Africa: The Journey • Pan-African Productivity Association member countries

10

Zoning in on productivity

14

Africa firmly part of the new dynamic markets

16

Case studies

10

• Reflecting on strikes within the Public Sector • Tsomo Valley Farmers’ co-operative

Productivity SA Acting CEO: Bongani Coka

Project co-ordination and advertising: Rui Victor Chirindja

Productivity SA Executive Manager: Iggy Sathekge

Tel: 011 883 4627 • Email: communications@isikhova.co.za

Editor: Maupi Monyemangene Email: maupim@productivitysa.co.za

Printing and reproduction: Colors

Contributing writers: Professor Raymond Parsons,

All correspondence should be addressed to the Editor,

Mokgadi Mahlakgane, Maupi Monyemangene, Professor

Productivity SA, Reg no 1975/00044/08

Nick Binedell and Dr Lyal White Photography: Productivity SA and Photos.com, a division of Getty Images Productivity SA Physical address: International Business Gateway, Midrand, cnr New Road and Sixth Road Tel: 011 848 5300 • Fax: 011 848 5555 Email: info@productivitysa.co.za Website: www.productivitysa.co.za

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Publishers: Isikhova Publishing & Communications (Pty) Ltd

All rights reserved. No part of this publication may be produced, adapted, stored in a retreival system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of Productivity SA. The views expressed in this newsletter are not necessarily those of the Publishers or its agents. Whilst every effort has been made to ensure accuracy of its contents, neither the owners nor the publishers can be held responsible for any omissions, errors, or for any misfortune, injury or damages which may arise there from. The same conditions apply to any advertising in the publication.

Postal address: PO Box 651793, Benmore 2010 Tel: 011 883 4627 • Website: www.isikhova.co.za Design and layout: Joanne Brook, Isikhova Publishing

ISDN 1018-7227

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CEO’s DESK

CEO’s desk Concerns about food security, inflation and rising oil prices have been raised in various forums. The “Business Day” (06-01-2011) reports that “World food prices rose to a record in December 2010 on sugar, grain and oil seed costs”.

For South Africa, this is hardly the type of development we would like to hear as we grapple with the mammoth task of lowering an unemployment rate hovering at 25%. The “Business Day” reports “SA has yet to feel the full effect of spiraling prices, but they could put pressure on producer and consumer inflation in the months ahead”. Productivity SA is aware that once production costs increases, it can spell a period of poor performance for some companies. Such developments stand to severely hamper efforts aimed at reducing unemployment levels in the country.

In our concise handbook on productivity we define productivity as the “efficiency with which inputs of capital, materials and labour are used in the conversion of inputs (resources) into outputs (goods and services) as efficiently

and effectively as possible, with the optimum use of human capital and physical resources for the benefit of society, the economy and the environment”.

A rise in producer inflation, will in the short and long term place any company‘s profitability at risk. Although it is not standard, it can be safely argued that when market forces slowly eat away at a company‘s bottom line, one of the unintended victims of an eroding bottom line are the employees. To draw some sort of parity, cutting the wage bill is often seen as the most obvious outlet to reducing operating costs.

Since 2008 and by the last quarter of 2010, SA had already lost over a million jobs to due the preceding recession.

We are all faced with the task of galvanising industry to performing at its optimal best and one of the key solutions lies in the application of productivity principles and methods.

Recently our government launched an Economic Growth Path that aims to create five million jobs over the next 10 years. To reach that target, over 500 000 jobs have to be created each year. Developments such as rising food prices can only highlight the magnanimity of the task that lies ahead.

Admists the sobering news, I would like to wish our stakeholders a productive 2011 which should be underscored by an upturn in our economic woes. A new year is generally symbolic in that it offers us an opportunity for a fresh start and indeed the space to reflect on days that have passed thereby paving an opportune moment to rectify that which did not go according to plan.

Productivity SA wishes its stakeholders a productive year and we envisage to “doing what we do today better than we did yesterday and even better tomorrow”.

I would like to round off by encouraging companies to contact Productivity SA as we aim to: • to promote a culture of productivity in workplaces and develop relevant productivity competencies; • to facilitate and evaluate productivity improvement and competitiveness in workplaces; • to measure and evaluate productivity in the workplace; • to maintain a data-base of productivity and competitiveness systems and publicising these systems; • to undertake productivity-related research; and • to support initiatives aimed at preventing job losses.

Bongani Coka Acting CEO: Productivity SA

february 2011 productivity leader

Ed’s note

Ed’s note As the sound of a keyboard rattled by consistent tapping reverberates within the workplace once again, it is with a fair amount of glee, that Productivity SA Leader rekindles the fire that is our relationship with you, our valuable reader. It is often said that at times “to understand the world you have to dissociate from it for a while”. We assume that most of us took a well deserved rest during the holiday period?

“Productivity SA Leader” hopes that as we return from the holidays, we face the new year with renewed energy and aspirations. At times, the daily grind of our work can create clutter and the holiday period often provides an opportunity to find ‘clarity out of clutter”. It is indeed that time of the year when the heavy machinery starts roaring again and the dots on the charts increase.

As we head into the stormy waters of 2011 one of the foremost thoughts in our mind are the sobering statistics surrounding our matric results. Allow us to sway a bit away from the progressive numbers yielded by the matric results and look at other aspects of the results.

Over 50% of young adults under the age of 30 in South Africa are unemployed. Given the number of matriculants who will not be absorbed by tertiary education institutions and the workplace, there is an increasing number of unemployed youths in South Africa.

Many questions have been asked on how matriculants who do not make it to institutions can be absorbed into the workforce or how they can sustain themselves. The issue on entrepreneurship has been touted as one of the solutions, however as any budding entrepreneur will tell you, before you go solo in any business venture, you got to have a self sustaining model and even then you need collateral and financial back up to set the ball rolling.

Just like those who preceded them, most school leavers do not really have much of an idea or posses the skills they can render when venturing into business. This is a logjam that gets more and more challenging each year.

“Productivity SA Leader” believes that there is a need for a mindset change amongst the current crop of those with school leaving certificates.

We need to place an emphasis on the fact that a

university degree is not necessarily the only tool for survival. We need to see an environment whereby the stigma around critical skills such as plumbing is removed.

We need a change of mindset that will see more artisans come to the fore.

In our first issue of 2011, we continue to spread the message of working smarter to yield positive results.

Our pages are graced by one of the incisive minds in the form of the Deputy-CEO of Business Unity South Africa (BUSA), Dr Raymond Parsons, who writes about growth, employment, global competitiveness and productivity.

Starting his article with the catchy quote that says, ‘Growth that adds volume without improving productivity is fat and Growth that diminishes productivity is cancer”. In those few words borrowed from Peter Drucker, Professor Parsons provides the gist of his article.

We then widen our focus by featuring an article that gives an informed opinion on our continent and its relevance within the global economic sphere. Tap into the thinking of the experts by delving into the feature article by Professor Nick Binedell and Dr Lyal White on Page 12.

We continue to place Africa on the radar screen as Mokgadi Mahlakgane reports on efforts to promote productivity on the continent. Mahlakgane outlines how The Pan African Productivity Association (PAPA) which has been in existence since 1992, with current membership in only six countries (SA, Mauritius, Zambia, Nigeria, Kenya and Botswana) aims to expand its membership throughout the continent. Go to Page 14 to fully understand the challenges in this area.

In this issue we also give you more insight into our work by using case studies that show how the implementation of productivity principles and methods in various companies helped turn around their fortunes. Be sure to be inspired by the tenacity displayed by these companies.

Maupi Monyemangene Editor maupim@productivitysa.co.za

february 2011 productivity leader

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LETTERS

Letters to the editor Dear Productivity SA

Dear Mr Ntandazo Madyini

With this letter we would like to thank Productivity South Africa for the Public Sector Award. Being acknowledged nationally is an honour and it is highly appreciated.

Your letter was refreshing and perhaps is an indication that the magazine is heading in the right direction?

We would like convey our gratitude to the Judges, Board members and all role players who made this event happen.

Your efforts to accommodate 14 staff members at the awards evening meant a lot to the staff, thank you.

My colleagues at RahimaMoosa Mother and Child Hospital are in a celebratory mood after receiving this award and it was wonderful to see them so happy.

The aim of this publication is to create awareness around the importance of productivity and also educate business, labour and government decision-makers on the trends and developments in productivity.

By placing focus on competitiveness, profitability, sustainability and development, we aim to create a platform for productivity issues and dialogue between relevant parties. It is crucial to understand productivity issues relevant to South African conditions.

All thanks to Productivity SA Regards Editor

Regards Mrs JCW Weyers, Rahima Moosa Mother and Child Hospital

Dear Editor Dear Mrs JCW Weyers Productivity SA is once again humbled at the commitment you put in ensuring that your organisation performs so well. As always, the fundamental goal is not so much the award but rather the enhancement of productivity within the workplace.

There is a generally held perception that public hospitals are a cesspool of inefficiency however in this case Rahima Moosa went beyond the call of duty and Productivity SA is elated at your achievements.

Regards, Editor

I am currently doing my research paper for my Masters in Business Leadership with the University of South Africa. I read a copy of October 2010 “Productivity SA Leader” magazine and I found the article “The need for Entrepreneurs” quite an inspiration. I must say the article inspired me to do my research on entrepreneurship in South Africa.

Regards, Ngoako Ashley Rasebotsa, Limpopo Dear Mr. Ngoako Ashley Rasebotsa

Dear Productivity SA We would like to congratulate you for your wonderful Productivity SA Leader magazine. Secondly, I would like to receive regular editions of the publication.

For more information about our department you can visit the web page: http://www.capegateway.gov.za/eng/yourgovernment/gsc/185

Indeed as the article says “Entrepreneurship is not the solution to all the problems that countries experience, but is the solution to most”. We are grateful to Orrion Klopper for availing the article to Productivity SA Leader.

An established entrepreneur, Orin Klopper, is a member of the Entrepreneurs Organization (EO). EO is the catalyst that enables entrepreneurs to learn and grow from each other.

For more information please visit www.eonetwork.org.

Regards, Mr Ntandazo Madyini, Department of Economic Development and Tourism, Western Cape

Regards, Editor

february 2011 productivity leader

NEWS

Top performers notch Productivity Awards

By Maupi Monyemangene Productivity SA kept up with the tradition of awarding top performing companies with a gallant evening ceremony held at Midrand‘s Gallagher Estate during Productivity Month. Productivity Month is a yearly campaign run by Productivity SA aimed at raising awareness on the role of productivity in the growth and development of the economy. Each year Productivity Month is held in October and the key event of the month is the National Productivity Awards.

The National Productivity Awards were first introduced in the late seventies and the rationale behind the creation of the awards was to create additional awareness of the importance of productivity through the recognition of best performers. Early winners of the awards include companies such as Sappi Forests (Pty) Ltd, Sasol and Toyota SA. According to Productivity SA Marketing and Communication Manager, Iggy Sathekge, the 2010 National Productivity Awards continued with Productivity SA ‘s tradition of recognising, on an annual basis, private and public sector organisations of all sizes that have demonstrated the ability to be innovative in implementing productivity methods and principles. Sathekge says by “showcasing the productivity successes of the represented companies, Productivity SA is striving to encourage organisations to increase their productivity and competitiveness thereby contributing to the country‘s economic growth”. Sathekge emphasised that “productivity is a wealth-generating process that drives economic growth and improving productive capacity in South Africa is the true source of a competitive advantage that would create long-term economic viability”.

Leading towards the awards ceremony, private and public sector organisations were invited to submit applications.

Entrants were judged according to the nature and extent of the productivity improvement within their companies and one of the key requirements was that the results of a company‘s productivity improvement efforts should be clearly outlined.

The awards were divided into three categories of: • Corporate Sector • Public Sector (i.e. state owned enterprises, national, provincial and local authorities) • Emerging Businesses/Entrepreneurs (owner/manager controlled, a maximum of 200 employees and R5 million in capital assets, excluding land and buildings) The winners in the 2010 edition of the National Productivity Awards were: • Corporate Sector: Fair Cape Pty Ltd • Public Sector: Rahima Moosa Mother and Child Hospital • Emerging Sector: Waste Plan (Pty) Ltd.

february 2011 productivity leader

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NEWS

Corporate Sector Winner “Do the Right Thing”, has been the mantra and driving force behind the remarkable success of this family owned business in Durbanville, Cape Town.

Focusing on World Class practices, innovative production systems and products, as well as a real understanding that Human capital development is one of the key drivers of growth, Faircape has grown into a proud National Supplier of Dairy and Related products to all Major Retailers in South Africa.

Taking full advantage of the Workplace Challenge Programme offered by Productivity SA, the company transformed the full operation of the business along the structures of the Mission Directed Work teams and this has contributed hugely to the Productivity improvements that have made the company what it is today.

With the huge capital investments made in the best technology and systems available, the unwavering focus on New Product Development and the highest possible Quality Standards, Faircape has achieved HACCP accreditation, Organic certification and Free Range status.

The long list of product and Quality awards over the last few years is a testament to the uncompromising standards set by the company to deliver the best possible product to a very discerning clientele.

With the Better than World Class initiative, driven by our vision, mission, Values and a strong Environmental drive, Fair Cape is fast becoming a major player in the Dairy Manufacturing industry nationally. This company was proud to be awarded the ‘Corporate Category’ winner trophy for 2010.

Emerging Sector Winner Waste Plan (Pty) Ltd, Cape Town was established in 2004

by Bertie Lourens after he became aware of a need amongst food factories for an integrated waste management system that would take care of all the client’s needs packaged as one service. This included disposal of all non-recyclable waste, minimisation of the waste stream through recycling and accurate monitoring of all the different waste streams.

I&J in the Cape Town harbour allocated Lourens his first contract followed by the Rhodes Food Group, Graham Beck Wines as well as Tygervalley Shopping Centre.

In 2007 Waste Plan was awarded a tender by the City of Cape Town to head up a pilot project for household recycling.

This involved implementing a split bag recycling system amongst 11000 households, along the Atlantic Seaboard, the first project of its kind in South Africa.

Ever since, Waste Plan has been awarded 3 additional tenders from the City of Cape Town and have successfully

implemented house hold recycling in 60 000 homes throughout the Cape Peninsula. Commercial contracts also increased to over 60 clients.

Currently Waste Plan is the 2nd largest on-site waste management and sorting company in South Africa and the largest in the Western Cape, with an annual turnover of R30 million. They employ 250 people, most of them previously unemployable with two large Material Recovery Facilities (MRF’s) in Somerset West and Maitland. 105 informal waste collectors receive a weekly cash income for waste collected and all remuneration is based on volumes processed.

As such employees can, based on their productivity, earn substantial amounts of money. 90 percent of all collected waste is recycled thereby increasing the life expectancy of land fill sites. This effectively shifts the focus away from the volume of the waste stream, to minimising the waste stream.

With a ”Quality Management” policy in place, Waste Plan’s focus on workflow management and high standards of cleanliness resulted in a clean and safe environment despite the nature of their work.

february 2011 productivity leader

NEWS

Public Sector Winner RahimaMoosa Mother and Child Hospital is a 338 bed hospital based in Newclare, Johannesburg. Being a mother and child hospital the average length of stay for patients in the hospital is 3-6 days.

To improve its productivity, the company embarked on a project to have a loyal staff compliment; to make a difference in patients life’s by serving meals with personalised care in a professional manner and to have the best managed food service unit adhering to national norms and standards This meal serving project was initialised to improve the quality and appearance of food along with enhancing quality of service delivery to patients. By maintaining 31 day cycle menu along with an improved meal system, patient satisfaction increased as they receive a hot, attractive and tasty meal without repetition of dishes.

16 Hour fasting periods between supper and breakfast decreased with the introduction of late night snacks and refreshments since August 2008. This is the only government hospital in Gauteng that provides such variety to their patients.

However the project was not without its challenges and the Department Human Nutrition had to overcome challenges such as absenteeism and high turnover of staff, a high food wastage and limited product availability on its menus. These challenges presented the human nutrition

department with the challenge to align its productivity approach mainly on its human resources.

Staff attended workshops and teambuilding exercises; such as customer services. Annual bosberaad sessions provided a platform for hospital management and staff to identify problems, obtain solutions, and set new goals.

The project has contributed to improved staff morale and improved performance levels. Staff members take pride in their work putting patients and service first.

As a result of the interventions a) Services and productivity improved, meals are hygiene sensitive and correctly prepared according to set standards for procurement, production and serving processes. b) Food wastage decreased and does not exceed 5% c) The cost per meal is R6.95 per meal as opposed to private sector’s budget; R12-R14.00 per meal. d) Staff increased from 28 to 54, since April 2010 RahimaMoosa achieved the following • Provincial Health Nutrition Audits top scorer in the Gauteng Province with a score of 99, 75% in 2009 and other hospitals were referred for benchmarking purposes.

• Obtained the Regulation R 918 certificate on 15 February 2010 and passed the Provincial Health Inspectors Food safety tests.

• During a performance audit initiated by the MEC the services were termed to be “excellently organised.”

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NEWs

Productivity Movement in Africa: The Journey

By Mokgadi Mahlakgane The role of productivity as the main source of real economic growth and increasing national welfare is globally recognised. It is also a fact that a nation’s living standard is determined by the productivity of its economy. Real and long lasting productivity improvement cannot be achieved without a well-coordinated productivity movement with active involvement of all critical stakeholders.

The continent of Africa is no exception and the need is even greater on a continent with a vast array of natural resources but with an underdeveloped industry. For instance the UN Economic Commission for Africa (UNECA) the African continent spends $33 billion yearly on food imports.

Productivity improvement is indeed essential for Africa to create more and better jobs and to sustain those jobs in the face of increased competition.

It is in realisation of the importance of productivity to the growth and development of Africa, the African Union 7th Ordinary Session of the African Union’s Labour and Social Affairs Commission in 2009 reiterated its commitment to promoting productivity by recommending the “Productivity Agenda for Africa 2010-2016”. Subsequently, in January 2010 at the 16th Ordinary Session of the Executive Council the Heads of States and Governments of the AU adopted the decisions of the 7th Ordinary Session and requested member states to accelerate the implementation of the Productivity Agenda for Africa.

The Pan African Productivity Association (PAPA) which has been in existence since 1992, with current membership in only six countries (SA, Mauritius, Zambia, Nigeria, Kenya

(Above, left to right): Productivity SA Acting CEO, Bongani Coka, Mokgadi Mahlakgane, Ambassador Liu Chin-Ray from the Taipei Liaison Office and Asian Productivity Organisation Resource Person, Kelvin Chan, during the closing ceremony of the Basic Course for Productivity Practitioners (BCPP) held in Midrand.

and Botswana) was appointed to serve as the AU technical wing to implement this important Productivity Agenda. The potential for growth of PAPA is great given that productivity enhancement is a necessity for Africa if the continent aspires to become competitive in the global economy.

During the past four years the success of the development of the productivity movement in Africa has been synonymous to Asian Productivity Organisation (APO). The APO’s contribution in sharing their experiences and knowledge of the Asian productivity movement to Africa is without a doubt contributing to the socio-economic development of our continent. Since the APO took PAPA under its wing, a total of 164 training places have been offered to productivity practitioners in Africa specifically for PAPA member countries. Africa now boosts skilled productivity practitioners of world-class standard in basic and advanced productivity tools and techniques.

The latest and sixth consecutive training for Productivity Practitioners conducted by the APO during November 2010 was a clear indication of the success of APO/PAPA partnership. Not only that the Government of the Republic of China took over where the Government of Japan has left off in terms of sponsoring the program, but also because the number of participating countries was expanded with the inclusion of three countries who are non-members of PAPA namely The Gambia, Swaziland and Burkina Faso. This promotion for a productivity culture within the African continent as a whole is a laudable initiative whose momentum should not be lost but strengthened as the years progress by increasing the number of participating countries.

One of the strengths of the APO member countries is that these countries can assist each in their productivity drives in a spirit of mutual cooperation by sharing knowledge, information and experiences. Since PAPA has been granted Observer status at APO Governing Body meetings, this created opportunities for PAPA to also forge cooperation with APO member countries in different productivity areas and projects.

During December 2010, PAPA was invited by the Korea Productivity Centre (KPC) to sign a Memorandum of Understanding between KPC and PAPA. PAPA was represented by Dr Krishnalall Coonjan (President) and Ms Mokgadi Mahlakgane (Secretariat). The objective of the MoU is to enhance collaborative partnership between PAPA and KPC with particular reference to the promotion and implementation of productivity movement in Africa, Korea and other countries in Asian and Pacific region.

The writer, Mokgadi Mahlakgane is a manager in the Productivity SA CEO ‘s Office.

february 2011 productivity leader

NEWs

Pan-African Productivity Association member countries

1.

South Africa

2.

Lesotho

3.

Swaziland

4.

Namibia

5.

Botswana

6.

Zimbabwe

25.

Eritrea

7.

Mozambique

26.

Sudan

8.

Madagascar

9.

Mauritius

27.

Central African Republic

10.

Tanzania

28.

Gabon

11.

Malawi

29.

Equatorial Guinea

12.

Zambia

30.

Cameroon

13.

Angola

31.

Nigeria

14.

Democratic Republic of the Congo

32.

Chad

33.

Egypt

15.

Sao Tome and Principe

34.

Libya

35.

Niger

16.

Reunion

36.

Tunisia

17.

Republic of the Congo

37.

Algeria

38.

Mali

18.

Burundi

39.

Burkina Faso

19.

Rwanda

40.

Benin

20.

Uganda

41.

Togo

46.

Guinea

51.

Morocco

21.

Kenya

42.

Ghana

47.

Guinea-Bissau

52.

Mauritania

22.

Somalia

43.

Cote d’Ivoire

48.

Senegal

53.

Comoros

23.

Ethiopia

44.

Liberia

49.

Gambia

54.

Seychelles

24.

Djibouti

45.

Sierra Leone

50.

Western Sahara

55.

Mayotte

The above map illustrates the Pan-African Productivity Association (PAPA) member countries. In line with the 15th World Productivity Congress, PAPA aims to recruit more members on the continent. The 15th World Productivity Congress was held for the first time in Africa in 2008. The Congress adopted a Declaration whose major operative

clauses included a call for: • The African Union Commission to develop and sustain the African Productivity Movement in partnership PAPA and the World Confederation of Productivity Science (WCPS) with a view towards raising awareness in African pro ductivity and competitiveness.

february 2011 productivity leader

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Features

Zoning in on productivity

By Professor Raymond Parsons The role of Productivity SA continues to be an essential one in reminding us of why productivity gains in an economy – whether developed or developing – remain the ultimate source of wealth-creation and prosperity.

In this article I would like to discuss the role of productivity in our economy.

More and more the lesson must be driven home that high productivity is the indispensible condition of a rising standard of living and sustainable employment. One of the major reasons for the SA’s economy’s inability to create sufficient job opportunities is its poor productivity performance. That is why productivity should not become the Cinderella of the economic debate.

Competitiveness and productivity The World Economic Forum (WEF) has defined competitiveness as the set of institutions, policies and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the sustainable level of prosperity that can be earned by an economy. A more competitive economy is therefore one that is likely to grow faster in the medium to long term. This is important for both developed and developing economies.

What is important to note in the latest WEF Global Competitiveness Report is that, while SA has dropped in rank since last year (from 45th to 54th out of 139 countries), its performance has remained stable and the decline reflects improvements in other countries. This nonetheless matters because

we want SA to become a leading investment destination for growth and employment in the years ahead. SA cannot afford to lag behind its peers in emerging markets in terms of competitiveness as it seeks to attract foreign investment.

Although we presently attract more than our fair share of portfolio and short term investment SA is not yet attracting enough fixed direct investment (FDI) for growth purposes.

We should also recall that about five years ago we were ranked 34th in the world competitiveness assessment. SA is rapidly becoming a high-cost environment.

The latest Global Competitiveness report therefore remains a wakeup call to all of us about what needs to be done if the domestic economy is to be a catalyst for international competitiveness. It injects greater urgency into our search for solutions.

There is really unfinished business on the national agenda that needs to be actively addressed to ensure that we unlock the true potential of the SA economy if we eventually want to reach a sustainable high growth rate. Successful economic development is a complex and challenging process.

The nexus of growth, employment, global competitiveness and productivity I would to share five broad perspectives around the nexus of growth, employment, global competitiveness and productivity in SA. Higher levels of balanced economic growth are the key for reducing unemployment and poverty in South Africa In order for South Africa to meaningfully tackle the country’s unemployment and poverty crisis; the country’s

february 2011 productivity leader

Features

economy has to grow at a much faster pace with more balanced growth between the tradable and non-tradable sectors of the economy. South Africa’s GDP is currently US$280 billion and with a population of 49.9 million people this equates to a nominal GDP per capita of US$5600 per person. Based on South Africa’s current growth trajectory of 3.3% per annum, the country’s economy will only double in size every 21 years.

Based on an assumed growth rate in the country’s population of 1% per annum, the country on the basis of, say, 3.3% annual economic growth rate would only achieve a GDP per capita above US$10 000 by 2035. In other words, at the current economic growth rate a per capita GDP of over US$10 000 per person is only achievable in about 25 years time.

On the other hand, at a 6% annual growth rate South Africa’s economy would double in size every 12 years (by 2022 reaching US$560 billion) and the per capita GDP would rise to US$10 204 per person by 2022.

A 6% annual growth rate sustained over a period of two and a half decades would make South Africa a trillion dollar economy.

The critical related issue to the need for rapidly increasing GDP and GDP per capita is that — beyond a certain GDP growth level — the economy starts creating employment.

In essence, a higher economic growth rate would require more people to be employed to achieve yet higher levels of economic growth. More economic value (GDP) — plus greater numbers of people employed — equals rising living standards and lower levels of unemployment and poverty.

The Cabinet’s new growth path strategy sets a target of creating five million jobs in the next ten years. If we look

back, between 2002 and 2008 the economy grew at an average of 4.5% per annum and about 300,000 jobs per annum were created in that period. Given that a growth rate of about 2.5% to 3% results in minimal job creation, a 6% growth rate could imply about an extra 400 000 to 500 000 jobs per annum, provided we also pursue supporting policies that maximize the number of jobs created at any given growth rate. This would mean – all things being equal – that another roughly 4.8 million to 6 million extra jobs could be created by 2022. One thing is therefore clear: South Africa needs a much higher level of economic growth to tackle the country’s high unemployment and poverty rates. Growth and transformation are mutually inclusive.

Growth need transformation, but transformation also needs growth.

The new growth path is a strategy that is principally reliant on creating a significant increase in the number of jobs, mainly in the private sector. To achieve higher levels of sustainable and balanced growth will therefore require higher levels of productive fixed investment, which in turn requires a facilitative and competitive environment for investment levels to grow. The government’s prudent macroeconomic policies so far have helped the country weather the global storm and are conducive to supporting long term investment and should not be changed. Rather, it is at the microeconomic level where the constraints to investment are to be found, including infrastructure constraints, regulatory red tape, institutional capacity challenges and human capital constraints – in both education and health.

As was demonstrated by South Africa hosting the recent most successful World-Cup in the history of the tournament

The new growth path is a strategy that is principally reliant on creating a significant increase in the number of jobs, mainly in the private sector.

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Features

in 2010, it was a collaborative partnership between government, the private sector, organised labour and the community at large, which generated this very positive outcome.

The same principle of promoting collaborative partnerships must be applied to the microeconomic constraints.

The recent Cabinet statement on a new growth path makes the point that the commodity price boom in past years did not result in revenue being sufficiently applied to promote economic diversification and skills development. Indeed, overall SA did not capitalize sufficiently on the previous global commodity boom and this must not happen again. We must maximize the gains from the next commodity windfall.

government involvement to make the tangible and intangible infrastructural investments that underpin rapid growth and a healthy private sector – and that ensure social justice – remain critical to growth. Successful implementation is now ‘the name of the game’. Enhanced productivity is essential for people-driven outcomes.

Helping to curb inflation SA has had inflation targeting for a decade and its purpose has been to anchor inflationary expectations. The history of curbing inflation in SA in recent years has shown that monetary policy and financial discipline are essential but not sufficient.

The relationship between productivity and inflation is double-edged. A slower Public sector productivity rate of productivity growth aggravates On all sides it is agreed that the question cost-inflation and escalating prices are not of efficient delivery by the public sector good for productivity. This is especially – especially at local government level – relevant to the persistent role which remains a serious challenge. About 60% so-called ‘administered prices’ play in of social delivery takes place at local levdistorting the inflation outlook. el. Various laudable initiatives have been Even a marginal increase in the rate launched to improve delivery at all levels of productivity advance could help to by the public sector. Cabinet Ministers maintain an environment of low inflation.

(Above): Professor Raymond Parsons are being directed to sign performance Monetary policy cannot have any serious agreements with the President. All this is highly commendimpact on the gap between price increases and the able and helps to raise the level of awareness about what productivity performance of resources. Low productivity needs to be done. raises the cost of doing business in SA. Excessive wage Yet we must remember that SA is running a ‘mixed’ claims also aggravate the situation. Only management and economy – one that combines market features and labour cooperation in all sectors of the economy can address government intervention. Nonetheless, sharp questions this challenge, as it lies outside the scope of monetary policy. have to be asked about the nature of the ‘mix’ – the direction of the tilt in the modern world. How do we make a mixed Addressing the skills deficit economy work better? Sharp surveillance must be kept on The development of skilled human capital (and not just the quality of government activity, its allocative efficiency, an educated workforce) is critical to productivity and the as well its productive efficiency, in serving the public. This development of a competitive economy. It is also critical was an important message coming out of the mini-budget to move up the skills curve as an economy industrialises. speech this week, including the need for more contestable Shortages of key skills, like shortages of critical infrastructure markets for key parastatals or ‘network’ industries. are binding constraints on competitiveness and growth, not The mere fact of asking questions opens up a range to speak of job creation. The quality education is the key of new possibilities, especially if a ‘massive’ expansion of to economic growth as growth depends on the supply of transport, energy, water, communications and housing is productive resources, particularly human capital. Investment being planned in terms of the latest growth strategy. The in human capital needs to be optimized. Despite huge demarcation between the public and private sectors must efforts to improve education in the past fifteen years, current be driven by new practical tools to promote productivity policies have not contributed to changing results. We are now and delivery. For example, SA needs to use public-private recognizing what reforms are necessary to our education sectors partnerships on a much bigger scale to get more and training regimes. Basically, we need educational and cost-effective delivery outcomes, especially in infrastructural training structures far more geared to the needs of a modern development. By world standards, SA utilizes public-private economy and its value system. Government and the private sector partnerships on quite a small scale. sector need to work more closely together here.

But the market message is only a part of the story.

Taking the brakes off is not enough to make your car go – Building consensus around productivity and crash diets do not ensure continuing health. Effective A question may be asked if there is consensus among various

february 2011 productivity leader

Features

stakeholders about productivity? Don’t some stakeholders – such as labour – see productivity as a threat and a reduction in job opportunities?’ Global experience indicates that it is possible to build consensus around productivity if it is managed properly and the benefits shared.

Even those who are hostile to the ‘capitalist’ system are pro-productivity.

• The notion of productively has no fatherland nor any political colour; it is the only notion accepted by both Marxist and liberal economic theories’ (French econo mist, Jean Fourastie) • ‘Productivity of labour is the most important, the principal thing for the victory of the new social system. Capitalism created productivity for labour unknown under serfdom’ – Capitalism can be utterly vanquished…… by the fact that socialism creates a new and much higher pro ductivity of labour’. (Lenin) So there could be common ground here. The best productivity performance is achieved where full cooperation exists between the participating stakeholders – the management team and the workers, the organisation and its suppliers, the organisation and its clients or the Government and private sector. Our collective bargaining system should be more vigorously used to embed productive outcomes.

Ideally, the benefits accruing from productivity gains should be distributed in three ways – to shareholders, to workers and to consumers. We have the labour market institutions in place to negotiate these issues. That is why the role of the Workplace Challenge Forums can help to change the way enterprises are managed to promote participation. Productivity SA Annual Report (2009/2010) states that Productivity SA nurtured 192 companies on a

journey to world competitiveness. Perhaps we should begin to think of a ‘Productivity Compact’ for SA to help underpin our growth and employment goals.

Having singled out just five dimensions of the productivity challenge facing SA in the years ahead. There are many more aspects that permeate various facets of economic activity. It is, after all, total factor productivity that matters in the long term, and which should run like a golden thread through our economic and business thinking. Productivity gains should not merely be viewed as the result of economic activity but as a core factor in driving economic growth. Yet as important as productivity gains are for future economic success, the concept of productivity nonetheless cannot be seen in isolation from a long-term vision for the SA economy.

Many of the productivity issues that are fundamental to higher standards of living for all South Africans cannot be analysed properly unless we do not start with a long term – and of necessity – vague vision. Once we have fixed a point on the distant, strategic horizon, we can plot the tactical steps which lead in the right direction. It is wrong to dismiss long-term, visionary analysis with glib assertions such as that ‘in the long run we are all dead’, or that’ the long run is nothing but a sequence of short runs’. We need to look ahead.

It would also be wrong to say that no-one can foresee the future and that unanticipated major events — like a global recession — will surprise us, so that forwardlooking visions can never be helpful. On the contrary, a long run vision is needed for SA in the face of unavoidable uncertainty to provide focus, guidance and coordination. It is crucial to those countries who want to largely remain masters of their own fate.

Scenarios for South African GDP per capita based on 3.3%,6% and 10% per annum GDP growth rates

60,000

GDP per capita in US$

50,000

40,000 GDP per capita @ 3.3% GDP growth rate 30,000 GDP per capita @ 6% GDP growth rate

20,000

GDP per capita @ 10% GDP growth rate

10,000

20

10

20

12

20

14

20

16

20

18

20

20

20

22

20

24

20

26

20

28

20

30

20

32

20

34

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Features

Africa firmly part of the new dynamic markets

By Prof Nick Binedell and Dr Lyal White A new breed of economic players is driving growth and reshaping global business. Their recent ascendency and charge to the fore has been accelerated by the global financial crisis.

We believe these countries are best described as ‘dynamic markets’. They include a diverse range of rising economic powers – the so-called BRIC (Brazil, Russia, India, China) nations – alongside newly industrialised Latin America and Asia, as well as less recognised

transitional economies and resource-rich Africa.

They share in common a positive growth trajectory, along with high levels of investment and attributes of innovation and competitiveness. Their economies are often led by a set of firms that epitomise each country’s virtues and aspirations.

The popular notion of ‘emerging markets’, traditionally used to categorise these high-growth economies, has recently come under scrutiny for its limited description of this broad category of countries – said to be dated and, by definition, exclusionary.

february 2011 productivity leader

Features

Comprising both established and developing economies, the term emerging markets tends to neglect the full diversity of dynamic markets.

Antoine van Agtmael coined the term emerging markets in the 1970s to distinguish those rapidly growing Asian tigers from the rest of the so-called Third World and developing economies. Those original emerging markets like Singapore, South Korea, Taiwan and even China are simply no longer emerging.

Both Singapore and South Korea have, in per capita income terms, graduated to developed country status, while China recently overtook Japan as the second largest economy in the world. India, another emerging market cornerstone with a population of 1.1 billion people, has a larger middle class than the US. These developed economies and new economic powerhouses may no longer be emerging per se, but they are undeniably dynamic.

Africa has been largely excluded from emerging market groupings.

With no mention of Africa in the BRIC configuration, Goldman Sachs’ second string of populous emerging countries – The Next 11 – features Nigeria and Egypt (but not South Africa) from Africa, while HSBC’s emerging CIVETS has South Africa at the tail end.

Groupings like The Next 11 and the CIVETS are generally based on large, young and growing populations, complemented by economic diversity and relative political stability. Africa is still widely seen as an aid-dependent and significantly underdeveloped continent, and not an emerging market opportunity. But its exclusion from these groupings is misleading when one takes a closer look at the numbers.

Over the past decade, Africa has grown by 2% more than the annual global average, during which time investment flows to the continent have increased sevenfold and are expected to reach $70 billion in 2010.

Despite only one-fifth of Africa’s resource potential having been exploited, the recent McKinsey on Africa report claims that 10% of the world’s oil, 40% of its gold and up to 90% of the chromium and platinum metal group are found in Africa.

But it is the growing consumer market opportunities that are getting investors excited – and which places Africa firmly in the dynamic fold. With an estimated population of 1 billion people (half of which are under 35 years

old), over 60% of Africa’s recent growth came not from traditional resource extraction, but rather sectors like retail, manufacturing, financial services, telecommunications, transport, real estate and tourism. While the rest of the world has ageing populations, Africa’s youthful consumer and labour markets are unrivalled by any other region.

By most measurements and estimates, Africa is potentially the last frontier of growth and maybe the last great opportunity for global companies to establish a competitive foothold.

As Vijay Mahajan, author of Africa Rising, insists: “Africa is richer than you think” and its collective whole is potentially one of the largest and most promising economies in the world. However, a major handicap to economic development is weak integration as a result of poor commercial facilitation.

Like Asia and Latin America, Africa is a colourful collection of diverse markets which does not fit the straightjacket assumptions some analysts and investors hope for when grappling with such countries and regions.

African economies are an important part of the new shapers of the global political economy and the business landscape. These dynamic markets – some advanced and industrialised, others transitional or still in the infancy of their emergence – and firms from these markets are leading the charge of investment, growth and innovation around the world. As developed economies stumble out of recession contemplating double-dips and alternative austerity measures, countries like Brazil, China and India are driving a new era of globalisation. Attached to their locomotive are lesser-knowns like Ghana, Turkey, Vietnam and Colombia which are the future engines of global economic development.

Over the past decade, Africa has grown by 2% more than the annual global average, during which time investment flows to the continent have increased sevenfold and are expected to reach $70 billion in 2010.

This article was published courtesy of the Gordon Institute of Business Science (GIBS). GIBS, is a leading business school that provides world-class university degrees including certified short courses. The institution aims to play a significant role in South Africa by ensuring that leaders in the country‘s business community have the opportunity to develop their skills and business acumen to meet the enormous opportunities that a dynamic and rapidly changing world presents. For more information visit www.gibs.co.za

Prof Nick Binedell is the Director of the Gordon Institute of Business Science (GIBS) and Dr Lyal White is the Director of the Centre for Dynamic Markets at GIBS.

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CASE STUDY

Reflecting on strikes within the Public Sector

By Michael Ade The first two quarters of 2010 saw a number of strikes across various public institutions. Effectively the country was faced with a situation whereby 1.3 million Government workers out of a total labour force of approximately 1.8 million employees were actively on strike.

Without taking sides, the strikes cut across a particularly important fabric of the economy with the participation of government employees whose strategic jobs are crucial for the development of the country. The contri-

bution of teachers, nurses, doctors, immigration officers, clerks and customs officers to GDP is highly significant.

These groups of workers being on strike had a negative impact on productivity and of course in the long run this could significantly affect South Africa‘s international competitive edge.

In 2009, the General Government Services Sector was one of the most consistent performers, while most of the other economic sectors were affected negatively by the recession. The strikes raised the questions on whether the demands of the workers are consistent with the productivity performance in this sector.

In its review of the productive performance of the General Government Sector, Productivity SA concluded that, there was a broad improvement in productivity in the General Government Sector, leading to an acceleration of the average annual growth rate of real output from 4.1 percent in 2008 to 4.2 percent in 2009. Significantly, output growth in this sector accelerated from an annualised rate of 4.9 percent in the third quarter of 2009 to 7.0 percent in the fourth quarter. The average annual growth rate of both labour productivity and multi-factor productivity (an all-inclusive measure of productivity) improved, and there was a consistent growth in capital productivity. Further, the 2010 IMD competitiveness report also confirms South African Government efficiency improved five places from 26th position last year to 21st position this year.

The increase in productivity was accompanied by an increase in the growth rate of earnings per employee from 8.3 percent in 2008 to 10.2 percent in 2009. The high compensation levels of employees accounted for a corresponding increase in the growth rate of unit labour cost in the General Government Services Sector. Judging from the employee grievances and complaints, it may seem the remuneration increase in this sector was absorbed by the top echelon as opposed to the average worker.

As the country moves towards a new growth path for the economy, a growth plan that would ensure further growth in GDP, improved human capital development, poverty alleviation, income inequality reduction, reduced crime and economic development, the need remains for the Government to continuously motivate its employees and perhaps higher pay might increase employee productivity by attracting better workers, building employee commitment and improve perception of equity in the workplace.

On the other side of the coin, workers should desist from continuously “demanding” higher wages as this could become a vicious cycle, which is inflationary and might lead to higher Unit Labour Costs, which could be passed on to the consumers at a later stage.

The writer, Michael Ade, is a former Chief Economist at Productivity SA.

february 2011 productivity leader

the dti’s B-BBEE Website & IT Portal Revolutionising the National Transformation Agenda The Department of Trade and Industry (the dti), as the custodian of the economic empowerment policy, has revolutionised the manner in which it communicates its B-BBEE mandate to the economic citizens of the country, via the recently launched national Broad-Based Black Economic Empowerment (B-BBEE) Website and IT Portal. the dti B-BBEE Website and IT Portal offers you: • Centralised, government and standardised B-BBEE information resource; • Publicly accessible B-BBEE information and educational scorecard simulators; • Free registration of your company’s BEE Scorecard and Certificate on the IT Portal; • Facilitation of an Exempt Micro Enterprise (EME) BEE Certificate, by providing you with a standard template as proof of your BEE status; • Secure access to a free, customised B-BBEE Toolkit, with an online self-assessment calculator, and submission of verified credentials, • Answers to ‘frequently asked questions’ on B-BBEE and the opportunity to pose your own questions; • Easy-to-use functionality for increased B-BBEE compliance (including EMEs with a turnover under R5m per annum); • Marketing of your company on the B-BBEE Opportunities Network, which can be freely searched by your procurement/ transformation managers to source procurement/trading partners; • Ratings of entities and access to Verification Agencies; • Optimised flow of B-BBEE information from the public and private sectors to the dti; • Optimised flow of information between entities and their current or potential suppliers, clients or trading partners; • Sharing and networking of B-BBEE opportunities; • Reporting of B-BBEE fronting practices (window-dressing), and much, much more.

• OPTIONAL: Listing of your company’s profile (at a marginal fee to cover third-party costs) on the dti National Registry – for business opportunities and marketing purposes

Join the transformation revolution, by visiting the only official government B-BBEE Website and IT Portal at: http://bee.thedti.gov.za

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CASE STUDY

february 2011 productivity leader

CASE STUDY

Tsomo Valley Farmers’ co-operative Background Tsomo Valley Farmers Co-operative was established in 2006 by a group of 16 black farmers jointly owning in excess of 12 000 hectares around the towns of Engcobo and Elliot, Eastern Cape. Main farming activities primarily consist of commercial cattle production, sheep and maize.

The size of the land allowed the co-operative to plant 1200 ha of maize (R5m harvest value at R 1500/t) and grow 2180 units of large livestock (R6m annual sales value).

General farm dilapidation Beneficiaries that received farms without the necessary operational capital did not have sufficient resources to maintain the buildings, roads, and equipment on the farms. Cost of production increases if basic tools and infrastructure malfunctions, making it impossible for beneficiaries to compete against commercial farmers or to maintain the farm at the level which it was before they obtained the land.

A Turnaround Strategy was initiated late 2008 with the aim of saving the businesses through procurement of funding, technical support and procurement of a market channel.

Challenges Funding and development were the main challenges for this cooperative. Over a period of two years, it became evident that some of the member farms struggled to repay their Landbank loans which were taken on the farms, whilst others struggled to continue farming on a full-time basis due to exceptionally low incomes realized by their farms. Low income per hectare was causing unsustainable commercial farming practices whilst low profit margins were resulting in maintenance backlogs.

Production Maize prices fell by 50% over a period of 2 seasons. Initial planning included maize production for the sale of maize. Weak prices forcibly changed the production plans away from maize after the plans were completed.

Sentiment Some of the older farmers had strong cultural sentiments with their cattle, not wanting to sell but rather to increase cattle numbers in excess of the permitted grazing volumes on their farms. Overgrazing will become an increasing challenge in the next three seasons.

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CASE STUDY

Productivity SA was approached in May 2008 for assistance with a turnaround strategy. A Turnaround Strategy was initiated late 2008 with the aim of saving the businesses through procurement of funding, technical support and procurement of a market channel that would result in turnover increases of 15%.

Productivity SA’s approach The Future Forum developed a turnaround strategy which included the following actions: • Procurement of funding to increase production • Development of production strategies per farming unit • Capacity building of farmers in order to apply production strategies • Procurement of a market channel that would buy livestock from the co-operative

Sustainability In terms of sustainability, the average cattle number per farm will pass the 100 cow/heifer mark during the 2010/11 season. At an 85% calving percentage, the average farm will achieve financial turnovers from cattle in excess of R 255 000 per farm. (85 weaners sold at R 3000 per weaner).

The average farm in Tsomo Valley can sustain itself on R 150 000- R 180 000 per annum, land debt excluded.

Results and impact The turnaround strategy was implemented and results were measured against objectives of fund procurement and income realized by the farms at co-operative level.

A business plan proposal for funding was submitted to ASGISA EC and approved for capital expenditure totalling R3 million based on a soft loan repayment system. The Asgisa EC funding was used to procure 30 pregnant heifers per farm (14 farms) which would yield 420 weaner calves.

The income generated by selling the bullocks would amount to R682 500. (R3250 per weaner calf, of 250 kg and R13/kg)

Social and environmental impact Turnaround Solutions succeeded in aligning the implementation of this turnaround strategy with procurement of funding from ASGISA EC. Other funders such as the Department of Agriculture and National Development Agency have since also become important role-players in the long term support of Tsomo Valley Farmers Co-operative. It is projected that there will be 15 farms in the Tsomo Valley Co-operative. There will be 4 employees per farm, equaling 60 jobs, and 15 farm owners, totaling 75.

IMPACT MEASUREMENT

2007

2008

2009/10

TOTAL IMPROVEMENT

Fund Procurement

0

0

R3 million

> 100%

Livestock Sold

210

210

420

100%

Financial Turnover

525 000

525 000

R1 207 500

> 100%

Note: Although all reasonable care has been taken to give accurate figures for financial turnover improvements for the farms as a co-operative unit, some farmers did not sell livestock according to their production plans, and the Asgisa EC process in terms of livestock procurement is on-going.

february 2011 productivity leader