African Leader (October 2018) by SundayTimesZA

THE RURAL HOUSING LOAN FUND(RHLF) PROVIDING ACCESS TO FINANCE TO IMPROVE RURAL HOUSEHOLDS’ HOUSING SITUATIONS

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A DV E R TO R I A L

he Rural Housing Loan Fund (RHLF) is a Human Settlements Development Finance Institution (DFI) established by the national government in 1996. The RHLF’s mandate is to provide incremental housing finance for the low-income earners residing in rural areas and small towns – non-metropolitan areas of South Africa. Rural Housing Loan Fund (RHLF) is in the process of being consolidated to the National Housing Finance Corporation (NHFC) as the first step towards establishing the new Human Settlements Development Bank (HSDB),with the intention to expedite housing delivery. RHLF’s core product, the Incremental Housing Finance (IHF), is more ideal and best suited for the rural low-income earners who are unable to access or qualify for the traditional housing finance mechanisms offered by the traditional finance institutions. Currently, RHLF facilitates access to unsecured housing credit for borrowers earning up to R15 000 per month, who are required to use the RHLF finance to improve their housing and living environments in any of the various ways such as: • extending or improving the quality of an existing house such as an RDP house • adding to own savings to build a new house • connecting electricity or water to a house • improving sanitation conditions such as building a septic tank • buying land to build own home • fencing a home to enhance security. Incremental housing finance has proven to be an appropriate finance mechanism among other existing housing finance products such as mortgage loans. Since the RHLF’s inception, over 580 000 low-income earners and rural households have accessed over R2-billion worth of loans to improve their housing

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and living situations. This track record provides evidence that as a finance tool for the poor, the incremental housing loan does in actual fact work and has great impact. Incremental housing loans encourage low-income earners to take numerous repeat loans of affordable sizes that can go a long way for the self-determined individuals who believe in the “getting up and doing it yourself” approach, realising and building their dream house in progressive stages, rather than an approach of sitting and waiting on the government to deliver. RHLF development impact statistics show that repeated small loans accessed by rural communities help to deliver, faster and for cheaper, the communities’ dreams of owning comfortable homes free and clear of any long-term debt.

DELIVERY MODEL RHLF delivers on its mandate through carefully selected intermediaries that include commercial retail lenders registered with the National Credit Regulator (NCR) who provide loans to the general public. Through these retail intermediaries, RHLF is able to reach all provinces in a cost-effective manner. RHLF also works with community-based organisations such as stokvel groups and cooperatives that lend to their members only.

EXAMPLES OF PEOPLE WHO BENEFIT FROM RHLF-FACILITATED LOANS Mr Moses Shimane Mooketsi, Phatsima, Rustenburg Local Municipality, North West Province Mr Mooketsi lives with his mother and three siblings in a RDP house belonging to his mother. They have

access to electricity, running tap water and use a pit toilet. The borrower works in the private sector, in the mining industry, and his monthly income is more than R15 000 per month. He took a loan of R30 000 in March 2017 from a RHLF intermediary, Thuthukani Housing Finance. He used the loan and his savings to extend his mother’s RDP house into an 11-roomed house. Mr Mooketsi is using a local builder to build the extensions. The borrower is very happy with the service he received from Thuthukani and said he would take another loan to complete the house.

A BENEFICIAL SYSTEM Housing microfinance or incremental housing finance should be recognised as part of the traditional finance mechanism for low-income earners. Many people have succeeded in improving their housing conditions by taking loans and incrementally building houses that suit their family needs as in the example cited above. Experience has shown that many low-income individuals prefer to build their houses incrementally over time because of limited access to finance and insufficient stable income to service large loan instalments. RHLF is proud that it has assisted many professionals such as teachers and nurses to access unsecured housing loans and build decent homes over the years allowing them to live in the rural communities where they work, rather than having to migrate to urban centres. This is critical in supporting rural development and sustainable rural human settlements. Rural Housing Loan Fund (RHLF) Contact details: Tel: 011 644 9898 Fax: 010 001 4162 P O Box Bruma 2026 Email: mmothobi@rhlf.co.za Website: www.rhlf.co.za

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Ability is described as talent that enables one to achieve a great deal. At Nampak, one of the defining features of our CSI strategy is to nurture that ability, essentially to sustain that which allows people to do great things, because a company is only as strong as the people that make it. We do this through leading training and development policies, investment in community education initiatives, partner schools, bursary schemes for future talent, and our graduate development programme to help that talent grow. As Africa’s largest packaging company, we do all this and more. From production to finance, and everything in between, inside our company and out, we’re committed to sustaining the ability inherent in our people.

www.nampak.com

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CONTENTS

ON THE COVER President Cyril Ramaphosa

ISSUE 55 | OCTOBER 2018 | WWW.BMFONLINE.CO.ZA

4 FROM THE EDITOR Still no plan to get the economy out of its worst post-apartheid crisis

7 PRESIDENT’S NOTE Transformational leadership

11 MD’S NOTE The impact of inequality and poverty is still staggering

15 BMF EVENTS The 3rd Annual Don Mkhwanazi Lecture; BMF, Duke Corporate Education Women in Power programme 2018; and The Annual BMF Student Chapter National Summit

21 BMF CONVERSATION WITH CEOs ROUNDTABLE Minister Zweli Mkhize talks ethical leadership and transformation

26 TURNING SOEs AROUND Minister Pravin Gordhan cracks the whip at state-owned enterprises

32 INVESTMENT UPDATE President Cyril Ramaphosa delivers on his R1-trillion investment drive

34 TECHNICAL RECESSION Fiscal and monetary stimulus and structural reforms are required to revive the economy

36 NATIONAL HEALTH INSURANCE Could it be a game-changer?

40 EXECUTIVE PAY Naspers CEO’s R1.5-billion pay package results in public pressure to stop ever-escalating executive pay

44 INDEPENDANT POWER PRODUCERS How it will impact employment

49 THE 4TH INDUSTRIAL REVOLUTION The techno-opportunists who predict that the 4th industrial revolution will destroy jobs are wrong

44 49

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EDITORIAL NOTE & CREDITS

CROWDING IN

PRIVATE SECTOR

INVESTMENT R

eaders of African Leader will know that I have been talking about South Africa’s economic crisis for a very long time. Two years ago, I spoke at the Black Business Council annual conference and called for a bold monetary and fiscal stimulus to get the country out of its worst post-apartheid economic crisis. Therefore, I was shocked that Finance Minister Nhlanhla Nene, while he was in China, was quoted in the media saying that the government was surprised that the country had slipped into a recession for the second time during the past decade. Since the Valentine’s day ouster of Jacob Zuma, it has been clear that the government does not have a plan to revive the economy. It seems that the government thought it only had to tick the boxes of what the ratings agencies had requested and growth would miraculously appear because of improved business confidence. The government announced a budget with austerity measures of R63-billion this year. This is equivalent to about 1.3 per cent of GDP. It has also appointed new boards at state-owned enterprises as is elaborated on our cover story. The government view was that rising levels of business confidence would offset the negative impact of the austerity budget.

But, economists have debunked this idea of expansionary austerity. Nobel Prize winner and US economist Paul Krugman said the idea that a “confidence fairy” could counter the negative impact of austerity was a zombie idea. Also, private sector investment depends on levels of aggregate demand not vaguely defined levels of business confidence or policy certainty. It responds with a lag to rising demand. Private investment follows economic growth. It does not kickstart the economy. As Stephanie Kelton, a US economist who advised former presidential candidate Bernie Sanders, says: “Capitalism runs on sales. In survey after survey, we find that the number one reason businesses are slow to hire and invest in new plant and equipment is a lack of demand for the things they produce. Businesses hire and invest when they’re swamped with customers”. Therefore, talk of an investment strike is misplaced. The private sector cannot invest in a collapsing economy. This means that the government must create the demand — through expansionary fiscal and monetary policies — to crowd in private sector investment.

Duma Gqubule editor

BMF EDITORIAL COMMITTEE Langa Manqele, Mncane Mthunzi, Anele Ndlovu, Monde Ndlovu, Thabile Wonci 12 Summit Road, Rivonia, Sandton, 2196 Telephone: + 27 11 784 4407

PUBLISHED BY

A Tiso Blackstar Group Business 13 th floor, 2 Long Street, Cape Town, 8001 Tel: +27 21 469 2400 | Fax: +27 86 682 2926 www.businessmediamags.co.za Editor Duma Gqubule Content Manager Raina Julies rainaj@picasso.co.za Contributors Ann Crotty, Ferial Haffajee, Thuletho Zwane Copy Editor Brenda Bryden Content Co-ordinator Vanessa Payne Head of Studio Jayne Macé-Ferguson Designers Archie Ndzo, Lesley-Ann van Schalkwyk Advert Designer Nichole Liedeman Sales Project Manager Jerome van der Merwe, jeromem@picasso.co.za + 27 21 469 2485 Sales Consultants Frank Simons, Yoliswa Stivin PRODUCTION Production Editor Shamiela Brenner Advertising Co-ordinator Peace Guga, peaceg@picasso.co.za Digital Editor Stacey Visser Subscription and Distribution Enquiries Shihaam Adams, subscriptions@picasso.co.za + 27 21 469 2400 Printers Hirt & Carter MANAGEMENT Business Manager Lodewyk van der Walt Senior Bookkeeper Deidre Musha General Manager: Magazines Jocelyne Bayer

Copyright Picasso Headline and the BMF. No portion of this magazine may be reproduced in any form without written consent of the publisher. The publisher is not responsible for unsolicited material. African Leader is published by Picasso Headline. The opinions expressed are not necessarily those of Picasso Headline nor the BMF. All advertisements/ advertorials have been paid for and therefore do not carry any endorsement by the publisher or the BMF.

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PRESIDENT’S NOTE

Mncane Mthunzi

TRANSFORMATIONAL

LEADERSHIP IS GREATLY NEEDED

outh Africa must develop transformational leadership that can achieve dramatic changes in the country and its institutions within the public and private sector. The objectives should be to achieve fundamental transformation of the economy to better serve the needs of the black majority, most of who are poor and unemployed. Our country faces huge challenges of unemployment, poverty and inequality. At the national level, transformational leaders should achieve an end-state, in terms of the most important indicators of economic development, which is completely different from the one they inherited. All our national initiatives – from the National Development Plan (NDP) to the New Dawn – require such leaders. If you look at the life cycle of a butter y there is a complete metamorphosis from one state to another. There is a radical transformation from caterpillar to butter y.

Many countries in East Asia achieved such transformation – from poverty to becoming middle-income countries – within one generation. In his book From Third World to First: The Singapore Story; 1965 – 2000, former president Lee Kuan Yew says: “We had to work against seemingly insuperable odds to make it from poverty to prosperity in three decades. Our climb from per capita GDP of when I took office as prime minister) to more than $12 000 in 1990 (when I stepped down) and $22 000 in 1999 took place at a time of immense political and economic changes in the world.” Within the public sector, Thuli Madonsela is an excellent example of a truly transformational leader. Few people knew much about the ffice of the Public Protector before she led it. But during seven years at the helm, she gave the office a new and dynamic impetus without a change of mandate. She has left a legacy that cannot be overstated. Within the private sector, Sim Tshabalala, the chief executive of the Standard Bank Group and Lwazi Bam, the chief executive of Deloitte are examples of transformational leaders. Tshabalala has made strategic transformational appointments at all levels of the organisation. Bam has outlined a vision to create a large blackowned accounting and advisory firm. We need transformational leadership at all levels of society to achieve the success of a country like Singapore. I think President Cyril Ramaphosa must bring black professionals to the table so

that they become part of the stakeholders who will develop sustainable solutions for our country. The President must consult more broadly to identify new ideas and solutions that can take our country forward. On the issue of investment, we cannot just focus on Foreign Direct Investment (FDI) while the top 50 companies in South Africa are hoarding cash reserves of R1.4-trillion, according to a recent report by the Centre for Competition, Regulation and Economic Development. Also, according to 27four Investment Managers, we have a savings and investment industry that has assets of R8.7-trillion. This includes retirement funds (with assets of R3.6-billion), life companies (R2.8-billion) and collective investment schemes (R2.3-billion). We cannot be obsessed with FDI while there is an investment strike happening in our country. We have such huge cash reserves sitting within large companies and assets in the financial sector. omestic investors must lead. Foreigners can only invest when domestic investors show confidence in their own country. We must also guide investors away from wasteful expenditures on luxury high-rise head offices in andton towards truly transformational signature projects that will forever change the landscape of our country, for example, high-speed rail links between our cities. We also need to identify economic development zones with incentives that can attract investors, both foreign and local.

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MD’S NOTE

Thabile Wonci

TACKLING ECONOMIC

CHALLENGES

The impact of poverty, unemployment and inequality is staggering. By Thabile Wonci

s South Africa was reeling from the leadership power tussle between the outgone president of the Republic, Jacob Zuma, and his political masters, the current leadership of the ANC and Statistics SA (Stats SA) added salt to the wound when they released the fourth quarter 2017 Labour Force Survey results.

Even though these results showed a decline in the unemployment rate by 1 per cent to 26.7 per cent, they still illustrate dire employment prospects for the youth of this country. Notably, the percentage of young males between the ages 15–24 years who were not in education, employment or training (NEET) saw a decline of 1.4 per cent and

3.8 per cent among the white population year-on-year. This sad state of affairs is in line with the views shared by President Cyril Ramaphosa during his State of the Nation Address when he said that, “we remain a highly unequal society, in which poverty and prosperity are still defined by race and gender”. As South Africans seemed to have embraced President Ramaphosa’s new dawn, a new dawn that is viewed by many as being too philosophical and lacking long-term perspective, another surprise by Stats SA befell South Africans. The second quarter 2018 Labour Force Survey results showed an increase in the official unemployment rate of 0.5 per cent to 27.2 per cent. Sadly, the NEET rate as reported for African males showed an increase. As if this was not enough, Stats SA went on to report that the highest NEET rate of over 40 per cent was recorded among black African females between the ages 15–24 years. The overall picture painted by Stats SA showed that white males and females are the least affected by unemployment. Another point to mention is that the unemployment rate among women is tracking higher than the average unemployment rates for the past 10 years. And the unemployment rates attributable to men during the same period is significantly lower than the average unemployment rates. It is imperative, therefore, to implore president Ramaphosa and his government to be mindful of the “twin challenge” facing his government and the country: the quest for growing the economy and making sure that it is inclusive. It is also important that he be reminded of the commitment made by the then Minister of Finance, Malusi Gigaba, whilst delivering the 2017 Medium Term Budget Policy Statement when he noted that, “our starting point therefore is that economic growth and transformation are mutuallyreinforcing principles”. While Ramaphosa must be applauded for his call to prioritise economic growth and development, such growth will be meaningless if it does not address

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the plight of black-owned SMMEs and black-owned companies that are still marginalised from the mainstream economy. It is disconcerting that black professionals and black women remain less represented at executive levels within corporate South Africa. Transformation must be seen for what it really is, the real inclusion of the black population into the mainstream economy across all sectors of the economy. South Africa is faced with many challenges that range from the most obvious ones such as poverty, unemployment, high crime statistics, large numbers of young black students dropping out of university, to communities still operating without basic services. Concomitant with this is the lack of representation of black professionals and executives in senior and top management or executive levels in corporate South Africa. It is indeed appalling that in our quest for the implementation of employment equity, afﬁrmative action and broad-based black economic empowerment policies to create a corporate South Africa that is a true representation of the prevailing racial demographics in the land, some companies would opt to sit on the peripheries and fold their arms. Most patriotic South Africans believe that now is the time that we start dealing with the real problems that our country is facing. The growth and sustainable strength of a transformed and skill-based society will ultimately limit poverty and unemployment levels across all sectors as companies will have a huge pool from which to select talent. This, however, will never be possible if companies continue to adopt strict economic policies that tend to be unfavourable to the impoverished. This is evident in the steep increase in unemployment numbers across all sectors over the past 10 years where big companies had to announce cost-savings plans by reducing labour and other operational costs. There is a huge need to develop a skillbased society and this can be achieved in various ways. Business must take shared responsibility for our economic ills and work hand in glove with government

UNEMPLOYMENT BY OCCUPATION

Source: Statistics SA

It is disconcerting that black professionals and black women remain less represented at executive levels within corporate South Africa. in its drive for economic growth and development. This calls for ensuring that black professionals, managers and executives are developed to their full potential by the companies they work for and are given space to explore their skills, talent and experience. The objective of business must extend beyond profit maximisation to include empowering black professionals, managers and executives with full control of the company s profit and loss, hiring and firing powers, staff promotion and bonus sign-offs. There is this unfortunate notion in corporate South Africa, especially in the private sector, that black professionals need “special training” to compete at the same level with their white counterparts and that a black professional has to work ten times harder to be at the same level as their white counterpart. A realisation that was also observed by the late managing director and president of the Black Management Forum, Lot Ndlovu, who often noted that “a black manager is a training-centre problem” and “that a black manager is forever on perpetual training without graduation”. This is rather unfortunate and undermines the intelligence of those that are at the receiving end of such patronising sentiments and treatment. It is important to realise that there are macroeconomic fundamentals

that have largely contributed to our lacklustre economic performance, and these require a co-ordinated partnership between government, business and labour as they debate and plan for future economic fortunes. One must also be mindful of the fact that the South African economy has not been performing well over the past few years to an extent that the 1.3 per cent GDP growth rate realised in 2017 came as a shock to many. Our economic miseries continued when the South frican economy ﬁnally lost its grip and fell into a recession in the second quarter of 2018. In conclusion, it is quite evident that the social and economic aspects of transformation are still lagging behind and that the impact of poverty, unemployment and inequality is staggering. There is a huge pool of black-skilled labour that remains marginalised in corporate South Africa. These are all negative fundamentals that are embedded in our economy where, if not properly addressed, the work that president Cyril Ramaphosa’s government has committed itself in tackling will be in vain. Thabile Wonci is the Managing Director of the Black Management Forum

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BMF EVENTS 2018

he Black Management Forum (BMF) hosted the 3rd Annual Don Mkhwanazi Memorial Lecture in Durban at the Southern Sun Elangeni and Maharani Hotel in honour and remembrance of the late former BMF president, Don Mkhwanazi. The memorial lecture, hosted in partnership with Nestlife Assurance Corporation, was attended by 97 delegates from professional, business, and academic fraternities. The keynote address of the lecture was delivered by retired Judge President of KwaZulu-Natal, Vuka Tshabalala, under the theme “Authentic Leadership”. Judge Vuka shared how Don Mkhwanazi’s “honesty, bravery and daring attitude made him able to raise his networks of in uence” is amongst other memorable lessons that can be learnt from him. Nestlife Assurance’s Executive chairman Dr. Mzwandile Zwane delivered a message from the sponsors and Sizwe Mkhwanazi addressed the audience on behalf of the Mkhwanazi family.

The 3rd Annual Don Mkhwanazi Lecture 26 July 2018 at Southern Sun Elangeni and Maharani, Durban

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he “Women in Power” programme is a BMF programme sponsored by Duke Corporate Education. The programme ensures that gender issues are highlighted as women step into senior and decision-making roles and own their power without relinquishing who they are. The “Women in Power” programme covers the concepts of leading self, leading teams and leading business. The programme was conducted over 3modules (3 days a module). The 2018 BMF Women in Power programme graduation dinner was held on 31 August 2018 and attended by 44 delegates — 19 of the delegates were graduating from the programme. The main speaker was Vumile Msweli, an international speaker, renowned coach and CEO of Hesed Consulting. The main theme of the Women in Power programme was “Lift as you ise”, each participant was given ﬁve minutes to talk about the assignment. The purpose of the “Lift as you Rise” assignment is to integrate the learning of the three modules and to reinforce the spirit of community. Delegates are required to identify an individual, small community project, for example, an individual that you want to support in the community, an awareness campaign with girls, an education programme within the community, or working with an organisation in the community.

BMF, Duke Corporate Education

Women in Power programme 2018

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BMF EVENTS 2018

Women in Power testimonies 2018 CHARLENE LOUW

MOKETE MOETELA

“I thought the Women in Power programme was both challenging and stimulating and provided me with an opportunity to learn about different models for and approaches to leadership, helping me to understand my own strengths and challenges in order to be a better leader. The programme provided a good balance between teaching and putting ideas and concepts into practice and it was made all the more enjoyable by the exceptionally high calibre of speakers, experts and orchestrator. “Having a supportive and very open environment to share and learn from each other’s experiences as female leaders in different industries created a positive environment for development. “Through this programme, my goal was to assess my strengths and develop my leadership style. I can say with resounding conﬁdence that this programme did all of that, and more. The programme has also been an unexpectedly remarkable outlet for advice, support and peer relationship building and has opened an entirely new network of colleagues and community partners for me.”

“I joined the programme when I was at a turning point in my life as a black woman in the corporate world and as a mother and aspiring business woman. We had a fantastic orchestrator, Zoya Mabuto, and other facilitators who assisted with our learning process. I was surrounded by women from different walks of life who I came to realise, during the process, shared similar challenges. That gave us all a reason to be there for each other and to always support one another. “I was encouraged to come out and show authentic leadership at work and in my community because I now understood the power that I possess as a black woman, how the unconscious mind works and the power of leadership agility. The programme, during the second block, gave me the tools to assert myself as an individual and as a leader. “I’ve also learnt how to cultivate and apply strategic thinking, developed skills for problem-solving in the workplace as a leader using the centering technique taught by Caroline Ravelli, and acquired very effective techniques to manage performance in my personal life as well. I can now own my space, be in charge of my energies, and intentionally show up in the male dominated industry that I work in and deliver excellent results as a BMF managerial leader. “Having started as a Student Chapter (SC) member, I am grateful for the programme as I see it as an empowering investment from the BMF to its members. I am committed to continue with the “Lift As You Rise” project and to teach the skills I have learned to other BMF SC members and my community at large.”

SLINDO SHAMASE “Attending the BMF Women in Power was an awakening. I learnt skills that will not only make me climb the highest corporate ladders but also make me a better person and leader. It was a tough and gruelling programme and what I gained from it I have never learned in all my schooling life. It was also priceless as no money can buy what we gained.”

GRACE MUMO “The Women in Power programme is a programme I recommend for any female leader and entrepreneur looking to enhance their skills, knowledge and who want to gain conﬁdence in tackling day-to-day business challenges. It is a programme that provides the necessary insights for day-to-day business management skills in a professional manner. As an individual, I have grown and I am using the skills learned to drive my business growth. I am certainly succeeding as I practice all the skills learned. I have grown, I know better and I am proud of myself because I know my worth and my value.”

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BMF EVENTS 2018

The Annual BMF Student Chapter National Summit from 3–5 August 2018 at the Edcon Retail Academy, Johannesburg, Gauteng

he Black Management Forum Student Chapter (BMF SC), hosted its Annual BMF Student Chapter National Summit from 3–5 August 2018 at the Edcon Retail Academy in Johannesburg. Under the theme “Learning Today, Leading Tomorrow”, the summit included various stakeholders and held panel discussions, team building, ﬁnancial literacy and work readiness workshops. During the National Summit Tadiwanashe Christmas won the R20 000 Old Mutual prize. The BMF SC Excellence Awards ceremony were also held on 3 August 2018 under the topic “Success Oriented: Learning Today, Leading Tomorrow”. Three certiﬁcates were awarded that evening to • Andrew Direko for Excellence • Thuso Tshiloane for Community Champion • Lindokuhle Nomathamsanqa Makhathini (in recognition of being a News24 Young Mandela’s of the Future recipient) for Leadership. The Student Chapter National Leadership was elected on the last day of National Summit.

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All the way to cloud nine Longer than a decade ago Emerge Solutions was started with the aim to assist clients in creating a better and more efficient working environment Emerge Solutions forms part of a group of companies that was started with the main focus to assist clients in creating a better and more efficient working environment. Their particular focus is to provide scanning and digital storage solutions that enable clients to view and manage documents from their offices in a time-efficient manner. INFORMATION AT YOUR FINGER TIPS Emerge’s digital archive software puts information at your fingertips. The product provides the ability to access critical business documents quickly and securely, regardless of the device you are working on – or on your location. The digital archive is quick

to deploy, cost-effective to run and is compliant with industry leading security standards. DOCUMENT STORAGE Emerge has the resources and expertise to effectively manage paper records, while remaining flexible in their approach to match the way client’s work. We serve companies of all sizes, across a variety of vertical markets. We help our customers gain a better understanding about their existing document storage, achieve better utilisation of their office space and develop cost-effective strategies for managing the entire lifecycle of their records.

DOCUMENT SCANNING Document scanning is often viewed as an easy and affordable option; however, document imaging can quickly become very costly and weighed down with problems relating to image quality and data. Emerge Solutions takes the headache out of converting legacy files into electronic format. A particular focus of the company is to provide scanning and storage solutions, which enable clients to view and manage documents in a more time-efficient manner. Emerge Solutions has been at the forefront of the industry and has conducted their businesses successfully since 2006.

CHARITY STARTS AT HOME Rinsie Prinsloo, the managing director of Emerge Solutions says the aim of the company is to create an empowered working environment, especially for women who have no previous training. “At Emerge we start with in-house training and then develop it from there. The company empowers trainees with adequate training and opportunities in order for them to grow and support themselves.” In 2015, Emerge Solutions started to offer accredited training for female staff members in order for participants to receive certificates and/or diplomas. Ten staff members now have certificates in data capturing and processing; two have junior management diplomas and another is busy with an accredited IT course. As part of our gender empowerment drive, the company is sponsoring all these courses and qualifications in full. The company considers the health and wellbeing of their employees as an important responsibility. Once a year, all staff members are sponsored to undergo a full check-up with health care professionals. Emerge Solutions is also involved in the social upliftment of local communities in Bloemfontein and Johannesburg, where they participate in and sponsor cancer drives and events for schools with children with special needs. 222 - 14th Avenue, Unit C, Anderbolt, Boksburg 1459 Tel: 0102252004 Cell: 083 311 7630 Fax: 086 578 6290 Email: rinsie@emergegroup.co.za Web: www.emerge-solutions.co.za

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ROUNDTABLE DISCUSSION

CONVERSATIONS WITH CEOs

Guests at the Conversations with CEOs Roundtable discussion.

Leadership based on ethical values, accelerated transformation and inclusive growth is required to revive South Africa’s faltering economy, according to speakers at the Black Management Forum’s Conversation with CEOs Roundtable that was held in Johannesburg during July, reports Duma Gqubule

he speakers on the panel at the Black Management Forum’s (BMF) recent Conversation with CEOs Roundtable were Dr Zweli Mkhize, the minister of Cooperative Governance and Traditional Affairs (CoGTA), African Bank CEO Basani Maluleke and Black Management Forum (BMF) President Mncane Mthunzi. Trudi Makhaya, President Cyril Ramaphosa’s economic advisor, also commented during the discussions. Makhaya is also the coordinator of the Investment Envoys who have been tasked with raising $100-billion (turn to page 32 for an update on the the presidents investment drive) over the

“South African businesses must lead in investing in the economy. We need sector-by-sector analysis of transformation to drive the process.” — Mncane Mthunzi next ﬁve years. ani Titi, Investec s new MD, was also present. Maluleke said she could not think of a time since the advent of democracy when there has been more corruption in South Africa. “The sheer scale of immoral behaviour is disappointing and heartbreaking. It is difﬁcult to make sense of it” she said. Mkhize added that there

was a need to draw a line on the issue of corruption. “We must condemn all corruption, whether it is in the public or private sector. Corruption is corruption. It results in the loss of resources to deliver services to poor people. Integrity is as important as technical expertise, whether we are in the public or the private sector. We must all be activists for ethical

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ROUNDTABLE DISCUSSION

From left: BMF board members Melcome Mahlathini, Thabile Wonci (BMF MD), Dr Tshego Gopane, Mncane Mthunzi (BMF President) with CoGTA Minister Dr Zweli Mkhize (centre)

Trudi Makhaya

Trudi

Makhaya leadership. There must be a code of conduct and culture within all sectors of the economy,” he said. Mkhize highlighted some of the difficulties he was facing as he sought to revive collapsing local governments, which had resulted in rising service delivery protests and shocking audit outcomes in the most recent Auditor-General’s report. “The reason we took over from the apartheid government was not because it was our turn to eat. There are issues of widespread fraud and corruption at all levels of the government. There is political instability and rapid turnover of leadership at the level of local government. There is political interference and infighting. “There has been a politicisation of the administration, which we must address. There are also issues relating the qualifications and expertise of people to deliver services to our people. We have shortages in terms of financial management and town planning skills. “In the private sector, the government had to deal with the investment strike, which has seen large companies accumulate cash

Basani Maluleke

“The sheer scale of immoral behavior is disappointing and heartbreaking. It is difficult to make sense of it.” — Basani Maluleke reserves of R1.5-trillion, and the issue of transformation, which is at low levels in all sectors of the economy including banking, asset management, auditing, property and construction. South African businesses must lead in investing in the economy. We need sector-by-sector analysis of transformation to drive the process,” Mkhize said. Mthunzi said the BMF was not proud of what was happening at VBS bank, which had been led by black people, but felt that the media had not been as vocal about other incidents of corruption in the private sector by white people. “Why do we not know the names and faces of the people who were involved in corruption at McKinsey and

other companies?” He also condemned a “sweetheart arrangement” between Eskom and McKinsey. “Why were they allowed to pay back only R900-million when they owed much more? Why were they not charged interest of R300-million? There is a double standard where some people are treated with kid gloves. Tiger rands received a lenient ﬁne for ﬁxing bread prices. The construction companies also got lenient treatment for price collusion during the construction of World Cup stadiums. We are not happy with the deals that have been concluded between the Department of Economic Development and industry.”

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Defence Denel is transforming the South African defence environment through its financial performance, the quality of its corporate governance and its commitment to broad-based black economic empowerment. In the 2016/17 financial year Denel continued to maintain revenue levels above the R8-bn mark, recording a moderate 2.5% reduction in turnover compared to the prior year. Profitability continues to be satisfactory and exceeded set targets by 9%, posting a total of R333-m Net Profit After Tax. Black-owned, youth-owned and women-owned companies are being brought into the wider supply chain networks of the defence industry through Denel’s enterprise development programme. More than R68-million is invested annually in the training and education of the next generation of engineers, scientists, artisans and technicians.

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marketing@denel.co.za

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2017/10/02 10:26 AM

Innovation Redefined! A s th e strategic p artner p remier sup p lier of eq uip ment and systems to th e S A N D F , D enel contributes to th e p rotection of th e liv es of all citizens and is a v aluable national asset th at all S outh A fricans can be p roud of. W e are S outh A frica’ s innov ativ e and reliable sup p lier of strategic defence, aerosp ace and security p roducts and serv ices to local and international markets. A dynamic S outh A frican comp any th at attracts and retains th e best and brigh test minds th rough our commitment to innov ation and ex cellence. M ore imp ortantly, wh ile we v alue our h eritage, we also remain youth ful in meeting th e ch allenges of a rap idly ch anging tech nology env ironment.

T op 1 0 0 G lobal D efence M anufacturer, and th e second largest in th e south ern h emisp h ere.

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SAFCOL

TURNING AROUND SOEs Drastic remedial action has been taken against many of the country’s state-owned enterprises in an attempt to halt further mismanagement and stabilise the economy, writes Ferial Haffajee

Eskom

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STATE-OWNED ENTERPRISES

South African Airways

n -page confidential briefing obtained by African Leader shows that the country’s key parastatals are a hotbed of costly dysfunction. The document emanating from within Cabinet reveals that it will take at least three to five years to get the ma or state-owned companies onto an even keel and most are likely to require either bail-outs or state guarantees. The era of former president Zuma has exerted a high cost of cronyism on the parastatals where investigation after investigation has revealed how the Gupta family network used Eskom, Transnet and Denel to suction off billions for their personal fortunes. But the story does not end there. Other smaller parastatals such as forestry company SAFCOL and diamond miner Alexkor

are in as dire straits as similar patterns of mismanagement emerge. Five months into his tenure, Public Enterprises Minister Pravin Gordhan has taken a scythe to the public companies of which he is now political boss, changing boards and executive leadership at an unprecedented pace. But this clean-out has not come without a price. At the time of writing, a gargantuan battle of Gordhan versus Transnet CEO Siyabonga Gama loomed as the minister is determined to take out a top layer at the rail parastatal for what he regards as irremediable corruption. Already, the minister faced court action from Seth Radebe, a Transnet director he ﬁred for dereliction of duty. Radebe, in turn, cited racism as the reason. Gordhan is in vulnerable waters because with the transformation of private sector C-suites moving at a slow pace, the parastatal sector has been a training ground and a home ground for black executives.

CLEANING OUT With Eskom on its knees through years of mismanagement, Cyril Ramaphosa moved on the power utility even before he became president. In January, just weeks after he took the powerful mantle of ANC president, Ramaphosa installed a new board under the hand of Jabu Mabuza. Land Bank CEO Phakamani Hadebe, who is an assets and liabilities as well as a foreign markets whizz, Pravin was appointed acting Gordhan CEO and was made the permanent head of Eskom months later. These Eskom

changes signalled a much bigger sweep out once Gordhan was appointed Public Enterprises minister in February. Within months the Denel, Transnet and SA Express Phakamani Hadebe boards were also almost completely reshaped. Gordhan pulled out his political and corporate Rolodex to put Popo Molefe in charge of the board at Transnet and Monhla Hlahla at Denel. At SA Express, the highly regarded Siza Mzimela was brought back as CEO after the regional airline was grounded by the Civil Aviation Authority. Safcol and Alexkor boards are also likely to change after reports of varying shades of mismanagement and malfeasance. The 18-page cabinet document reveals a mishmash of malfunction at the biggest publiclyowned companies. “Many of our stateowned enterprises are experiencing severe Siza financial, operational Mzimela and governance challenges, which have impacted on the performance of the economy and (this) has placed pressure on the fiscus,” said Ramaphosa in his maiden state of the nation address in February. As Gordhan and his team burrowed into the reason for this, they found eight common problems across the companies. These included an absence of clarity on who did what as there was significant role confusion between boards, executive and government authority. All the companies they studied required huge capital injections caused in part by blurred social and economic mandates. Too often, the narrow goal of profitability trumped larger social roles. “State-owned companies lack robust leadership and initiative on crucial imperatives like job creation, skills development and ,” says the cabinet briefing document. ordhan

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Transnet

“Many of our state-owned enterprises are experiencing severe financial, operational and governance challenges, which has impacted on the performance of the economy and (this) has placed pressure on the fiscus.” — Cyril Ramaphosa will spend much of his term ﬁxing these problems while a Presidential StateOwned Company Council will undertake the more wide-ranging policy work of drawing up strategies for the bouquet of state companies.

THE FIX Eskom is the most visibly broken of the state-owned companies and its effective insolvency imperiled the national budget. t the time of writing, Hadebe had ensured an improvement in liquidity and investor sentiment. skom

Jabu Mabuza

has successfully concluded a $1.5-billion bond but investors are still worried about continued government support, the future role of skom, municipal debt to the utility, an unsustainable cost structure and whether there will be debt for equity swaps. The scale of delinquency which got skom into the hole it found itself is telling from adebe s ﬁrst actions senior executives implicated in the capture of skom have quit criminal cases have been opened • 628 disciplinary cases have been ﬁnalised there have been whistle-blowing cases investigated and concluded and in addition, remedial action has been taken against staff doing business with Eskom while lifestyle audits of senior managers are in progress.

Matshela Koko

The previous regimes of rian olefe and acting atshela Koko revealed how the two had run administrations which became corrupt. Molefe was central to the state capture network of the Gupta family as revealed by former Public Protector Thuli adonsela s state of capture report that led to the Zondo commission of inquiry into state capture. umerous reports reveal that Koko was also part of this network while he also ran private interests, one of which included giving a significant contract to a company where his daughter was a newly minted director. The next site for the biggest clean-up is Transnet, where investigative reports yielded from the #Guptaleaks emails showed that the procurement of trains from China Rail had been fundamentally corrupt. upta family lieutenant, alim ssa, pocketed significant kickbacks, according to reports. abinet has been told “ t Transnet, governance structures were repurposed to enable corruption and rent-seeking”. It further notes “The directors of Transnet, as well as senior executives, were derelict in their duties and there were regular violations of the ublic inance anagement ct and the Prevention of Corruption and Criminal ctivities ct”. Transnet s accounts for the year ending arch , revealed irregular expenditure of . -billion while the auditors said that even this figure may not be complete or accurate – it ballooned to this from an already high -million in the 2017 results.

WHERE’S THE GOOD NEWS?

If sunlight s a disinfectant, at least the good news is that the citi ens of

Brian Molefe

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STATE-OWNED ENTERPRISES

Denel

the country know what is happening at the state-owned companies. The two that pose the biggest threat to the economy, Eskom and Transnet, are in competent hands, although marginalised or fired black executives are extremely sore at what has happened to them and are forming part of a fightback movement against the administration of Ramaphosa. This is a political threat to the president who has enjoyed rock-solid support from black professionals. The consolidation of and xpress under a joint strategy is a good one and the fact that Hlahla is now chairperson of the Denel board will weed out years of corruption at the defence company which was once cutting-edge but is now simply cut-up. “ uring the term of the previous board, the entity (Denel) plunged into a liquidity crisis, programme delivery was delayed, the stakeholder environment became strained including with the shareholder government ,” says the briefing document. Irregular expenditure at

“During the term of the previous board, the entity (Denel) plunged into a liquidity crisis, programme delivery was delayed, the stakeholder environment became strained including with the shareholder (government).” Denel rose from R49-million to R116million over the period. hile it s the big companies that get the most attention, the problems are replicated at forestry and diamond companies owned by the government. There too, local maﬁas with contacts on the board inveigled the procurement system and caused balance sheet problems. None of the companies perform optimally where privately-owned York Timbers generated R1.8-billion from 55 600 hectares of forest last year, SAFCOL generated R921-million from 187 000 hectares.

WHERE TO?

It will take at least ﬁve years to get the state-owned companies working optimally. A presidential state-owned

company council is working against the clock on a stabilisation strategy before they go into developing strategy. They will consider the structure of stateowned airlines, the reform of the rail and electricity sectors and the roll out of broadband infrastructure. vital part of their consideration is likely to address the capital structure and business models of the state-owned companies as well as how to fund their non-commercial mandates. This includes public transport and free electricity as well as other development mandates. nce this is done, the team will move on to develop a rest of frica strategy for the companies and decide on whether or not private sector participation by privatisation or the sale of equity stakes is likely to happen.

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STATE-OWNED ENTERPRISES

THE PRAVINATOR 2018

NEW BROOM SWEEPS CLEAN AT STATE-OWNED COMPANIES

QUOTES FROM PRESIDENT CYRIL RAMAPHOSA ON THE STATE OF STATE-OWNED COMPANIES

“Many of our state-owned enterprises are experiencing severe ﬁnancial operation and governance challenges, which have impacted on the economy and placed pressure on the ﬁscus.”

NEW BOARDS

“We will intervene decisively to stablise and revitalise stateowned enterprises.”

BOARD REVIEWS UNDERWAY

“Government will take further measures to ensure that all state-owned companies fulﬁl their economic and development mandates.”

BIG EXECUTIVE MOVES

APPOINTED: New Eskom CEO Phakamani Hadebe and COO Jan Oberholzer

RESIGNED: Denel CEO Zwelakhe Ntshepe

RESIGNED: Transnet CFO Garry Pita

REPORTING LINE CHANGED:

THE PRESIDENT’S WORDS

SAA now reports to Public Enterprises

“We will need to confront the reality that the challenges at some of our SOE’s are structural — that they do not have a sufﬁcient revenue stream to fund their operational costs.” “We will change the way that boards are appointed so that only people with expertise, experience and integrity serve in these vital positions.” “We will remove board members from any role in procurement and work with the Auditor-General to strengthen external audit processes.”

WHAT’S NEXT FOR STATE-OWNED COMPANIES? • Define a strategic focus • Define a funding model • Africa strategy for SOEs • Private sector participation — partial privatisation SECTOR-SPECIFIC PLANS: • Define structure of SAA • Reform the rail sector • Reform electricity sector • Roll out broadband infrastructure

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R1-TRILLION BY 2022? Theresa May and President Cyril Ramaphosa

President Cyril Ramaphosa is banking on a signature investment conference towards the end of October to turn around South Africa’s sluggish economy and to showcase his progress on his plan to attract R1-trillion in domestic and foreign investment to the country by 2022. Ferial Haffeejee reports

HOW IS THE INVESTMENT DRIVE GOING?

It’s not doing too badly. At the time of writing, President Cyril Ramaphosa had used his outward facing presidency to secure nearly half of the proposed R1-trillion he’s boldly promised South African’s. Ramaphosa’s presidency has pivoted eastward to China where President Xi Jinping has put the biggest investment offer on the table. Just seven months into his presidency, Ramaphosa had visited Beijing and hosted President Jinping in South Africa at the BRICS Summit in July. He also co-chaired the annual meeting between the Chinese leader and African heads of state in August. On his return from China, Ramaphosa came bearing gifts: South Africa is slated to beneﬁt -billion from what is reported to be a R370-billion cash pile that Chinese businesses and its huge stateowned enterprise sector want to invest on

the continent. After a trip to the United Arab Emirates in July, Ramaphosa inked promises of R150-billion from the cashush miratis. The third biggest pledge has come from the United Kingdom whose prime minister Theresa May visited South Africa in August. Faced with its Brexit, the UK is looking to shore up bilateral trade and investment relationships across the Commonwealth and South Africa’s developed markets make the country a peachy option. In May, reports from Ramaphosa’s visit to the UK suggested that he had secured investment interest to the value of R850-million, although this ﬁgure may have gone up when May paid a return visit to South Africa. At the investment conference to be held in Johannesburg from 25 October to 27 October, Ramaphosa is expected to address impediments to investment while foreign investors such as Mercedes Benz and the Chinese automotive manufacturer, the

Beijing Automotive group who have had a good run in South Africa will speak for the country s efforts, say presidency ofﬁcials. In addition, the treasury is putting the ﬁnishing touches on infrastructure projects that will be offered as publicprivate-partnerships and presumably with incentives attached. At a recent Moody’s Investors Services conference, Finance inister hlanhla ene said the pro ects would form part of a stimulus package that Ramaphosa is also expected to release in October. Nene will put meat on the bone of this package when he presents the mediumterm budget policy statement (MTBPS) on ctober th, just two days before the investment summit.

WHAT ARE FOREIGNERS LIKELY TO INVEST IN? The Emiratis are interested in mining and tourism investments – the country has a huge hunting community so this offers

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INVESTMENT an idea of what their tourism interests are likely to be. Chinese investors are already among South Africa’s biggest. Chinese ambassador to South Africa Lin Sontian told the African Leader that Chinese companies had invested a cumulative -billion “over the years” and with the pledge of at least -billion more, it s clear that hina sees South Africa as a part of its huge drive for global in uence and power, symbolised in the Belt and Road Initiative. “South Africa could be developed as a bridgehead connecting Africa to the Belt and Road cooperation,” said Sontian. e said that connection between hina and South Africa by air and sea made it an exciting investment destination. Chinese investors have started ventures in telecommunications, renewable energy and infrastructure. In the Northern Cape, the China Longyuan power group has invested -billion in a wind farm. The i Dong Development Group has invested -million in the amba cement pro ect. ive ﬁnancial institutions have a combined investment of over $6.6-billion in South Africa and provide loans of over -billion to local companies. ver the next ﬁve years, an increasingly expansionary hina will make -billion in investments across the globe. inping is increasingly painting himself as holding the mantle of a willing, open and global trading economy.

GOOD TO BE CHINA’S FRIEND BUT… South Africa is well-positioned as a friend of Beijing, but there are concerns. During the I ummit as inping ramped up his investment promises, questions were raised about whether these were in fact loans offered at exorbitant rates. In Sri Lanka and in Zambia, China has engaged in debt for equity swaps when those governments could not make payments on investment loans. Back home, questions have been raised about a Chinese investment in a power station in the Musina special economic zone. South Africa does not need more coalﬁred power stations and the country s newly unveiled integrated resource plan (IRP) targets an energy future built on clean power sources such as wind and solar. The managing director for emerging markets and

R1-TRILLION IN INVESTMENT BY 2022? Here’s how Cyril’s doing APRIL 2018

R850-million

UK to invest R850-million

JULY 2018

Prime Minister Theresa May R133-billion

SAUDI ARABIA to

invest R133-billion into the energy sector

R133.5-billion

R196-billion

UAE matches

the Saudi investment, R133.5-BILLION

CHINA raise the

stakes to R196-billion with R40-billion as a loan to Eskom

Sources: Bloomberg; News24; own research

Sheikh Mohammed bin Zayed

President Xi Jinping

INVESTMENT TOTAL TO DATE: R465 350 000 000

Africa at Deloitte, Martyn Davies, said the devil was in the detail of China’s investment promise. “We must ask: where is the equity purchase?” And if these were in state-owned enterprises, this raised the question of whether or not these were effective privatisations. Davies said that he would be more excited if private Chinese capital was being invested in South Africa but there was no sign of that. “ igniﬁcant hinese capital investments would signal real conﬁdence.” e added that over private Chinese companies had invested in Singapore. In South Africa, foreign investment by China was focused on micro-sized businesses in retail and in the huge stateowned behemoths. “There is nothing in between,” said Davies.

SA HAS TO STAND OUT IN A CROWDED GLOBE As Ramaphosa’s economics advisor, Trudi Makhaya is at the helm of Ramaphosa’s investment drive and while South Africans are impatient for change, she says: “ It is important to note that this is a ﬁve-year

target and that it includes both local and international investment, and investment by state-owned enterprises. This is meant to be a broad effort to marshal the resources that are needed to fundamentally alter and elevate the economy’s trajectory. “South African investment projects have to stand out in a crowded and competitive global marketplace for limited capital. This means sharpening our ability to package and promote investible large-scale projects, with compelling business models and talented business operators. At the local level, we have seen how investment has stalled, with corporates holding cash reserves or investing in basic maintenance activities, where there is uncertainty about the returns to investment in new productive activities. “There is a two-pronged challenge to stimulate the release of local cash and to attract foreign direct investment. Our ability to raise this level of investment will depend on the resolution of some policy obstacles, which is well underway, and the emergence of consensus across business, labour and civil society and government on the most important economic measures to prioritise and implement over the medium-term.”

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THE RECESSION

South Africa is in a technical recession - it has been a long time coming, writes Thuletho Zwane

outh Africa slipped into a technical recession on the 4th of eptember as figures for the second quarter of 2018 showed there was a decrease in Gross Domestic Product (GDP) for April, May and June. Statistics South Africa (Stats SA) reported that real GDP decreased by 0.7 per cent in the second quarter of , following a decrease of . per cent in the first quarter of . The report read that the largest negative contributors to growth in in the second quarter were agriculture, transport and trade. The report also said other industries that felt the pinch in the second quarter include the transport, storage and communication industry. They saw a 4.9 per cent decrease whereas trade, catering and accommodation also clocked a 1.9 per cent contraction. There were a number of reactions. Minister of Finance, Nhlanhla Nene, said the government didn t see the technical recession coming. owever, they are working on a plan to finalise the structural reform package and a fiscal stimulus of R43-billion will be injected into the economy to help revive it. The country s political opposition, the emocratic lliance , believes structural reforms and a fiscal austerity package will “get the economy s heart beating again”. conomist and niversity of Witwatersrand associate professor Chris alikane explains a stimulus package is a package of economic measures put together by a government to stimulate a oundering economy. The ob ective of a stimulus package is to reinvigorate the economy and prevent or reverse a recession by boosting employment and spending.

ﬁscal stimulus includes the increase of government spending. This would be when government undertakes big infrastructure development pro ects with the goal of employment. monetary policy stimulus would be the lowering of interest rates and the cost of borrowing, placing more money into the economy. iscal austerity would mean cutting down government expenditure and monetary policy austerity would be increasing interest rates to ﬁght increasing in ation. hile attending the orum on hinafrica o-operation in ei ing, ene said “ e didn t think we would have the second contraction, we were hoping we would have a moderate recovery.” e added that the weaker rand, which fell to a two-year low against the dollar, should help boost exports. “The outh frican currency is free trading and acts as a shock absorber for the economy,” said Nene.

STRUCTURAL REFORM NEEDED

The ational Treasury is to present the ﬁscal stimulus and structural reforms to cabinet and will be announced in the mid-term budget on the th of October. alikane explains that “structural reforms” usually means getting the economy going in the following ways improving the governance of stateowned entities (SOEs); increasing public-private partnerships introducing a strategic private sector partnership in SOEs - in other words, privatisation reducing red tape that will make government payments to businesses more efﬁcient Improving the skills base of the country; focusing on the country s ports to improve imports and exports and

“We didn’t think we would have the second contraction, we were hoping we would have a moderate recovery.” — Nhlanhla Nene rooting out corruption and reducing government intervention in the economy. These structural reforms are also central to the strategy of how to get the country out of recession. DA leader musi aimane said the government s “economic mismanagement and bad policy” were to blame for the technical recession and that the rising cost of living as seen in petrol price increases the T increase sugar tax and income tax were signs of an impending recession. aimane added that the government s economic policies were eroding investor confidence. To fix and ump start the economy, aimane said the government needed to introduce a fiscal austerity package to contain current spending and stabilise national debt at 50 per cent of . e added that any commitment to funding further revenue shortfalls should come from cutting wasteful expenditure and not through the implementation of new taxes. e added that “reckless economic policies such as the proposed nationalisation of the eserve ank and the undermining of property rights through expropriation without compensation” should be scrapped and that “ skom s monopoly should be ended and that cities should be allowed to purchase directly from independent power producers, increasing competition and lowering costs”.

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ECONOMY

But economists disagree. Malikane says there is no link between structural reforms and economic growth in the short-term. “Structural reforms would not address the economic crisis in the shortterm,” said Malikane who predicted the recession two years ago. Referring to his study Profitability and Crisis in the South African Economy. Malikane said South Africa was a capitalist economy and the driving force of a capitalist economy is the rate of profit. The study found that in the South African economy entered a new and ongoing crisis of overproduction of capital characterised by stagnant profits and prolonged overaccumulation, which makes it impossible for economic growth to recover. e concludes that fiscal austerity would, however, mean that public spending on meeting the needs of the working class may have to be curtailed, and this may lead to a political crisis. The other alternative, he adds, is to adopt an expansionary fiscal policy through deficit spending.

THE RECESSION IN NUMBERS: The South African economy slipped into recession during the second quarter of 2018, shrinking by 0,7 per cent quarter-on-quarter (seasonally adjusted and annualised). This followed a revised , contraction in the first uarter of . he , per cent downturn in the second quarter of 2018 was a result of a fall-off in activity in the agriculture, transport, trade, government and manufacturing industries. • Agriculture production fell by 29,2 per cent in the second uarter of , following a , slump in the first uarter. • The transport industry contracted by 4,9 per cent. • The trade industry experienced its second consecutive quarter of negative growth, falling by 1,9 per cent. • Government activity decreased by 0,5 per cent, largely as a result of falling employment numbers in the civil service. • Manufacturing was the third industry to record a second consecutive quarter of negative growth, following in the footsteps of agriculture and trade. Manufacturing activity fell by 0,3 per cent. • ining, construction, electricity, finance and personal services experienced positive growth, but not enough to lift overall economic growth out of negative territory. Mining’s growth rate of 4,9 per cent was largely spurred on by a rise in the production of platinum group metals, copper and nickel. • Construction activity increased by 2,3%, driven by a rise in non-residential buildings and construction work activities. Source: Stats SA downgrades by rating agencies. Between ecember and eptember , unemployment increased by . million to . million. The expanded unemployment rate rose to . per cent in eptember from . per cent in eptember . The unemployment rate for black fricans was per cent in eptember , according to tats s abour Force Survey.

HOW DID WE GET HERE?

To understand how outh frica got into this technical recession, one must consider the country’s economic performance over the past ten years. The current economic crisis is a result of dismal economic growth between and . etween une and une , the outh frican eserve ank increased its repo rate by basis points to per cent while most central banks in the world cut key policy rates in the wake of the global ﬁnancial crisis. fell by . per cent in . There was a -billion revenue shortfall and the budget deﬁcit rose to . per cent of GDP. Following this, between December and arch , the economy shed a million obs as employment fell to . million from . million. The International onetary und I shows that by comparison, emerging and developing countries grew by . per cent in . cut its repo rate by basis points between ecember and uly

Mbuyiseni Ndlozi

. There was a modest recovery as the economy grew by an annual average of . per cent between and . owever, tighter monetary and ﬁscal policies since contributed to a slowdown in GDP growth to an annual average of . per cent between and . etween and , grew by an annual average of . per cent. per capita grew by ust . per cent a year, far lower than emerging and developing countries, which grew by an annual average of 5 per cent over the same period, according to the I . The low growth rates and the resulting reduced tax revenues have resulted in deteriorating debt ratios and

WHITE MONOPOLY CAPITAL For the Economic Freedom Fighters (EFF) the technical recession can be squarely blamed on white monopoly capital. They say that outh frica s government has, since ruled in favour of market-led development. “It is a basic neoliberal principle that the burden of economic development, job creation and poverty elimination is the responsibility of markets and captains of industry,” said EFF national spokesperson Mbuyiseni Ndlozi. “You cannot ask for market-friendly policies with a promise that you will get growth and jobs, and when these do not happen refuse to take the blame,” he said.

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The introduction of National Health Insurance (NHI) could become a gamechanger in the sector and constitute one of the most far-reaching attempts to transform the economy since 1994. By Duma Gqubule

CAN WE MEET THE 2025 DEADLINE? T

he National Department of Health has taken few steps to address the current crisis in public healthcare as available resources (including infrastructure, equipment, medicines and medical specialists) have not kept up with a rising disease burden and an increase in the uninsured population. Decaying public health facilities, high patient volumes and the unavailability of medicines has resulted in poor staff morale. The department does not have an infrastructure plan or an updated analysis of the human resources that will be required to implement the NHI. National Treasury has provided limited resources

to roll out the ambitious plan. As a result, the government will not meet its deadline to provide free quality healthcare to all South Africans by 2025 — unless there is a signiﬁcant increase in funding to bring the quality of public healthcare to a level that is similar to that of the private sector. The government says the NHI is “a health ﬁnancing system that is designed to pool funds to provide universal access to quality, affordable personal health services for all South Africans based on their health needs, irrespective of their socioeconomic status.” Dr Tshegofatso Gopane, a researcher for the South African Medical and Dental Practitioners, says NHI will be implemented through the creation

Dr Tshegofatso Gopane

of a fund that is publicly ﬁnanced and administered to provide a uniform package of personal health services. The fund will not manage hospitals, clinics or the practices of general practitioners (GPs). It will enter into contracts with public and private hospitals, specialists and GPs to deliver health services free of charge to every citizen. “It will be compulsory for all South Africans to belong to the NHI and make mandatory pre-payments to the NHI based on their ability to pay. The fund would aim to reduce fragmentation in funding pools and promote greater cross-subsidisation in the health system, between young and old, healthy and sick and rich and poor,” she says.

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HEALTH

HOW NHI WOULD WORK The NHI model involves a single (public) payer and public and private providers of health services. The British model has a single public payer and provider. It is a nationalised health care system. Other health care systems have multiple payers (who are regulated to reduce costs) and multiple providers of health services. Outside of the developed world, most countries do not have health care systems. With these out-of-pocket models, the rich get quality medical care. The poor get limited medical care. Most health economists agree that a single payer model reduces costs by negotiating lower prices with providers of health services and medicines and eliminating items such as marketing expenses and profits. he ospital Association of South Africa (HASA) says there are three options for medical schemes. The government could allow private medical insurance (PMI) as an alternative to the NHI. Current members of medical schemes would be exempted from mandatory NHI contributions. In the second option, PMI would supplement NHI with existing members making double contributions. Finally, PMI could have a complementary role (the likely option), providing cover for the few luxury services that are not provided by the comprehensive NHI package. There have been three phases of healthcare financing since the advent of democracy. uring the first phase, the government implemented slash and burn fiscal policies under the rowth, mployment and edistribution ear programme, which prioritised budget cuts to reduce debt. Instead of equalising the country s two health systems, the government decimated public sector health capacity.

HEALTHCARE SPENDING

ccording to the South African Health Review 2017, real expenditure on public health declined between and . The number of health professionals declined to in

from in . This was despite an increase in the population using public health facilities and an escalating disease burden due to a soaring number of people with I I . fter the end of ear, health expenditure doubled in real terms in the decade between to . mployment increased by people to between and . The figure included doctors, nurses and pharmacists and pharmacy assistants. ince then, real per capita uninsured health expenditure has levelled off. apital spending has declined substantially. outh frica has a two-tiered healthcare system. It also has significant shortfalls in terms of facilities and health professionals, especially in the public sector. In , there were . m people per cent of the population who were covered by medical schemes, according to the eneral ousehold urvey. There were . million uninsured people who accounted for the remaining per cent of the population. In the year to arch , the government spent about . -billion about . per cent of for per cent of the population. The private sector spent -billion on members of the ouncil for edical chemes in . er capita spending by medical schemes average benefits paid per member was . This was more than four times higher than the equivalent figure for the public sector of . The number of hospital beds has not increased since , according to the ospital ssociation of outh frica. In , there were beds in the public sector and in the private sector. This was equivalent to a total of or . beds per of the population, which is half the average of . beds. The country will have to double the number of beds. This implies that the public sector will have to increase the number of beds and associated infrastructure by per cent. In , according to conex, outh frica had doctors of whom

per cent were in the public sector and per cent were in the private sector. This was equivalent to doctors per people. The country would need an extra doctors to reach the global average of . doctors per people and doctors to reach the average of . doctors per people. In , outh frica had nurses of whom per cent were in the public sector and per cent were in the private sector. This was equivalent to nurses per people. This ﬁgure is above the world average of . nurses per people. ut the country would need an extra nurses to reach the average of . nurses per people. The cost estimates of implementing I are usually presented in and not current prices. They also depend on various assumptions about economic growth. The department pro ected an expenditure shortfall of billion by , assuming a growth rate of per cent. The public health budget would increase to . per cent of from . per cent. owever, conex says the shortfall may exceed -billion assuming greater increases in demand and updated growth forecasts. owever, in the budget, ational Treasury allocated only . -billion to implement the I during the next three years until . ith efﬁciencies of scale, the public sector could possibly achieve a similar level of service as that of the private sector with about two-thirds of the resources. There must be an aggressive mobilisation of resources to develop an expenditure path that will eventually increase per-capita public expenditure to this level. or example, a per cent payroll tax to be paid by employers and employees could mobilise about billion. opane says implementation of the I will put the government, as the only buyer of health services, equipment and medicines, in a powerful position to drive fundamental transformation of the sector over the next decade.

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EXECUTIVE PAY

Executive pay has surged unrelentingly upwards and a sense of indignation fatigue has set in amongst ordinary South Africans. But every so often we are shaken by a truly eye-popping remuneration package, writes Ann Crotty

he turn of the 20th century saw the push for disclosure of executive pay, motivated by the belief that public awareness of the size of individual remuneration packages would prompt restraint. Eighteen years later that seems a hopelessly naive perspective. Far from restraining excessively generous pay packages public disclosure seemed to goad pay to ever-higher levels. The most recent of these was the release of Naspers’ remuneration report highlighting a complicated package designed for CEO Bob van Dijk, who received almost R1.5-billion in salary, bonuses and vested share options and appreciation rights during the financial year. If van Dijk wants to cash in the 284 031 Naspers N shares that vested in 2018, he will have to pay Naspers the R1 000 that the Naspers share was trading at in 2014 when he was awarded them. If he paid for the options and cashed in at current prices van i k would make a profit of around R600-million on the long-term incentive portion of his remuneration packages. What appears to have stirred indignation to new levels was that van Dijk’s remuneration package highlighted the randomness of the generosity heaped upon executives. The bulk of van Dijk’s newly found wealth was a result of the dramatic increase in the value of Naspers N shares over the past five years. n increase that was due entirely to Naspers’ 33 per cent stake in Chinese internet giant Tencent.

Naspers plays absolutely no executive role at Tencent and so it s difﬁcult to understand the basis on which the Naspers’ remuneration committee ustiﬁes enriching its executives with Tencent-fuelled Naspers N shares.

Bob van Dijk received almost R1.5-billion in salary, bonuses and vested share options and appreciation rights during the 2018 financial year Even more jaw-dropping, given the context, was the recently disclosed R286-million that Steinhoff International paid to its former CEO Markus Jooste in the three years leading up to the revelation of “accounting Markus Jooste irregularities” that wiped out more than 95 per cent of the company’s share market value. In the year to eptember alone Jooste picked up R121-million of

FAST FACT In 2017, CEOs at South Africa’s 10 largest listed companies earned between 120 and 1 332 times more than the average pay at those same companies (SOURCE: BusinessTech, 2017)

which R75-million was a bonus. Recent revelations about extensive “related party” transactions indicate his official remuneration may have been only a small part of the loot Jooste extracted from Steinhoff. While these are dramatic exceptions in 2018, even average executive pay packages are eye-watering in their generosity. One of the most comprehensive sources of information available on the sensitive issue is the annual survey published by audit and advisory firm PricewaterhouseCooper (PwC). Its latest report reveals that in the CEO of a large JSE-listed company could expect to get total guaranteed pay of . -million. In addition, the CEO could look forward to a short-term incentive payment of R14.5-million. The generosity didn’t end there, although PwC’s coverage of it did. On top of guaranteed pay and short-term incentives, executives at JSE-listed companies could also look forward to long-term incentives that add another 30 per cent or so to their package. Long-term incentives, which are linked to various performance metrics, are frequently paid out in the form of shares. Because they are conditional on the attainment of certain targets, they are not included in PwC’s annual remuneration surveys. (Nor does Deloitte include them in their annual surveys. s w noted in its latest survey, “ TIs are excluded since these are not only complicated to Bob define but difficult van Dijk to report on given

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REMUNERATION

the different schemes companies have implemented over the years.”

WAGE DISPARITIES The result of this remarkable exclusion is that the level of executive pay is signiﬁcantly understated. In turn, this means, we’re told, that the executives who received guaranteed pay of R24.9-million in 2017, in fact, got closer to R52-million for the year’s work. Evidence that the country’s tough economic conditions, which have resulted in record levels of unemployment, have not dulled executives’ ability to extract increasingly generous rewards. By 2017 the remuneration of the average CEO of a large listed company was in line with the high packages scored by a few lucky individuals back in 2005. The difference is that back then the remuneration awarded to Pick n Pay’s Sean Summers (R65-million), Anglo’s Tony Trahar (R65.2-million), Shoprite’s Whitey Basson (R59-million) and JD Group’s David Sussman (R46.2-million) created a furore. Now there is a resigned silence, which is particularly distressing given that only Shoprite has thrived over that period. Of course, few other workers in the South frican economy have beneﬁtted quite as much as the top earners. At the other end of the scale, according to statistics released by mywage.co.za, domestic workers are lucky to take home R30 000 a year. An assistant manager in the wholesale and retail sector – the same sector so generous to Markus Jooste, Sean Summers, David Sussman and Whitey Basson – could have looked forward to R80 000 for 2017; a cashier to R48 000 and a clerk to R55 000. In a research paper titled Tackling wage inequality: International experiences for Wits University, Kaylan Massie, co-author of a book on executive pay, noted that the gap between CEO pay and per capita GDP in South Africa was 541 times compared with the UK’s 229 times and the United States’ 483

times. Writing ahead of the postponed May 2018 deadline, Massie says plans to introduce a R20 an hour minimum wage will do little to reduce the large pay disparities in South Africa. Academic Murray Leibbrandt contends wages account for 85 to 90 per cent of overall household income Murray inequality in outh Leibbrandt Africa, a country with the highest Gini coefﬁcient . in the world. Leibbrandt says wage inequality has two aspects earnings inequality due to different wage levels among those earning an income, and earnings inequality due to the presence of those without an income – the unemployed. About one-third of South Africa’s wage inequality is caused by unemployment, with the remaining two thirds caused by earnings differentials among those that are employed. While executives baulk at any suggestion of interfering with their excessive pay, which they interpret as the outcome of functioning free markets, research by institutions such as the IMF and the UN increasingly highlights the harmful impact of inequality to economic growth. To date, nothing has succeeded in reining in the excesses of the executive class. Moral suasion from a government that has compromised itself and indulged its own executive class was bound to fail. Giving shareholders a vote on pay has had no impact as institutional fund managers, whose interests are closely aligned with executives, have controlled the vote. And it seems likely that proposals to disclose pay gaps within companies will be undermined by claims of complexity and non-comparability. Massie says international evidence of the effectiveness of pay caps and mandatory pay ratios is unclear due to insufﬁcient research available in English and possible publication bias. However, the good news is that there is some light on the horizon and it comes from the same

LTI DISCLOSURE During the past year, with the gradual implementation of King IV, there has been considerable support from organisations and investors for the new LTI disclosure format (comprising of the single-figure reporting table, the table of unvested LTIs and settled LTIs). This methodology encourages companies to create a comprehensive view of payments and potential payments that executives could receive. Companies that have incorporated the King IV recommended practices regarding the single-figure remuneration reporting table and the table of unvested and settled LTIs have put significant effort into displaying accurate figures in their implementation reports (as recommended by King in order to re ect all the relevant components of remuneration. The new LTI disclosure format is widely regarded as the ideal opportunity to create a more transparent way of disclosing the full view of remuneration due in any current financial year, presented in a straightforward, user-friendly format. Consequently, organisations and stakeholders now have a single point of reference where they can examine remuneration and consider how it relates to company performance. (SOURCE: Executive directors: Practices and remuneration trends report, 10th edition: July 2018)

country that brought us shareholder capitalism and dangerously excessive levels of executive pay. US Democratic Senator Elizabeth Warren recently introduced a bill called Accountable Capitalism to the US Senate. The bill would fundamentally change the way American companies do business – and in time South African companies. arren s bill would require large American companies to apply for a corporate charter from the federal government. The requirement for a charter would include that 40 per cent of the board be elected by employees. Given that a major source of the pay problem is the ability of strong executives to dominate boards whose members they have appointed, Warren’s plan could create the necessary counterbalance. It is a long shot, but it may be our only hope.

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THE IMPACT OF IPPP

ON JOBS Thuletho Zwane asks what the impact of the Independent Power Producers Programme (IPPP) has on jobs and empowerment

ocal and international investors, unions and black energy bodies all agree that renewable energy is critical for South Africa’s future power needs and that proper implementation of renewable programmes will lead to economic growth, jobs and empowerment. However, the major point of contention is how the transition from non-renewable energy to renewable energy should take form and who should be the primary beneﬁciaries of the transition. In 2010, the Department of Energy (DoE), the National Treasury and the Development Bank of Southern Africa (DBSA) collaborated to set up the Independent Power Producers (IPP) ofﬁce and designed the enewable Energy Independent Power Producers rocurement rogramme I . At the heart of the programme was the provision that Eskom, South Africa’s

public power utility, enter into Power Purchase Agreements (PPAs), ensuring that investors could forecast accurately their proﬁts and bankability. Investors payment risk would be mitigated by government guarantee.

The new bid round of the Renewable Energy IPP programme will be launched in November 2018 and is estimated to be 1800MW. As a result of this structuring, the implementation of I has been successful. The programme has been lauded throughout the world as a unique model for delivering on a triple bottom line of economic, developmental and environmental beneﬁts for the country.

There were four rounds of bidding between August 2011 and April 2015 during which the DoE received 305 bids for 17.5 gigawatts (GW) of renewable energy.The department selected 92 IPPs to produce 6.328 GW of renewable energy. A DoE report titled The State of Renewable Energy in South Africa shows that the country’s most favourable renewable energy resource endowments are located in the most remote and poor areas where investment and employment are desperately needed. Most projects are located in the rural areas of the Northern, Eastern and Western Cape. These areas attracted investment commitments of -billion of the country s total. The report estimates that projects in the three areas will create an estimated 93 600 employment opportunities of a national total of estimated job opportunities. The report also

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ENERGY

states these IPPs will also generate socioeconomic development (SED) contributions to local communities of R88.9-billion. There has been no shortage of interest from investors in participating in the REIPPPP. This can be seen from the oversubscribed, transparent and well-run process carried out by the I ofﬁce. outh frica s competitive tender process was designed to facilitate private sector investment into gridconnected renewable energy generation. s a result of this programme, outh frica has achieved more investment from IPPs in four years than in the rest of sub- aharan frica over the past two decades. In his study, The South African Renewable Energy IPP Procurement Programme: Review, Jeff Lessons Learned & Radebe Proposals to Reduce Transaction Costs, T rofessor nton Eberhard writes that since 2011, prices have fallen sharply and the projects of selected bidders (or “preferred bidders”) are now amongst the lowest priced grid-connected renewable energy projects in the world, with the average cost of supply being far below skom s cost of its new coal power stations. It is against this backdrop that in June Minister of Energy Jeff Radebe, announced a new R56-billion round of renewable energy projects to be implemented by the private sector. Radebe told a conference in Midrand that the new I s will be part of the country s energy strategy to move to cleaner electricity generation. The new bid round of the Renewable Energy IPP programme will be launched in November 2018 and is estimated to be 1800MW, he said. He added that his department secured R56-billion of investment into 27 new projects. “These 27 projects are making a signiﬁcant contribution to government s commitments to meaningful black

FAST FACT REIPPPP attracted private sector commitments of R193-billion, including R53.2-billion in foreign investment in only four years after the ﬁrst re uest for proposals (RFP) went to the market. (Source: energy.gov.za)

ownership participation and economic transformation,” he said.

WHAT’S THE REAL THE COSTS? However, there has been some criticism of the current REIPPPP most of which is centred around the lack of black participation and the full cost of transitioning from fossil fuels to renewables. Black Energy rofessionals ssociation , an that is highly critical of the current REIPPPP, was created to establish a uniﬁed voice to represent black interests; provide perspectives on transformation and empowerment; and develop skilled black professionals that can meaningfully participate in the energy sector. hairperson eta hlarhi says that REIPPPP continues to exclude black professionals from full participation in the energy sector, and that the ssociation is unhappy that inister adebe and the I ofﬁce decided to open the new bid window in November because most of the issues raised by black actors in this industry have not yet been resolved. “There are some structural barriers that must be dealt with. ne of the key structural inequalities that still exists is access to capital and access

to land. Because of these barriers, we ﬁnd no black people or group that have led any development in the last ten years. nd this is where the money is, in EPC [Engineering, Procurement, Construction]. We want to participate in the entire value chain. The current REIPPPP fosters an environment where black people can only participate as empowerment partners,” she says. Mhlarhi also mentions unfair competition and the volatile and depreciating exchange rate which has negatively affected local companies in this space. “We are expected to compete with internationally-backed IPPs such as iotherm, catec olar, lobeleq and Building Energy. Enel, the Italian utility, has been particularly prominent with equity holdings in 11 awarded projects since BW 3 [bid window 3]. How am I, as a black outh frican woman, expected to compete with an international Eskom equivalent,” says Mhlarhi. Eberhard makes an interesting observation around the emergence of preferred local-foreign equity partnerships. Some of these partnerships include Pele partnering with Enel on four of the seven projects in which it has an equity holding veng repeatedly partnering with cciona nergy, a Spanish company, under the entity

Meta Mhlarhi

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ENERGY

Blue Falcon Trading; and Intikon Energy partnering with SolarReserve, a US developer. Mhlarhi says these internationallybacked companies have limited their ability to compete. She adds that what makes this worse is the I ofﬁce s stringent RFP [request for proposal] and lender requirements that end up “forcing” local developers to on-sell projects or partner with the multinationals, Irvin losing a lot of Jim money in the process. Herein, Mhlarhi adds, lies the disconnect between announcements made by the energy minister and what is happening on the ground. “The current packaging of REIPPPP removes the entrepreneurial spirit and makes it impossible for young people to participate,” she says. Mhlarhi makes a few recommendations that government should consider so as to remove these structural barriers: “Our recommendations include having an exclusive black bid round, and that the Industrial Development Corporation of South Africa (IDC), DBSA and the Public Investment Corporation (PIC) come up with a fund, backed by National Treasury, for black industrialists and black business in the energy space. Government can also, through the department of rural development and land reform, tender out government-owned land where these projects can be developed.”

NO ENGAGEMENT Other criticism of REIPPPP comes from the unions. National Union of Metalworkers of South Africa (Numsa) General Secretary Irvin Jim says Numsa has been calling for a just transition from fossil fuels to renewable energy. umsa has come under ﬁre for supposedly being opposed to renewable energy and defending fossil fuels. Earlier this year, environmental activist organisation Greenpeace condemned

Eskom purchases a unit of electricity Numsa for a court interdict preventing from the I s at a cost of . cents and 27 contracts with renewable energy sells it for 85 cents, when it can produce it IPPs from being signed. At the time, at around 42 cents, said Koko. reenpeace said umsa s intention was If consumers were to buy directly from to sabotage renewable energy in favour IPPs today, the price they would pay of coal. would not be a blended price of 85 cents, However, Jim says that Numsa is not but the expensive R2.22 cents today and against the move from coal to renewable R2.26 cents in 2023, compared to Eskom energies, but what they want is customers who pay between 42 cents and for this sector to represent the demographics of South 85 cents per unit for electricity. Economic risk consultant and former Africa and be “a sociallyMD at Econometrix Rob Jeffrey has owned renewable been very vocal about his criticism of energy sector”. IPPs saying that the IPP agreements One of the main should not have been signed given South problems with the frica s surplus supply of electricity and REIPPPP, says Jim, the current low economic growth rate. is that there wasn t He added that the IPPs would not create enough engagement with thousands of jobs as per government affected stakeholders. “Key projections, but the jobs would be stakeholders were excluded from created only during the construction this process and they want workers to phase. “Large-scale high penetration use believe them when they tell them it is of renewables would lead to a significant for their benefit. They did not consult the unions that would be affected by the decline in the mining sector generally and the coal sector in particular. The coal closure of power stations. sector could shrink by 46 per cent given “They also did not consult the coal the direct, indirect and induced impact and transporters who represent some of reduce the Gross Domestic Product (GDP) the business people whose existence of South Africa by over 2.5 per cent. is based on the work they provide to “This will result in a loss of at least Eskom. And they did not consult the 29 000 jobs in the coal mining industry, community of Mpumalanga about the and almost 162 000 jobs in the closure of power stations and economy. This will detrimentally about the benefits of I s affect more than 600 000 as well as to detail the dependants,”he said. plans the state has in The move would also place to respond to cut the country s balance the closure of power of payment. “Coal is the stations and its country s largest export impact on the local Masthela earning commodity, earning economy,” Koko approximately R55-billion Jim says. per annum. This would decline Eskom is also significantly as the sector becomes less resistant to REIPPPP. In efficient and outh frica becomes a less April, Eskom begrudgingly favoured mining destination,” said Jeffery. signed the much-delayed 20-year Ultimately, Jeffrey is insinuating that the guaranteed PPAs with the 27 IPPs. country did not need additional power from Former acting Eskom group chief the IPPs and calls the decision to introduce executive Masthela Koko asked if the I “economically and financially cost of Eskom signing the PPAs for the I s could be ustified and added that costly” and “damaging”. “It is the weary consumer, the poor and the impact on the average electricity the economy that will be the major losers,” price due to purchases from IPPs was said Jeffrey. not fully appreciated.

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TECHNOLOGY

WILL AI BE THE END OF YOUR JOB? Although technology, machines and automation processes have taken over routine mechanical and dangerous work throughout history, governments must develope policies that manage such transitions. By Duma Gqubule

n 1930, the great economist John Maynard Keynes, in 1930 pondered the challenges facing the world and looked forward to advances in technology over the next century in an essay called: “Economic Possibilities for our Grandchildren”. He said: “Technical improvements in manufacture and transport have been proceeding at a greater rate in the last 10 years than ever before in history. We may be on the eve of efﬁciencies of food production as great as those that have already taken place in mining, manufacture and transport. In quite a few years, in our own lifetimes I mean, we may be able to perform all operations of agriculture, mining and manufacture with a quarter of the human

effort to which we have been accustomed. e are being af icted with a new disease of which some readers may not have heard the name, but which they will hear in a great deal in years to come, technical unemployment. This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can ﬁnd new uses for labour.” Keynes also speculated about a future in 2030 when people only had to work for 15 hours per week. Almost a century later, Financial Times columnist Martin Wolf says the techno-optimists believe that humanity stands on the verge of breakthroughs in information technology, robotics and artiﬁcial intelligence I that will dwarf

what has been achieved in the past two centuries. According to the World Economic orum “The ﬁrst industrial revolution used water and steam power to mechanise production. The second used electric power to create mass production. The third used electronics and information technology to automate production. Now a fourth industrial revolution is building on the third, the digital revolution that has been occurring since the middle of the last century. It is characterised by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres”. In South Africa, Professor Tshilidzi Marwala, the vice-chancellor of the

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Professor Tshilidzi Marwala

“This era of the fourth industrial revolution will be a post-work era because the need for humans in the workforce will be curtailed. It will change the face of labour. AI robots will populate factories and cannot belong to a trade union. Our participation in this revolution will not be optional.” — Professor Tshilidzi Marwala

University of Johannesburg, is the country’s leading expert on AI, and says it will reduce the world of work. “AI is a computer technique that allows us to bring certain aspects of human intelligence into machines. According to the WEF, 70 per cent of the jobs that exist today will not exist in 30 years. Any task that typically does not involve more than one minute of thinking to complete, will be automated. This era of the fourth industrial revolution will be a post-work era because the need for humans in the workforce will be curtailed. It will change the face of labour. AI robots will populate factories and cannot belong to a trade union. Our participation in this revolution will not be optional. Either we participate or, as a country, we will be economically obliterated to the dustbin of history. The social consequence of the fourth industrial revolution will be extensive. Those with ﬁnancial capital will simply buy these AI robots and produce goods and services to maximise proﬁt. So the concept of the poor getting poorer and the rich getting richer will be exacerbated.” However, many economists believe that the techno-optimists are wrong.

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First, as a new report by the Roosevelt Institute Don’t Fear the Robots: Why Automation Does not Mean the end of Work and the quotes by Keynes above show, this debate has played itself throughout history – multiple times. Ever since 19th-century textile workers destroyed the mechanical looms that threatened their livelihoods, debates over automation have conjured gloomand-doom scenarios about the future of work, according to an article by Christopher Pissarides and Jacques Bughin on the Project Syndicate website. There have been many waves of technical change over the past two centuries, for example, the shift from agriculture to manufacturing and industry to services. “But throughout that process, productivity gains have been reinvested to create new innovations, jobs and industries, driving economic growth as older, less productive jobs are replaced with more advanced occupations. The internal combustion engine wiped out horsedrawn carriages, but gave rise to many new industries, from car dealerships to motels. In the 1980s, computers killed typewriters, but created a host of new occupations, from call-centre service agents to software developers,” they say. Second, the net is not as important as we think. According to the Roosevelt Institute, technical change re ects the ability to get more output from the same inputs. To measure such change, economists rely on labour productivity, which is a measure of the amount of goods and services that the average worker produces in an hour. Referring to the US, which has been at the frontier of global technology innovation, the report says: “Today, the economy has been in the midst of a prolonged period of slow labour productivity growth – or, in other words, lacklustre technological change – since 2005, with average labour productivity growth clocking in at a meagre 1.2 per cent per year on average from 2005 to 2017. Further, over the past two years, productivity growth has fallen even further, averaging under one per cent. The economy is in the midst

of a remarkable collapse of productivity growth. We are not in the midst of a labour-displacing technological boom, nor are we on the verge of rapid technological change in the near future.” The report finds that capital investment in information technology is significantly lower than would be expected under impending technological upheaval. Also, close analysis of the labour market statistics, provides no evidence of robots replacing humans. Levels of occupational churn are at historic lows. Even if the US was on the verge of a major technological change, mass unemployment would not be inevitable. The lump-of-labour fallacy is the view that there is a fixed amount of work to be done in the economy. Therefore, robots or immigrants can displace existing workers. However, the idea that an increase in the amount each worker can produce actually reduces the total number of jobs is a fallacy.

HOW READY IS SA? In its Readiness for the Future of Production Report 2018, the WEF notes that South Africa has a lot of potential, but it still ranks 49 out of 100 countries surveyed and joins Argentina and Brazil as “the G20 countries displaying the lowest levels of readiness” for the fourth industrial revolution. Although the report praised SA’s production and ﬁnancial structures, it showed concern over a shortage of human capital and digital skills, as well as lacking a stable policy environment. sanitation, food production, distribution and processing, entertainment and entire patterns of habitation. Although technology, machines and automation processes have taken over routine mechanical and dangerous work throughout history, governments must develop policies that manage such

“The economy is in the midst of a remarkable collapse of productivity growth. We are not in the midst of a labour-displacing technological boom, nor are we on the verge of rapid technological change in the near future.” — Roosevelt Institute On the basis of the productivity data, Wolf says the age of rapid productivity growth in the world’s frontier economy is ﬁrmly in the past, with only a brief upward blip (between 1996 and 2004) when the internet, email and e-commerce made their initial impact. The technologies introduced in the late 19th century did more than cause three generations of relatively high productivity growth. They also brought with them unparalleled social and economic changes, including urbanisation, huge jumps in life expectancy, the collapse in child mortality, which liberated women from the burden, trauma and danger of repeated frequent pregnancies, the jump in high school graduation rates and the entry of women into the labour force. These changes were vastly broader, affecting energy, transportation,

transitions. The Roosevelt Institute says macroeconomic policies must target full employment. A high-pressure labour market is vital to re-establish the link between productivity gains and rising real incomes due to technical change. There must be changes in intellectual property laws which are the primary reason technological advances exacerbate inequality. Other proposals include free higher education and vocational training and work-sharing. In South Africa, these sensible proposals must be complemented by extending social security to the working age population. Free education, comprehensive social security and policies to retrain affected workers must establish a oor below which no South African will fall during periods of dislocation in the labour market due to technological advances.

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The challenges of managing skills planning and development in South African municipalities The Minister of Cooperative Governance and Traditional Affairs, Zweli Mkhizi, announced on 20 March 2018 that only 7% of the country’s municipalities were classified as well-functioning; 31% were reasonably functional, 31% almost dysfunctional, and the remaining 31% dysfunctional. To counter this, the minister announced a renewed focus on investment in skills development that should be welcomed. However, evidence from the field indicates that investing more resources into skills development will not solve the problem. Skills development is frankly poorly managed in municipalities. In response to a key strategic objective, building good municipal governance and institutional development, the Local Government Sector Education and Training Authority (LGSETA), which is responsible for facilitating skills development in the local government sector, initiated a national capacity-building programme in partnership with the University of Stellenbosch. The capacity-building course, titled Human Resource Development (HRD) for good municipal governance was developed with the aim of improving the management of skills planning and development in South African municipalities. More than 300 skills development facilitators (SDFs) and practitioners were trained across the nine provinces during February and March of this year. The course was conceptualised and designed as one of the recommendations outlined in a research report, which the LGSETA had commissioned the University of Stellenbosch to undertake, to investigate the challenges faced by skills development facilitators in South African municipalities. The research findings point to a crisis on how skills development is managed in municipalities. This cannot be blamed on the SDFs as they were found to be functionally competent. Rather the daily challenges faced by SDFs are concentrated on six levels.

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The responses indicated that municipalities do not acknowledge the ethical values that support skills development as a key element of skills development policies and strategies. Essentially, municipalities are not actively supporting skills development and there is consensus among the municipal actors that skills development is not a priority. As such, municipalities do not practise these skills development values and do not act with integrity on skills development.

strong absence of coherent and agreed procedures for skills development practice.

Skills development plans for departments are absent which leads to the skills development interventions not being effectively monitored in the respective departments by the respective accountable line managers. Although there is consensus amongst the municipal actors that skills development facilitation is the shared responsibility of the HR department, line managers and employees.

There is poor awareness and a lack of understanding of the municipal skills development policies by the employees. In general, there is a weak link between skills development, the Integrated Development Plan (IDP), employment equity and performance management. Furthermore, the policies do not sufﬁciently address the assessment process of employees nor formal and informal skills development options. Where municipalities do have a policy in place, the perception exists that the policy does not beneﬁt all employees of the municipality. There is a strong perception of a “learning elite”.

Municipalities are poorly practising skills development. The skills audit of employees that should form the basis of skills development interventions and the needs analysis are often poorly conducted. Where skills audits are conducted, skills development interventions are frequently not undertaken in line with these audits. There is a general lack in opportunities for employees to practise new competencies, post skills development interventions. In many municipalities, there is also a

The research concluded that the consultative committees that are legislatively required to be constituted are not functioning optimally and are not sufﬁciently giving input into all matters on skills development. The committee members are not actively involved in the promotion of skills development and employees are not receiving regular feedback on matters pertaining to their skills development questions and concerns. Similarly, line managers, employees and the trade unions are not sufﬁciently involved in the drafting of the workplace skills plan (WSP).

The skills development support received from other municipal stakeholders such as senior management, the local trade unions, the LGSETA and SALGA was considered. Of the three stakeholders, the greatest support is shown to have come from the LGSETA. The competence of the skills development facilitator (SDF) was also considered and the research ﬁndings concluded that the majority of SDFs are qualiﬁed and experienced.

2018/06/29 2:15 PM

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hilst the research ﬁndings paint a blea picture the challenges for s ills development facilitation in municipalities are immense. Simply put s ills development is not effectively managed in municipalities. The S ills Development ct celebrates years this year calls on organisations to appoint a s ills development facilitator whose functions among others are to assist and advise the employer and employee on the completion and implementation of the S and serve as a resource person to the municipality on all aspects of s ills development. The SDFs are not assisting nor advising the employer management but rather have assumed the role of completing the wor place s ills plan and the annual implementation report on behalf of the employer managers and have allowed management to abdicate their s ills development responsibilities. SDFs have neglected their strategic facilitative role in exchange for a transactional administrative role. SDFs all over the country complained

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that they are not ta en seriously by managers in municipalities who regard them as junior ran ed ofﬁcers. This can be turned around if municipalities change and commit to embracing the integrated management framewor for D loete that offers a collaborative approach based on a behavioural structural and process change strategy for the management of s ills development. These learned competencies and outcomes should be deﬁned and if effectively implemented will lead to renewed competence to deliver cost effective s ills development programmes that are lin ed to performance management that results in a change in the overall management culture of s ills development in South frican municipalities. The S T plays a ey role in supporting the initiative for an integrated management approach to D which is aimed at ensuring that all employees are capacitated to perform their jobs optimally.

The wor place needs to become an active site of learning and development where the limitless potential of all employees is encouraged and supported. owever management and employees as well will have to realise that they have an active role to play in s ills development. unicipal employees have s ills development rights and aspirations that will only be fully realised when municipalities learn to manage s ills development collaboratively as opposed to the outdated compliance driven centralised approach that is simply not wor ing. The evidence is overwhelming and conclusive.

For more information about the LGSETA, initiatives and research projects contact: Tel: 011 456 8579 or visit the website www.lgseta.org.za

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2018/09/28 11:15 AM