Students in enterprise freedom, University of KwaZulu-Natal 2010 Cocktail Business Seminar address by KwaZulu-Natal MEC for Finance I Cronje, Graduate School of Business Westville Campus
20 May 2010
Maximising the current opportunities for a better sustainable economic operation
a. Ideal versus reality versus myth
How do you imagine an ideal country? In my ideal country all people live in peace and harmony. My grand child wants his ideal country to be one giant game reserve filled mainly with leopards and cheetahs, as long as he can play a bit of soccer on the side!
We all dream of a country where there are no hungry people or lazy people or criminals; where all people have well-paying jobs; where everybody is productive, healthy, polite and honest. Our utopia has a well-developed infrastructure (even in the most remote areas), as well as immaculate health and education systems. In our wonderland nature is unspoilt and everyone enjoys a clean environment. And there is no bad weather!
But the moon is not a balloon, and we live in a less than perfect world as we are reminded daily by the media headlines: Man falls victim of phoney police; South African woman’s wedding ends with plane crash, etcetera.
Is our reality really what occupies half of the news space? Accidents? Crime? – from simple larceny to wholesale fraud and corruption and brutal violent murder and rape? Unemployment? Poor service delivery?
Is that truly all that there is?
Is there any hope left? For ourselves, our young students and our children?
I am sure we are all tired of afro-pessimism.
So, it is about time to debunk some myths about South Africa and especially about its economy, for example.
* Myth No 1: South Africa has a small economy
* Fact: South African economy has been ranked 27th out of 230 countries (World Bank).
* Myth No 2: People are afraid to come to South Africa
* Fact: Foreign arrivals grew annually by 5,3% from six million in 1999 to 10 million in 2009 (StatsSA)
* Myth No 3: Investors find SA too risky
* Fact: Out of 185 nations it is ranked 55th in terms of “country risk”
We would not have met in this atmosphere of optimism tonight had the South African government not made key economic reforms by implementing macro-economic policies, aimed at promoting domestic competitiveness, growth and employment. South Africa is now rated sixth out of 133 countries for “soundness of banks” (up from 15th position last year).
b. Looking back
Economically our country enjoyed an unprecedented 62 quarters of uninterrupted economic growth from the first quarter of 1993 to the second quarter of 2008.
KwaZulu-Natal’s economic performance matched the national performance in general. This long period of growth, as well as prudent fiscal management and lower direct taxes resulted in government revenue hitting an all time high of R697,8 billion in 2008/09.
It is relatively simple for government and business to make decisions during times of stability. However, as the global recession has proven, the future has become much more uncertain and complex. This requires a new way of thinking.
Professor Philip Spies of the Institute of Futures Researches points out that "We cannot describe the future we see but we can see the future we describe. When we have described it we need to deliver it
All of us together, one by one!"
Fifty-five years ago at the Congress of the People in Kliptown, there was an attempt to describe the future. The people gathered there could see a united, democratic, non-racial, non-sexist and prosperous South Africa. This vision found expression in the Freedom Charter which was adopted there. And now that the future has been described thus, we need to deliver it, all of us together, one by one!
We have built schools, clinics, hospitals and roads at places never imagined before. In KwaZulu-Natal we have increased our infrastructure spending from R9,7 billion in 2008/09 to an estimated R12 billion in 2012/13. Access to education has improved dramatically (the number of matrics, who wrote their school leavers’ examination in KwaZulu-Natal, increased by approximately by 500 000 per annum since 2004 and the university population more than doubled. We have just completed a world class stadium and international airport. I can go on and on.
d. The 2010 FIFA Soccer World Cup
1. Economic impact
We are 21 days away from presenting the 2010 FIFA Soccer World Cup.
Gillian Saunders of the 2010 FIFA Soccer World Cup global audit and advisory firm Grant Thornton expects the gross economic impact of the event to reach R94 billion (62% generated pre-2010 and 38% during the course of the year). Foreign tourism will account for 16% of the gross impact.
The majority of economic spend comes from the government's spend on infrastructure and some operational expenditure. The net additional economic impact in 2010 is 0,54 percent of gross domestic product (GDP) (comprised of an estimated 0,48 percent from net additional foreign tourism and 0,6 percent FIFA spending).
This is significant as it implies that 0,5 percent of the estimated two to 2,5% GDP growth in 2010 is accounted for by a single event.
2. Opportunities and legacy
This mega-event presents a crucial marketing opportunity. An expected 26 million cumulative TV viewers, 18 850 media representatives, and 350 000 to 480 000 visitors provides an enormous opportunity for exposure to profile and reposition South Africa globally. Let us not forget the various news broadcasts, documentaries, and social networking which contain content regarding South Africa and/or the World Cup before, during and after the event.
At the International Colloquium on Mega-Event Sustainability in Sandton on 24 February 2010 speakers advised host destinations to shift away from a narrow and short-term marketing vision to a more long term vision to maximise the benefits of the event.
Planning is crucial: Creating expertise and building capacity; providing technological accessibility; sourcing sponsorship; ensuring safety and security; assisting the media in portraying the intended image – these are all aspects that need to be planned in advance.
“Evaluation, before, during and after the event is critical to tracking developments towards a legacy that can sustain the associated benefits of Mega-events,” Jago, Dwyer, Lipman, Van Lill and Vorster said in their paper on Tourism, Sport and Mega-Events Sustainability: Contributing to the Roadmap for Recovery.
The report on the International Colloquium on Mega-Event Sustainability also mentions small-scale sport tourism events as a legacy left by the mega event. By using the established infrastructure, skills and image of the legacy left by the World Cup the momentum can be kept. To this end the KwaZulu-Natal Department of Economic Development and Tourism has started a process of bidding for critical events and strategic global convention post 2010 using the World Cup as leverage.
Mega events can also be used s as a platform to promote environmental responsibility. Cultural, heritage and eco tourism can enhance the event offering and provide opportunities to create ‘the right’ images for the world.
The KwaZulu-Natal government has invested significantly in the World Cup festivities to ensure that the province receives its fair share of global attention. To this end we have embarked on an extensive campaign to showcase our province as a “winning province” and the premier sports, business and tourist destination. And it will indeed be the warmest place to be!
We also launched the first provincial 2010 website to target critical stakeholders, such as tour operators. In addition we engaged information dissemination through booklets and publications. To prepare our frontline people a tourist buddies programme has been introduced.
International exposure is crucial, not only for branding but also to create long term opportunities to grow existing tourism sectors as well as attract new markets. The world as we know it will not come to an end after the World Cup, we therefore have to take a long term view of the benefits of such a mega event.
Saunders said that in managing tourism beyond 2010, the South African National Department of Tourism is currently revising its National Tourism Strategy that aims to inspire and accelerate the responsible growth of tourism. Some of the strategy highlights includes a new set of strategic thrusts such as the development of new markets and specific attention to growing business tourism and events.
Our brand-new R6,7 billion Greenfield King Shaka International Airport will certainly be an economic driver for the next 30 years. Not only will it promote resort development and tourism, but the Dube Trade Port offers enormous possibilities for the innovative, particularly in the perishables sector and other low-weight, high-value manufacturing enterprises. What a fantastic opportunity to boost economic growth and development!
This strategic development underlines a recent statement by the World Bank vice-president for poverty reduction and economic management Otaviano Canuto.
He said that developing countries could improve their chances of emerging from the financial crisis in a stronger and more competitive position by investing in better trade logistics.
e. New world order
The world is experiencing a historic shift of economic and political power from the traditional base of industrialised countries in Europe and North America to the emerging economies. The World Business Council for Sustainable Development predicts that emerging economies will be home to 85% of the world’s estimated nine billion inhabitants in 2050, most of which will live in cities.
f. Challenges beyond 2010
The issue of poverty and leaving real benefits to marginalised people is a key concern when leaving after mega events, especially in South Africa and KwaZulu-Natal where approximately 3,5 million people live in extreme poverty and food insecurity.
In South Africa the unemployment rate jumped to a five-year high in the first quarter probably as a result of seasonal factors, such as the end of the World Cup preparations. The official unemployment rate climbed to 25,2% from 24,3% in the final quarter of last year, despite the economic recovery, Statistics SA said.
Altogether 171 000 jobs were shed in the first quarter, mainly in the economy’s main sectors: finance, construction, trade and manufacturing. Unemployment increased by 145 000 to 4,3 million, leaving one in four of SA’s workforce of 12,8 million without a job. When discouraged job seekers, those who have given up looking for work, are included, South Africa’s jobless rate rose to 35,4% from 34,2% in last year’s fourth quarter taking the number of unemployed people to 6,1 million, or one third of the workforce.
Unemployment among our young people is alarmingly high. Statistics South Africa reports that 48,3% of young people between 15 and 24; and 28,5% of young people between 25 and 34 are unemployed. Job creation is a key priority. We have to exceed our output growth of 4,3% per annum that we experienced between 2001 and 2006. Only if South Africa grew at the rate of 6% per year and kept labour-productivity constant would we be able to half our unemployment rate by 2014. To create jobs at a large scale we have to deliver at least one million jobs per year and to achieve that we need a growth rate of six percent for a couple of years. This in turn will increase investment confidence and as a result business will employ more people.
Perhaps it is time to open the debate about private interest versus national interest. Can a strike before the World Cup be justified? What about the damage to our economy and image? Lost production? Lost opportunities? How do we define national interest? Can South Africa really afford to pay employees an increase almost twice the inflation rate? Can South Africa afford top managers to be “rewarded” with exorbitant bonuses and salaries?
g. Towards a poverty free KwaZulu-Natal
The welfare of its people must be a priority to any government. A recent study done by researchers at the Reserve Bank shows that the South African government has indeed reduced inequality to 0,59, as measured by the Gini-coefficient if visible and invisible income, such as free houses, free education, free healthcare, water, electricity, sanitation and grants are taken into account. The narrow definition of the Gini-coefficient, which only takes into account visible income, puts our inequality ratio at 0,72.
In KwaZulu-Natal the War on Poverty kicked off last year and we embarked on a focused intervention. In his State of the Province Address the Premier stated that “government will target the most vulnerable communities first and encourage those who are less vulnerable to get moving themselves.”
And so our Flagship programme -the “one Home one Garden” campaign was launched. Besides being provided with the means to produce food, it is imperative that households are also treated for disease and that their social needs are met.
For example, the Department of Health works with households to reverse the rate of infection of the twin epidemics of TB and HIV; Home affairs provides birth certificates and identity documents (ID); the Department of Education ensures that children are at school, and so on.
To address the pockets of severe poverty in our province we have identified three sub-programmes within the flagship programme:
h. Growing our economy
1. Regional Economic Integration
One policy for growing the economy is the economic integration of regions or cities, i.e., to create integrated economies. This refers to the trade and labour unification between different regions by facilitating the movement of goods and services as well as labour between regions.
It is very difficult to dispute the merits of regional economic integration and there is significant evidence and literature that economic integration can be a very successful and powerful policy to grow and expand the member economies.
Goods and services and labour already move between the four major regions in the province. This is evident in the significant concentration of economic activity and output in the four major economic nodes, i.e., Ethekwini, Msunduzi, Hibiscus Coast and Umhlathuze. Therefore there has already been some form of economic integration occurring between the four regional economies and especially between Durban and Pietermaritzburg.
Observing the vehicle movements at the N3 toll plaza outside Durban confirms the flow of goods and services and labour between Pietermaritzburg and Durban.
There are linkages between the different regions and there must be some benefit to economic integration for it to have occurred. Some of the associated benefits of economic integration include the following:
* Lower prices for distributors and consumers because of the increase in trade.
* The balances of money spend from cheaper goods and services can be used to buy more products and services.
* Wider selection of goods and services not previously available.
* Market expansion, more investment into the region and greater diffusion of technology, creates more employment opportunities for people to move from one region to another to find jobs or to earn higher incomes.
* Economies of scale create productivity gains and thus greater national and global competiveness.
3 Kindling the spirit of entrepreneurship
While the South African government has invested in ways and means to attract trade and investment from across our borders, we strongly encourage the spirit of entrepreneurship. Government funding is available to sustainable enterprises but we need mentors and established businesses to nurture our emerging entrepreneurs. We are extremely grateful to organisations, such as SIFE, who improve the quality of life and standard of living by teaching the principles and values of free market economics and entrepreneurship.
We are extremely grateful to organisations, such as SIFE, who improve the quality of life and standard of living by teaching the principles and values of free market economics and entrepreneurship. I am impressed with the innovative projects that you have taken on with the assistance of business to create new income opportunities. You have honestly earned your position as national champion for the past two consecutive years and as semi-finalist in the international competition. By sacrificing your time and expertise to help the community, you have played an invaluable role in creating a better world.
We also acknowledge the important role that the Old Mutual Foundation has played. Inclusive business equals a win-win for business and society. By including low-income communities in their value chains, companies can meet their aims of growth and profitability, while addressing societal needs.
4. The role of the private sector
According to the 2010 action plan of the World Business Council for
Sustainable Development the transition towards sustainable development in developing countries will require mobilizing private sector investments which account for 85% of global financial flows. Business cannot solve poverty, but poverty will not be solved without business.
Major technological and infrastructural investments to sustainably meet the needs of a growing population in developing countries are needed. This represents a major business opportunity for companies that anticipate trends and respond with smart solutions.
In Germany an entrepreneur saw an opportunity in potholes. He repaired the potholes and “sold” the repaired holes to companies to display their logos! Another innovative student in Oxford, England, who had had enough of zigzagging with his bicycle between the pot holes, filled the holes with roses.
When opportunity knocks, please answer the door!
Working together we can achieve more
I appeal to all businesses and NGOs to join SIFE and the KwaZulu-Natal
government to tackle the exciting road towards a poverty-free and prosperous province and country.
Issued by: KwaZulu-Natal Provincial Treasury
20 May 2010
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