Zuma on a big business charm offensive

2011-02-12 14:09

The plan to secure jobs for ­millions of people may depend on how quickly ­relations between the government and businesses heal.

President Jacob Zuma said in his state of the nation address on Thursday that government met with business, labour and civil society organisations on Tuesday to work on a pact.

On that same day, Cynthia ­Carroll, the chief executive of Anglo American, warned that the dire ­effects of corruption had impoverished most of the continent and that it would be a tragedy if South Africans followed the same path.

Carroll’s comments came months after Kumba Iron Ore, a listed subsidiary of Anglo American, filed papers over what it believed was the ­illegal award of a prospecting licence of a portion of Kumba’s mining property to the politically connected ­Imperial Crown Trading (ICT).

ICT was subsequently allowed to apply for a mining permit by the ­Department of Mineral Resources.

Last month, construction firm Murray & Roberts warned that it ­expected loss in the second half of last year because of the arduous progress over resolving claims and ­final ­accounts in SA and the Middle East.

“I feel the resolution of these ­matters with our clients has been made more complex than necessary, ­especially as the cause of the ­increased scope in each case is no fault of Murray & Roberts nor its partners,” chief executive Brian Bruce said at the time.

Investors are also concerned about the capacity of the state to play a more developmental role in the economy, labour legislation reforms and talk of nationalisation.

“We are not at a point where we are scaring investors away, but we are making them cautious,” said Neren Rau, chief executive of the Chamber of Commerce and Industry.

He said there must be consistency in applying laws: “The Murray & Roberts issue is disturbing. The president made a commitment to pay suppliers in 30 days. Although he was referring specifically to small, micro and medium enterprises (SMMEs), I don’t think ­companies must be treated differently because of their size.”

Zuma received a positive reaction to his proposal that government set aside R20 billion in tax incentives.

“I believe that projects incentivised by the tax breaks will create jobs. Whatever government gives away in tax breaks it will get it back in other taxes such as VAT, excise tax and payroll tax,” said Duane Newman, a tax ­director at accounting firm Deloitte.

This is not the first time government has implemented massive tax breaks to deal with joblessness. In 2005, it scrapped the strategic investment programme, which gave tax ­deductions to capital investments worth more than R50 million, after it failed to create jobs. The state ­sacrificed R10 billion in forgone tax revenue through this incentive, and only created 7 000 direct jobs.

Nedbank economist Dennis Dykes said the R39 billion economic package would have a positive impact on the economy, but government needed to go a step further and promote a predictable and favourable environment.

“There are contradictions in government policy because it panders to different constituencies. It makes concessions to labour and in some cases its policies are business friendly,” Dykes said.

The package is made up of R20 billion in tax incentives, R10 billion the Industrial Development Corporation (IDC) plans to invest over five years in economic activities with high job-creation potential, and R9 billion will go to the jobs fund.

Zuma’s speech touched on small businesses, a sector that has the potential to create the most jobs. He announced plans to merge Khula, the South African Micro ­Finance Apex Fund and the IDC’s small business funding division.

Entrepreneur Khethiwe Kubheka said the proposed merger could improve service delivery to SMMEs. She said: “There is currently duplication in the SMME funding space and most of their budgets are spent on running the organisations instead of supporting small businesses.”

However, she expressed concerns that it could take time for the new ­organisation to run efficiently.

The chief executive of small business lender Royal Fields Finance, ­Mncedisi Xego, said such a merger could result in government losing ­focus on SMME funding.

“The three organisations have different mandates and merging them might create a situation where we end up with less focused developmental finance institutions,” he said.

He said it might be years before the idea comes to life as the state needed to do a feasibility study, consult ­stakeholders and conduct legislation amendments.

Mount Zion Tours and Travels chief executive Willy Zikalala said he ­approached Khula offices three years ago for funding to expand his ­business, but he was refused funding as he did not have collateral.

“I don’t think the merging of the three organisations will benefit SMMEs as they are using the same lending rules that are being used by the banks,” he said.

“In public, they will tell you that it is easier to get funding from them, but when you approach them, you will get disappointed,” said Zikalala.

– Additional reporting by David McKay

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