Sifiso Ntombela | SA needs wealth creation policies, too

Sifiso Ntombela (supplied)
Sifiso Ntombela (supplied)
  • In February 2020, around 70% of the budget was allocated for social and security-related activities, while just 11.6% of it was ringfenced for economic development and technology innovations.
  • SA shows low entrepreneurial activity, with reasons cited being limited finance, low investment in research and development, and a lack of state-supported entrepreneurship programmes. 
  • There is evidence that some of the largest innovations in the global markets were driven and funded by governments, says the author.

The employment data released by Statistics South Africa on the 23 June showed that the number of jobless people grew by 2.5 million between 2010 and 2020, to reach an unemployment rate of 30.1%.

The most concerning part is that the youth are hardest hit during this period, as they struggle to be absorbed in the economy. The absorption rate for the age bracket of 15-24 years is 11% and for the 25-34 years group, it is 46%.

The Global Entrepreneurship Monitor identifies South Africa’s low entrepreneurial spirit as a root cause of youth unemployment. It uses a Total Early-Stage Entrepreneurial Activity measure to illustrate that only 10.7% of the working age population was involved in entrepreneurial activities in 2019, which is lower than the regional and world averages.

Factors contributing to this include limited entrepreneurial finance, low investment in research and development (R&D), and lack of state-supported entrepreneurship programmes. These factors have resulted in a culture and social norms where youth do not actively participate in entrepreneurial activities.

Access to affordable finance

In South Africa, large businesses have been tasked with the responsibility to create employment for young and old people.

On the other hand, government has relinquished its duties to inspire entrepreneurial spirits, the function which is strongly argued by Mariana Mazzucato in her book The Entrepreneurial State. In this book, she provides evidence that some of the largest innovations in the global markets were driven and funded by the state.

Similarly, South African government can make initial investments in producing a new cohort of entrepreneurs from graduates that are unemployed in the country. For this to materialise, the government should reprioritise its budget to focus on economic sectors. The zero-budget approach announced by Minister Mboweni in his supplementary speech on 24 June offers a chance to reprioritise sectors that will generate jobs and revenue for the country.

Currently, government spending is strongly biased towards social sectors to protect vulnerable groups, which on its own is not a bad idea, but equal focus on economic sectors is important for social and economic stability.

In February 2020, the consolidated government budget was reported at R1.95 trillion, and approximately 70% of it was allocated for social and security-related activities. Only 11.6% of the budget was ringfenced for economic development and technology innovations.

Even the supplementary budget focused on the social part, strengthening government muscle on fighting Covid-19 and protecting vulnerable groups. The economic support measures announced in the supplementary budget speech included the business loan guarantee and recapitalisation of the Land Bank, among others. However, these economic measures largely benefit existing businesses and will not inspire entrepreneurial spirit and innovations.

Long term impact of overlooking economic support

The continues borrowing to finance social related activities at the back of a dwindling economy is reducing the space for the country to carryout key economic activities such as infrastructure and R&D. Minister Mboweni said that "out of every Rand that we pay in tax, 21 cents go to paying the interest on our past debts". This implies an urge to reinvigorate our economic activities through entrepreneurship and R&D in order to generate more revenue for servicing the rising debt obligations.

According to the Department of Science and Innovation, South Africa’s gross expenditure on research is equivalent to 0.8% of the GDP, where 42% of this expenditure is by private sector players. The low budget allocation to economic and R&D activities are suffocating the entrepreneurial spirit, subsequently perpetuating unemployment and inequality in the long term.

Focus on wealth creating ideas and programmes

Economic sectors such as mining and manufacturing have ceased to grow in the past five years. At the same time, agriculture and construction have downsized at an averaging rate of 1.3% and 0.4% per year, respectively. To reverse these trends, government working with private sector must reprioritise its budget and efforts to balance between social and economic spending.

As Mariana Mazzucato, one of the most forward-thinking economists of our times, argued, the reason progressive minds lose their economic debates is that, they focus too much on wealth redistribution and not on wealth creation policies and programmes.

To a large extent this has been the case in South Africa where focus has been much on wealth and resource distribution and less so on wealth creation. To drive entrepreneurship and grow the economy post-Covid-19, resources and policy must focus on increasing public investments in R&D, enabling infrastructure and affordable entrepreneurial financing.

Dr Sifiso Ntombela is chief economist at the National Agricultural Marketing Council (NAMC). Follow him on Twitter: @Ntombela_SMViews expressed are his own.  

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