While government should contribute to economic growth, the private sector, business, and industry are the components that will generate real growth in the wake of the impact of Covid-19 on the economy, writes Francis Petersen.
It is a well-known fact that the South African economy was in deep trouble before the Covid-19 pandemic, with unsustainable levels of debt, a growing budget deficit, and an 8% projected contraction of the economy post the pandemic.
There is a clear realisation that the economy needs a recovery plan, with the significant expansion of productive employment opportunities for South Africans. In fact, the Social Partners’ Economic Recovery Plan, coordinated by Nedlac, was developed to increase investor, consumer, and public confidence, and to turn the economy around in the short and medium term.
The plan provides specific interventions, and although the actions as specified are not new, it argues for "significant convergence among the Nedlac partners on what needs to be done to set our economy on a new accelerated, inclusive, and transformative growth trajectory". President Cyril Ramaphosa will present the plan to Parliament this week.
The private sector, industry, and business are key components of the economy, primarily driven by manufacturing, financial services, transport, mining, agriculture, and tourism.
Although I believe that government can and should contribute to economic growth, the private sector, business, and industry are the components that will generate real growth in the economy.
Business for South Africa (B4SA) has pledged their commitment to work with the social partners to implement these action steps – and it needs to be emphasised that these interventions are not new!
However, the dilemma lies in the implementation of these actions in terms of inaction, urgency, and effectiveness. Whether it is to address the energy crisis (more specifically, the security of energy supply), local manufacturing, supporting the recovery and growth of tourism, investment in the mining, agriculture, and infrastructure sectors, adversarial relationships, egos and political rhetoric needs to be replaced by collaboration, co-creation, and action.
Lack of action threatens livelihoods
It is clear that the political, business, and societal spheres do not need more workshops, conversations, policies or plans – these are all available and known.
We need to build a capable state (which includes the architecture of the SOEs), introduce appropriate labour reform, corruption across all spheres of government, business, and social partners is unacceptable and need to be decisively addressed, policy and regulatory certainty and proper fiscal reform are required. Why is it then so difficult to implement these if all stakeholders are in agreement, even if everyone is aware that lives and livelihoods are threatened every minute when these actions are not implemented?
Is it the lack of political will or lack of political leadership?
Although B4SA also places emphasis on the implementation of these actions, I find the individual voices of industry, private sector, and business leaders absent.
In my engagement with some of these leaders, they have stated that although their responsibilities are to their boards and shareholders, two sets of principles drive their business agenda: doing more with less (effectiveness and efficiency), and doing good while doing business (community upliftment through social performance), underpinned by a green focus. Although international leaders in the mining industry, such as Mark Cutifani (Anglo American), Mark Bristow (Barrick), Mick Davis (ex-Xstrata), and many other business and industry leaders argue for foreign investment in South Africa, certainty in the country’s regulatory framework is required for this to materialise.
A strong economy is also important for graduates
It is obvious why the South African economy needs to recover, and that the existence of a strong private sector, industry, and business is critical in achieving this recovery.
From a higher education perspective, a powerful and effective educational experience is developed when academia and a strong private sector and industry work side by side.
Such a collaborative and co-created model results in breakthroughs and overall advancement of higher education institutions, business, and industry, and importantly – the students. The continuous contraction of the South African economy further lends itself to the unemployment crisis, where the weak economic performance is not sufficient to create jobs in line with the population growth, which in itself presents a massive challenge for university graduates.
A strong focus on employability as part of the core business of a university, and the ability to equip graduates with the necessary skills to navigate the future world of work will remain crucial factors – not only now, but also in the coming years, and a relationship with a strong industry, private sector, and business is pivotal in driving this.
The financial model used in a South African (residential) university consists of three main income sources:
(i) the state or government through a subsidy (the so-called ‘block grant’),
(ii) tuition fees, and
(iii) third-stream income (which is mainly a cost-recovery component from contract research, donations, and interest on university investments)
The National Student Financial Aid Scheme (NSFAS) contributes to the tuition fees through a Department of Higher Education, Science and Innovation Bursary Scheme, providing fully subsidised free higher education and training to poor and working class South Africans (recipients will typically be students from households with a combined income of less than R350k per annum).
Negative impact of Covid-19
The negative impact of Covid-19 on the income drivers of the university can be severe.
The subsidy from the state or government has already been cut, with potential further cuts in both the subsidy and specific earmarked funds. The pressure on income derived from tuition fees (that component which is not funded through NSFAS) will increase, as households would have been affected by the nationwide lockdown and the economy in deep recession, and a significant number of jobs would have been lost.
The economic downturn, due to both Covid-19 and a sovereign downgrade by all rating agencies, has already negatively impacted local financial markets as well as the global economy. The multiplier effect of this would be that the value of investments and endowments would decrease, and philanthropic organisations and foundations would most probably reduce or even terminate ‘givings’ to universities.
Although industry, private sector, and business will reassess their funding to universities, whether for research or bursary support, it is also an opportunity for such a strong sector to at least assist universities to "fill this financial gap" in the short and medium term.
Although, it is not expected that business and industry will just "fill this financial gap" – institutions of higher learning need to argue and demonstrate a value proposition to these sectors. Covid-19 has clearly demonstrated the focus of collaboration and co-creation among different stakeholders – these should be explored more concretely.
Should vice-chancellors (a representative of this group) not be part of BUSA or Business Leadership SA as a first step to bring higher education institutions and the different leaders of the economy closer? Although Covid-19 has negatively impacted the financial position of the industry and business sectors, my assessment is that these sectors would recover faster than anticipated, but the effective and urgent implementation of a ‘state economic recovery plan’ is essential – every day that this implementation is stalled, it is affecting the country and its people severely.
Public-private partnerships key to economic growth
Government and the industry and business sector need to work together to foster economic growth – now more than ever.
The plans to achieve this are available – the implementation thereof, however, is lacking. A strong industry and business sector have major benefits for the country, among others, for the higher education sector.
Let us not delay this further, political leadership needs to be decisive and the industry and business sector must continue to speak out – this sector is too important to be neglected.
- Professor Francis Petersen is Rector and Vice-Chancellor of the University of the Free State and former executive of Anglo American Platinum