http://www.bdlive.co.za/opinion/bdalpha/2013/10/08/sa-must-tread-carefully-as-africa-opens-for-business
by Tito Mboweni
THE World Economic Forum rankings suggest South Africa faces serious labour market and human resources challenges, in contrast to the country’s strong standing in areas such as finance. There are enough examples of adversarial labour relations, lack of negotiation in good faith, unrealistic wage demands and poor communication between management and workers that weigh on the collective bargaining process in South Africa. Tension between competing labour unions has been a significant feature recently, particularly since the tragic events at Marikana in August 2012.
Alongside these structural dimensions, the short-term employment picture over the past five years is one in which numerous private-sector jobs were initially lost in the quarters after the collapse of Lehman Brothers, but with a slow recovery in private-sector employment thereafter. To date, employment in the private sector has not yet been restored to 2008 levels. By contrast, employment in the public sector continued trending higher throughout the crisis, helping to stabilise matters in the labour market. However, a disproportionate reliance on the public sector to create jobs would in the long run result in problems with fiscal sustainability.
Part of the legacy of apartheid was unequal education opportunities and outcomes. Rectifying this is easier said than done, and almost 20 years after the attainment of democracy it is still work in progress.
On the positive side, since 1994, all children of school-going age have to attend school — and they do. About 8-million out of the country’s 12-million learners also receive a nutritious meal at school every day, based on need.
However, education standards and outcomes at public schools differ significantly, and outcomes are generally unsatisfactory in about 80% of schools. Failure rates are high, and those learners who pass often experience difficulty keeping up at university. Furthermore, few learners achieve a first-class matric pass, limiting the feedstock for key courses at tertiary level.
Improving education standards and outcomes is a priority in South Africa’s National Development Plan, which has been adopted by the government to provide direction until 2030.
Strike activity is usually not widespread, and the violence and loss of life observed at Marikana in 2012 are exceptional. Where strikes occur, they normally centre on wages. However, the recent history of labour relations in South Africa has not been a proud one. Poor communication, lack of respect and good faith, destructive behaviour and an unwillingness to compromise have been observed far too often.
Both single-year and multi-year wage agreements are negotiated in South Africa. While extremely high wage demands are frequently set by unions at the start of wage negotiations, eventual settlements tend to be much lower and reasonably aligned with developments in inflation and productivity.
A formal structure exists, the National Economic Development and Labour Council (Nedlac), where organised labour, business, the community and the government try to find common ground on economic policy. However, this vehicle has not been very effective in resolving all issues. At Nedlac’s September 2013 summit, the labour minister emphasised the need for a greater effort from all the social partners to negotiate in good faith and co-operate in the national interest.
In identifying opportunities it may be useful to first review relevant trends in South Africa’s balance of payments and its international investment position. Many analysts are most interested in the balance on the current account, noting that it has widened considerably since early 2012.
South Africa is in the midst of an infrastructure drive, which in part involves the acquisition and installation of imported machinery and equipment. At the same time, household consumption expenditure has continued rising in real terms, albeit at slower rates than before. Again, this type of expenditure has a significant import component. While these forces contribute to strong imports, a third factor has also been at work, namely a decline in the international prices of key export commodities such as gold and platinum. To this may be added the recent depreciation of the rand, which in combination with these factors has resulted in a widening deficit that reached 6.5% of gross domestic product in the second quarter of 2013.
Reviewing the financial investment balances between South Africa and Ireland, it is interesting that South Africa’s foreign liabilities to Ireland are smaller than its investments in Ireland: more money has been invested in Ireland by South Africans than the other way round. The strongest flow of investment from South Africa to Ireland was recorded in the late 1990s, when there was an easing of exchange controls.
South Africa’s foreign investment in Ireland is concentrated in portfolio investment, whereas more than half of Irish investment in South Africa is in the form of direct investment capital.
In 2012, South Africa’s imports from Ireland exceeded its exports to Ireland sixfold. South Africa imports especially machinery and electrical equipment from that country, and exports especially manufactured goods to Ireland.
It should be noted that at present, international investor entry into South African assets is at a relatively favourable exchange rate, following the significant depreciation of the rand over the past year. This may support the attractiveness of South African fixed property, shares and bonds from a foreign investor vantage point.
Share prices on the JSE scaled new heights in 2013, although in dollar terms the overall FTSE/JSE all share index has moved broadly sideways since 2011. South African nominal bond yields are attractive, especially since picking up from May 2013.
In general, Africa has displayed a high degree of resilience amid the global economic turbulence of the past few years. In 2012, sub-Saharan Africa registered a growth rate of about 5%, and despite the fragile global economy, rates of roughly 5% and 6% are expected for 2013 and 2014, respectively. This is highly commendable given the subdued growth projections for many parts of the world.
African economies remain less diversified; changing this state of affairs is a challenge for the government and business. The continent’s large markets — a billion people, with divergent incomes, tastes and needs — coupled with high returns in many sectors provide impressive investment opportunities. For example, industrialisation in many economies depends heavily on increasing the electricity supply. This provides huge opportunities, particularly in the area of green energy, in instances where solutions can be found at reasonable cost to avoid making industry uncompetitive.
Yet it would not be appropriate to pretend that business in Africa is all moonlight and roses. Streetwise investors know that red tape and political interference inhibit business in many countries; that labour and political unrest can be a factor in some parts of Africa; that it is not easy to get to know the lay of the land; that in various countries some areas of business are already well served and even overtraded; and that key skills are scarce and going into business may involve extensive investment in training. Accordingly, partnering with a business that is already active on the continent is often a worthwhile strategy.
Africa, with its billion inhabitants and recently improved economic growth outcomes, presents significant business opportunities. The development of human resources is central to success. To this end both the education system and the processes of training and skills transfer that are undertaken inhouse by companies have key roles to play — and require significant enhancement for Africa’s true potential to be realised.
Africa is open to both real-sector and financial investment; South Africa presents itself as a conduit or a final destination for such investment.
by Tito Mboweni
THE World Economic Forum rankings suggest South Africa faces serious labour market and human resources challenges, in contrast to the country’s strong standing in areas such as finance. There are enough examples of adversarial labour relations, lack of negotiation in good faith, unrealistic wage demands and poor communication between management and workers that weigh on the collective bargaining process in South Africa. Tension between competing labour unions has been a significant feature recently, particularly since the tragic events at Marikana in August 2012.
Alongside these structural dimensions, the short-term employment picture over the past five years is one in which numerous private-sector jobs were initially lost in the quarters after the collapse of Lehman Brothers, but with a slow recovery in private-sector employment thereafter. To date, employment in the private sector has not yet been restored to 2008 levels. By contrast, employment in the public sector continued trending higher throughout the crisis, helping to stabilise matters in the labour market. However, a disproportionate reliance on the public sector to create jobs would in the long run result in problems with fiscal sustainability.
Part of the legacy of apartheid was unequal education opportunities and outcomes. Rectifying this is easier said than done, and almost 20 years after the attainment of democracy it is still work in progress.
On the positive side, since 1994, all children of school-going age have to attend school — and they do. About 8-million out of the country’s 12-million learners also receive a nutritious meal at school every day, based on need.
However, education standards and outcomes at public schools differ significantly, and outcomes are generally unsatisfactory in about 80% of schools. Failure rates are high, and those learners who pass often experience difficulty keeping up at university. Furthermore, few learners achieve a first-class matric pass, limiting the feedstock for key courses at tertiary level.
Improving education standards and outcomes is a priority in South Africa’s National Development Plan, which has been adopted by the government to provide direction until 2030.
Strike activity is usually not widespread, and the violence and loss of life observed at Marikana in 2012 are exceptional. Where strikes occur, they normally centre on wages. However, the recent history of labour relations in South Africa has not been a proud one. Poor communication, lack of respect and good faith, destructive behaviour and an unwillingness to compromise have been observed far too often.
Both single-year and multi-year wage agreements are negotiated in South Africa. While extremely high wage demands are frequently set by unions at the start of wage negotiations, eventual settlements tend to be much lower and reasonably aligned with developments in inflation and productivity.
A formal structure exists, the National Economic Development and Labour Council (Nedlac), where organised labour, business, the community and the government try to find common ground on economic policy. However, this vehicle has not been very effective in resolving all issues. At Nedlac’s September 2013 summit, the labour minister emphasised the need for a greater effort from all the social partners to negotiate in good faith and co-operate in the national interest.
In identifying opportunities it may be useful to first review relevant trends in South Africa’s balance of payments and its international investment position. Many analysts are most interested in the balance on the current account, noting that it has widened considerably since early 2012.
South Africa is in the midst of an infrastructure drive, which in part involves the acquisition and installation of imported machinery and equipment. At the same time, household consumption expenditure has continued rising in real terms, albeit at slower rates than before. Again, this type of expenditure has a significant import component. While these forces contribute to strong imports, a third factor has also been at work, namely a decline in the international prices of key export commodities such as gold and platinum. To this may be added the recent depreciation of the rand, which in combination with these factors has resulted in a widening deficit that reached 6.5% of gross domestic product in the second quarter of 2013.
Reviewing the financial investment balances between South Africa and Ireland, it is interesting that South Africa’s foreign liabilities to Ireland are smaller than its investments in Ireland: more money has been invested in Ireland by South Africans than the other way round. The strongest flow of investment from South Africa to Ireland was recorded in the late 1990s, when there was an easing of exchange controls.
South Africa’s foreign investment in Ireland is concentrated in portfolio investment, whereas more than half of Irish investment in South Africa is in the form of direct investment capital.
In 2012, South Africa’s imports from Ireland exceeded its exports to Ireland sixfold. South Africa imports especially machinery and electrical equipment from that country, and exports especially manufactured goods to Ireland.
It should be noted that at present, international investor entry into South African assets is at a relatively favourable exchange rate, following the significant depreciation of the rand over the past year. This may support the attractiveness of South African fixed property, shares and bonds from a foreign investor vantage point.
Share prices on the JSE scaled new heights in 2013, although in dollar terms the overall FTSE/JSE all share index has moved broadly sideways since 2011. South African nominal bond yields are attractive, especially since picking up from May 2013.
In general, Africa has displayed a high degree of resilience amid the global economic turbulence of the past few years. In 2012, sub-Saharan Africa registered a growth rate of about 5%, and despite the fragile global economy, rates of roughly 5% and 6% are expected for 2013 and 2014, respectively. This is highly commendable given the subdued growth projections for many parts of the world.
African economies remain less diversified; changing this state of affairs is a challenge for the government and business. The continent’s large markets — a billion people, with divergent incomes, tastes and needs — coupled with high returns in many sectors provide impressive investment opportunities. For example, industrialisation in many economies depends heavily on increasing the electricity supply. This provides huge opportunities, particularly in the area of green energy, in instances where solutions can be found at reasonable cost to avoid making industry uncompetitive.
Yet it would not be appropriate to pretend that business in Africa is all moonlight and roses. Streetwise investors know that red tape and political interference inhibit business in many countries; that labour and political unrest can be a factor in some parts of Africa; that it is not easy to get to know the lay of the land; that in various countries some areas of business are already well served and even overtraded; and that key skills are scarce and going into business may involve extensive investment in training. Accordingly, partnering with a business that is already active on the continent is often a worthwhile strategy.
Africa, with its billion inhabitants and recently improved economic growth outcomes, presents significant business opportunities. The development of human resources is central to success. To this end both the education system and the processes of training and skills transfer that are undertaken inhouse by companies have key roles to play — and require significant enhancement for Africa’s true potential to be realised.
Africa is open to both real-sector and financial investment; South Africa presents itself as a conduit or a final destination for such investment.
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