Business Unity South Africa: briefing

Meeting report

LABOUR PORTFOLIO COMMITTEE
2 August 2005
BUSINESS UNITY SOUTH AFRICA: BRIEFING

Chairperson:Ms O Kasienyane (ANC)

Documents handed out:
Business Unity South Africa PowerPoint Presentation

SUMMARY
The Business Unity South Africa (BUSA) delegation began by providing background information on BUSA, which represented organised business. They then explained some of BUSA’s main objectives, which included furthering the transformation of the economy and promoting small businesses (SMEs). They provided an overview of the economy, which included highlighting the benefits of trade liberalisation and the government’s prudent macro-economic policy. However, there were areas of concern such as the high unemployment rate and the cost of doing business. The country was also experiencing a shortage of skills and BUSA offered suggestions on how this could be addressed.

BUSA also outlined some aspects of the labour market regulations that it believed needed to be adjusted. The existing legislation was sufficient but labour legislation for certain categories of workers should be relaxed in order to create employment opportunities. The Business sector of the National Economic Development and Labour Council (NEDLAC) briefly discussed some of NEDLACs initiatives, such as the Growth and Development Summit (GDS). It was highlighted that the stakeholders were undertaking a review of NEDLAC’s role and structure.

In the ensuing discussion, Members enquired about factors constraining business; whether there was a synthesis of viewpoints among BUSA members; whether BUSA had engaged the government on issues relating to labour market regulation; whether business had met the GDS goals; how the economy’s growth rate could be increased; how unemployment could be addressed, why South African Airways (SAA) was not considered an essential service; how BUSA was supporting SMEs; whether BUSA had an opinion on the prevalence of foreign owned SMEs; and whether BUSA had particular opinions on the National Credit Bill.

MINUTES

Business Unity South Africa briefing
Mr V Van Vuuren (BUSA Chief Operating Officer) provided an overview of BUSA, which was an umbrella organisation that represented business. As such, BUSA was comprised of various member organisations, which included CHAMSA, professional organisations, sectoral organisations and corporate organisations. BUSA’s main objectives included promoting black economic empowerment (BEE); employment equity (EE); the unification of member organisations; poverty alleviation; job creation and the growth of SMEs. In September 2005 BUSA would be hosting a conference to promote SMEs. Mr Van Vuuren added that gender equity was a priority for BUSA.

Mr R Baxter (Deputy Chair: BUSA Economics Committee) discussed aspects of the broader South African economy. He stated that the post-apartheid government’s prudent macro-economic policies had resulted in the consolidation of government finances; greater fiscal stability; a lower budget deficit, lower foreign debt levels, the improvement of South Africa’s credit rating, declining inflation; an increase in fixed investment, and an increase in social expenditure. He added that South Africa had benefited from the government’s trade liberalisation policy, which had allowed it to gain greater access to the World Trade Organisation (WTO), to international markets, and to advanced technology. Added to this, from 1994 to 2004 the economy grew at an average of 2.4% per annum.

Mr Baxter stated that from 1995 to 2002, 1.6 million jobs had been created. However, the economically active population had grown by 4 million, which meant that an additional 2.4 million people had become unemployed. Due to the unemployment problem there were vast inequalities between the different sectors of the population. In order to address these issues, higher levels of economic growth and transformation were required. This would require greater competitiveness, building investor confidence, increasing investment levels and maintaining appropriate economic policies. South Africa also needed to achieve strong export-led manufacturing growth.

Mr Baxter discussed issues surrounding foreign investment. When compared with competitor countries the labour, capital and logistics costs in South Africa were too high. Added to this, it was expensive to register a business in South Africa and the company tax rates were still too steep. He noted, however, that various constraints to investment in South Africa had been identified and were being addressed. These included addressing the availability of relevant skills; infrastructural constraints; business compliance costs; crime and other social issues.

Mr V Mabena (Chairperson: BUSA Sub-Committee on Education and Training) outlined the skills development aspirations of BUSA. A shortage of skills was adversely affecting economic growth, transformation, and empowerment. Even though there was a strong skills regulatory framework, a more effective implementation plan was required. Presently, various problems were being encountered, which included problems with the Sector Education Training Authorities (SETAs), funding issues around the South African Qualifications Authority (SAQA), and the failure of SMEs to gain access to skills development initiatives. The quantity, relevance and quality of skills training also needed to be improved.

Mr Mabena outlined a number of pillars that could be used to improve skills development. These included implementing an integrated human resource development strategy; effectively measuring the impact of such a strategy; developing a common vision embraced by all stakeholders; and deploying a committed leadership. In order to successfully implement this, there needed to be close cooperation between the Departments of Education and Labour. Mr Mabena suggested that a platform of business, labour and government leaders should be created in order to advise the President on the skills development challenges and solutions.

Mr K Moyane (Vice-Chairperson: BUSA Social Policy and Transformation Committee) discussed BUSA’s view of labour market regulations. In 2002, the definition of an ‘employee’ had been amended in the Labour Relations Act and Basic Conditions of Employment Act. Added to this, government had presented a report to NEDLAC on the issue of atypical employment, which included casualisation. BUSA felt that atypical forms of employment were a market reality and that they did not lead to exploitation. As atypical forms of employment were not the dominant form of employment, BUSA felt that there was no need to legislate for it. Mr Moyane added that current legislation was sufficient and further legislation could lead to a bloated regulatory framework. BUSA believed that legislation that aided small businesses and promoted foreign direct investment should be implemented. Mr Moyane stated that better enforcement was needed in conjunction with a balanced regulatory framework.

Mr Van Vuuren added that BUSA respected the current labour laws. However, if one wanted economic growth and job creation, certain aspects of the labour legislation needed to be tweaked. Specifically, there was perhaps a need to relax labour legislation for the youth in order to create work opportunities for them.

Prof R Parsons (NEDLAC: Overall Business Convenor) provided feedback on NEDLAC. He noted that NEDLAC was part of the institutional design of democracy. NEDLAC was tasked with promoting social dialogue and trust between the social partners. As a result of its work, NEDLAC had contributed to South Africa’s economic stability. NEDLAC’s most recent achievement was the 2003 Growth and Development Summit (GDS), which provided a framework for solving some of the outstanding macro and micro issues in the economy. Nonetheless, NEDLAC had faced certain problems, which included capacity issues. Some of the stakeholders were also questioning how NEDLAC could remain relevant and effective in the future. Indeed, an independent assessment of NEDLAC would be taking place in order to formulate ways to improve NEDLAC. Nonetheless, business viewed NEDLAC as a vital institution, which simply needed to be improved in order to function more effectively.

Discussion
The Chairperson asked what factors were constraining business operations in South Africa. Mr Baxter replied that a skills level deficit was adversely impacting on SMEs. Added to this, on average SMEs spent 8% of their budgets on ‘red tape’ issues, such as tax returns and labour market returns. There were also infrastructural constraints, such as the under capacity of railways and ports. Telecommunication costs were a constraining factor. Indirect taxes added to the burdens that businesses faced, which included municipal taxes on electricity.

Ms S Mshudulu (ANC) commented that business should share its views of NEDLAC with the other social partners in order to garnish their opinions. This could perhaps be akin to the process whereby each of the social partners produced policy documents during NEDLAC’s initial years.

Mr Van Vuuren responded that BUSA had already prepared a position paper that would be tabled during NEDLAC’s review process.

Mr Mshudulu noted that various groups within BUSA were students of different economic schools. As a result, he asked whether BUSA had experienced any difficulties in attempting to synthesise these different viewpoints. Added to this, some of the managers of the member companies had been trained overseas in countries that had different economic environments to South Africa. He enquired whether this was problematic.

Mr Van Vuuren responded that BUSA committees were used by BUSA members to formulate common positions. However, if a consensus could not be reached then the differing positions of the members would be presented to the Parliamentary Portfolio Committees.

Mr Mshudulu enquired whether BUSA had engaged with government around its views on labour market regulation.

Mr Van Vuuren replied that BUSA did engage with government around labour market regulation. This included meeting with the President and Ministers from the economic cluster.

Mr Mshudulu noted that BUSA had highlighted that the productivity of labour had risen in South Africa, but that labour costs were still too expensive. Mr Mshudulu asked whether BUSA could elaborate on this point as it seemed inconsistent.

Mr Baxter replied that South Africa’s productivity had declined during the 1980s when compared with competitor countries. Since then, productivity had improved but it still did not match the productivity of South Africa’s competitors. BUSA was, therefore, considering how productivity could be improved through skills development and better management practices.

Mr Mshudulu asked whether BUSA had a programme to enable its members to understand the regulatory environment and the economic challenges that South African faced. Certain managers in the business sector were not qualified and this comprised the operations of some businesses.

Mr Mabena replied that during the apartheid era some unqualified people were placed in managerial positions but this situation was changing. Nonetheless, some companies would appoint people to challenging positions in order for them to grow into those positions. In such cases it was vital to offer the person the necessary support systems.

Mr Mshudulu asked how BUSA felt about the popular viewpoint that government was failing to create employment. Mr Mshudulu also enquired whether business was fulfilling its GDS commitments. This was important as it seemed that many people were losing confidence in the capacity of business to create employment.

Mr Baxter responded that excellent macro-economic policies had been implemented, which had enabled the economy to grow. BUSA was now exploring the micro-economic constraints that were blocking employment creation. Nonetheless, the economy had created jobs. The perception that South Africa was experiencing jobless growth was incorrect although job creation had not kept pace with the growth of the economically active population. In order to alter this situation the economy needed to grow at 6% per annum and changes at the micro-level needed to take place.

Mr Parsons added that shortly after the signing of the GDS agreements, NEDLAC reported back to the Committee. Since then, NEDLAC had not visited the Committee. He suggested that NEDLAC should be invited to brief the Committee on the progress that had been made towards attaining the aims of the GDS.

The Chairperson and Mr M Mzondeki (ANC) agreed that NEDLAC should be invited to brief the Committee on the progress that had been made in implementing the GDS agreements.

Prince N Zulu (IFP) enquired why South Africa had not yet achieved the goal of an annual growth rate of 6%.

Mr Baxter replied that a sound macro-economic framework had been implemented. This had created the correct environment for economic growth. However, the rate of fixed investment needed to be increased and taxes needed to be decreased in order for the goal of a 6% growth rate to be achieved. Skills levels, access to capital and infrastructure also needed to be improved. Such a confluence of correct policies would lead to greater growth.

Mr Mshudulu noted that during BUSA’s presentation it was highlighted that there had been a 2027% increase in the employment of people that had tertiary qualifications; while at the same time the employment of unqualified people had fallen by 79%. He asked for clarification regarding these figures.

Mr Baxter answered that the figures related to the period between 1970 and 1995. He noted that in the 1970s there was a large market for unskilled labour. Since then the global economy had changed and the demand for skilled workers had risen. Added to this, over the 25-year period many unskilled workers had moved into semi-skilled and even skilled positions.

Mr Mshudulu asked how BUSA was ensuring that SMEs took part in the September 2005 conference. Would the conference promote SMEs? Mr O Mogale (ANC) asked how much a SME needed to pay in order to register for the conference.

Mr Van Vuuren answered that BUSA felt that it was vital to include SMEs in the conference. SMEs would be invited to the conference through member organisations such as National African Federated Chambers of Commerce (NAFCOC). Adverts would also be placed in newspapers in order to reach SME traders. The conference was also being subsidised by big business, which meant that SMEs only had to pay R350 for registration. The figure of R350 also covered the participants’ meals.

Mr S Rasmeni (ANC) enquired whether micro-enterprises would be invited to the conference.

Mr Van Vuuren answered that micro-enterprises would be involved in the conference.

Prince Zulu questioned why South African Airways (SAA) was not considered an essential service. If it had been considered an essential service the recent strike would have been avoided.

Mr Van Vuuren answered that SAA was not considered an essential service for various reasons. After examining international practices it was decided that SAA should not be defined as an essential service. Added to this, SAA competed in an open market. If SAA had been defined as an essential service it would have placed its competitors at a disadvantage. This was because workers at SAA would not have had the right to strike, while the workers at competitor airlines would have the right to strike. Mr Van Vuuren added that it was disappointing that the SAA strike took place as there were sufficient mechanisms that could have been used to avoid the strike. Management needed to review the manner in which they handled the situation.

Mr C Lowe (DA) commented that 8 million people were unemployed in South Africa. Jobs were being created in certain sectors, but in other sectors there had been massive job losses. Even many of the people that had been through the SETAs were not being employed. He asked how government, Parliament and business could address this situation. Mr Lowe added that the labour regulations needed to be adjusted in order to allow certain sections of the population to gain access to employment. Such adjustments would not be about attacking workers’ rights; rather they would be about offering opportunities to the unemployed. Added to this, the present labour regulations and ‘red tape’ were problematic for many SMEs.

The Chairperson commented that she was concerned that many of the SMEs in South Africa were foreign owned. Was this due to South Africans lacking training and resources?

Mr Moyane stated that South Africans should benefit from any business that was operating in the country. It was not ideal that many SMEs were foreign owned. South Africans needed to receive entrepreneurial training in order to become the main beneficiaries of the SME sector. However, BUSA was not opposed to foreign owned businesses that contributed to the economy through wealth and job creation.

The Chairperson was concerned that many of the foreign owned SMEs seemed to be operating illegally and were not paying taxes. This was problematic and caused animosity towards foreigners.

Mr Van Vuuren noted that the law needed to be implemented in order to deal with this situation. Indeed, the dumping of trade goods by foreign companies in South Africa needed to be properly policed as it was causing major job losses. The Department of Labour inspectorate needed to be involved in dealing with this. BUSA was willing to cooperate with government in order to address dumping and any other illegal activity undertaken by foreign owned companies. Mr Van Vuuren added that the Broad-based BEE codes would be applied to foreign companies investing in South Africa and this would benefit South Africans.

Mr S Rasmeni (ANC) enquired how BUSA would cooperate with government to address dumping and the illegal activities of foreign owned companies in South Africa.

Mr Van Vuuren responded that BUSA was already involved in such initiatives as Business Against Crime. BUSA had already offered to set up committees to monitor the prices of imports in order to address dumping. Added to this, BUSA had offered its services to train the Department of Labour inspectors to police any illegal business activity; however, the Department had not taken up the offer.

Mr Mzondeki commented that many of the issues surrounding skills development had been addressed when the National Skills Development Strategy (NSDS) was reviewed. He added that the concerns that BUSA raised about SAQA and the NQF needed to be brought to the attention of the Department of Labour. Clarification was also needed regarding whether business, or government, or labour were the best institutions to undertake an accurate skills needs assessment.

Mr Mabena answered that when the NSDS was drafted it was unclear how the stakeholders had conducted their research. This had led to mistrust between the stakeholders. There needed to be transparency and all the stakeholders needed to participate in the research process.

Ms L Moss (ANC) enquired why the fishing and tourist industries were not BUSA members.

Mr Van Vuuren responded that only employer organisations could join BUSA and not individual companies. The tourism and fishing industry did not have representative employer organisations, which meant that they were not represented in BUSA. However, discussions were underway in order to create representative employer organisations in the tourism and fishing industries.

Ms Moss stated that many SMEs paid the Skills Development Levy but did not gain any benefit from the skills development initiatives. This situation needed to be addressed.

Mr Mabena replied that it was concerning that many of the SETAs only assisted companies that paid the Skills Development Levy. Currently, there were approximately 200 000 companies that paid the levy. With the new regulations this number would decrease to 73 000. This would mean that an additional 120 000 companies would not have access to skills development programmes. This was highly problematic and needed to be addressed. Mr Van Vuuren noted that the government had not disbursed the R4 billion that was available for skills development. This meant that many of the small companies that were skills development providers were no longer operating. This situation had been brought to the attention of the Department of Labour. Added to this, SMEs tended to view the Skills Development Levy as a tax because they did not have the internal mechanisms to access skills development programmes.

Mr Mogale noted that 2 to 3 million people had been blacklisted by credit bureaus in South Africa. He enquired whether this had an adverse affect on society. The Chairperson then asked whether BUSA had an opinion on the National Credit Bill.

Ms T Cohen (Member of the BUSA Social Policy and Transformation Committee) replied that a balance was needed in the National Credit Bill between the rights of individuals and the growth that arises due to credit. There also needed to be educational programmes regarding the dangers of excessive credit. Mr Van Vuuren added that BUSA felt that the process of removing individuals from credit blacklists needed to be done carefully. One did not want a situation whereby institutions stopped providing credit because it was too risky. Credit needed to be available to a wider population, but if people abused credit they needed to be punished. Nonetheless, BUSA welcomed the National Credit Bill.

The Chairperson and Mr Mzondeki noted that they were pleased with BUSA’s drive for gender equity.

The meeting was adjourned.