Business Government Collaboration to Stimulate Economic Growth

September 12, 2016
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While ratings agencies are evaluating South Africa’s investment status, numerous initiatives are underway to boost investor confidence, catalyse employment in key sectors and drive reform. Irrespective of the rating agencies’ decision, current GDP growth rates are insufficient and require stimulus and sustained action. Earlier in 2016, business, government, and labour realised the need to collaborate in order to drive forward economic development and stave off a ratings downgrade. Four key work streams have emerged, namely; avoiding a sovereign ratings downgrade, driving key investment projects in targeted industries, youth employment, as well as funding and supporting of SMEs.

Avoiding an Investment Ratings Downgrade

Ratings agencies have warned that if there is no improvement in the economic fundamentals of South Africa, a further downgrade of our investment rating would be inevitable. Sighting extremely low economic growth, the bailout of state-owned enterprises, large government budget deficits and policy uncertainty as the issues.

We discussed this at our recent Thought Leaders breakfast with Mike Brown, CEO of Nedbank, who provided insights into South Africa’s current economic challenges, the view from rating agencies and probability of a downgrade. Research shows that when a country is downgraded, the reaction by policymakers is the key factor dictating how quickly the country will return to investment grade. Mike was followed by Monale Ratsoma, Deputy Director-General of Treasury, who highlighted the work underway at Treasury to ensure we do not suffer a downgrade, and demonstrated a firm commitment from Treasury toward fiscal discipline.

Stimulating Specific Industry Sector Growth

At our recent CEO Engagement, focused on industry specific plans to stimulate growth with Standard Bank CEO Sim Tshabalala, it was emphasised that the structural reforms required for the country’s growth and prosperity are arguably far more important than the sovereign credit ratings pronouncement expected in December.

Our discussion around this work stream, which includes SOEs, also focused on sectors of the economy that have the greatest potential for accelerating growth and creating jobs. These targeted sectors included: Education, Pharma, Healthcare, Manufacturing, Mining, Agriculture, and Tourism.

Youth Employment

With approximately 67% of the SA population below 35 years of age, the challenge of addressing high youth unemployment is critical to our future prosperity. This is a relatively new work stream that has emerged recently and we will be tracking this closely over coming months.

Stimulating SME growth

This work stream is headed by Adrian Gore and is intended to stimulate entrepreneurial activity and support for SMEs. This represents the area in which Accelerate Cape Town could potentially have the greatest impact. Specifically, we’re exploring Enterprise Development as a key focus area as this is a key consideration for many corporate members as they seek to retain/improve BEE status in light of the recent B-BBEE Amended Codes of Good Practice.

A key challenge is the risk associated with procurement from emerging black enterprises if the supplier fails to deliver. Access to funding and mentorship remain constraints for SMEs with regard to scaling up, even though corporates are keen to procure from emerging SMEs. An initiative in this regard would include elements of our Mentorship Program where we would seek to mitigate the risks associated with procurement from emerging SMEs by pairing the SME supplier with experienced mentors from our corporate members.

Section 12(j) of the Income Tax Act was introduced in 2008 to stimulate much-needed equity funding for small businesses. It allows for investors to recoup contributions to a VCC fund through tax rebates. Accelerate Cape Town has within its membership structure, sufficient skills and experience to develop an ED model that encompasses improved BEE status, S12(j) tax benefits, and risk mitigation through mentorship.

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