KwaZulu-Natal Legislature  
PIETERMARITZBURG: 22 July 2009

Madam Speaker 

The mission of the Department of Economic Development is job creation and poverty alleviation through accelerated economic growth. But truth be told, in the current recessionary economic climate, this department is not achieving any of these goals. What it has to show for its substantial budget is, however, a string of scandals relating to some of its projects as well as inflated salaries for the top echelons of the KwaZulu Natal Growth Fund. In this regard, the management of the KwaZulu Natal Growth Fund has taken a leaf from the book of its overpaid colleagues at the Ithala Finance Corporation.

The IFP has long supported the principle of job creation and we agree with the provincial government’s policy of providing public investment to achieve this goal. This is particularly true of state-funded investments in the small businesses where jobs are of a more sustainable nature compared to the long-running Extended Public Works Programme, which by its very nature is largely temporary and where little training and skills transfer takes place.

On the surface, both Ithala and its subsidiary, the KwaZulu Natal Growth Fund, are programmed to do just that – to fund small business initiatives that train individuals for the job market, develop and transfer practical skills and ultimately create sustainable jobs. In practice, however, much of the investment that these entities provide is bad investment with grossly inflated overheads and insufficient return. Very often, decisions to grant start-up loans are driven by political concerns rather than merit.

This damning assessment is well supported by facts. The jobs the KwaZulu Natal Growth Fund, in particular, is attempting to create are simply too costly and uneconomical. Let me give you an example. The three projects proudly featured in this public entity’s 2007/2008 annual report, namely Ocean Masters Marine Services, Digitot, and Aryan Asphalt, aim to create 300, 75, and 38 jobs respectively.

Apart from the fact that these projects are riddled with management and performance-related problems, their goals in terms of job creation do not remotely match the government’s declared pledge to create hundreds of thousands of jobs to accommodate new entrants into the labour market and make a dent on our country’s structural unemployment. What is wrong?

Madam Speaker, the reason why many state-funded projects do not take off without continued financial backing is the same as the reason why private investors would think twice about funding them in the first place. Private investors tend to look at the big picture and what they see is mostly disheartening.

There is the stringent industrial legislation in South Africa, the major red tape obstacles to do business, the poor educational system, the high incidence of corruption, low productivity, high crime levels and the tendency of government to move more and more towards centralisation, the undermining of the judiciary, threats of expropriation of  assets and property without applying the willing buyer willing seller principle, the lack of a clear distinction between the ruling party and state and the undermining  of the constitution, to mention a few drawbacks.

If we are serious about creating sustainable jobs where they are needed most, we must provide tax incentives for new investments in the manufacturing industry, particularly in rural areas. We must also reform or even abolish SETAs, introduce training incentives for businesses, readjust the mostly unworkable and costly Black Economic Empowerment and affirmative action initiatives and do away with the policy of providing loans and jobs for pals. In other words, we must do away with much of the current practice behind the free enterprise façade of our public entities.

Governments are hopelessly incapable of running businesses efficiently and effectively; entities such as Eskom or the South African Airways, not to mention government departments themselves. Given the poor business performance of such flagship entities as Ithala or the KwaZulu Natal Growth Fund in this province, one must conclude that these are largely sheep dressed in wolves’ skins or inefficient parastatals parading as successful businesses.

The encouragement for the formation of small businesses must be matched by an environment where business can do business freely and with minimum interference from the government and its inflexible and controlling institutions and where individuals and communities are equipped with truly marketable skills that can bring unemployed people into the labour market permanently. Sadly, there is no other way in which we can hope to eradicate the stubborn structural unemployment that is strangling our prospects for future economic growth.

Madam Speaker, we in the Official Opposition are in full agreement with the provincial government that we must, despite the current recession, continue to spend on infrastructure because such investments will generate growth when demand naturally increases in the domestic and global economies. But we insist on looking for private partners to help fund that infrastructure spending. With the right incentives in place, there is no need for the taxpayer to fund single-handedly all the infrastructural projects currently planned or underway.

This sort of philosophy should be the engine behind the public entities such as Ithala and the KwaZulu Natal Growth Fund. If their top managers truly championed free enterprise, open opportunity and meritocracy, they would probably deserve the remuneration packages they are receiving today undeservedly and courtesy of their friends in high places.

I thank you.

Contact:
Dr Lionel Mtshali
078 302 0929