Balancing the Equation: SMMEs and Role in reducing inequality

1. Balancing the Equation: SMMEs and Role in reducing inequality Vuyo Mahlati Africagrowth 13 October 2011 Johannesburg

2. Growth and Inequity: Human Development Indicators • South Africa’s human development indicators compare poorly to countries which have similar levels of per capita income (Brazil, Malaysia, China, India & Turkey) • GNI/capita (PPP 2008 - 9 812$) • Employment to Population ratio – 41.1% in 2008 (% of population ages15–64) • Population below income poverty line(PPP$1.25/day) 26.2% (2000–2008) • Income Gini coefficient - 57.8 (2000–2010) (Source: UNDP Human Development Report 2010)

3. Inequality Trends • Increasing Unemployment and Wage Inequality • Massive divide in basic services, economic infrastructure and business support services and access to finance • Space Economy • Dominance of Gauteng and Western Cape with relative decline of E. Cape, Free State, N. Cape • Long term decline of manufacturing weakens major urban economies • Major job losses in agriculture and poor infrastructure undermines rural economies • Race, Gender, Youth, Disability • The Digital Divide

4. Constraining Factors • Skills biased economic change • Rise of China has cost us jobs in labour-intensive sectors • High reservation wages • High job search costs due to spatial Apartheid • Salaries rising faster than productivity • Generally rigid labour laws • Specific labour laws, such as firing costs, bias against hiring untried staff • Discriminatory practices left over from Apartheid • Uncompetitive and volatile exchange rate biased economy against tradables (which are more labour absorbing)

5. Critical Role of SMMEs in reducing inequality • From an economy that boasted a profitable mining sector, a sophisticated financial sector and high skills service sectors serving a small elite • Structural faults extending to poor labour absorption, high levels of capital intensity, poor skills levels, inward looking monopoly industries and inefficient state owned companies to • An economic model that builds on the gains, redress imbalances, targets emerging opportunities for inclusivity (sensitivity to space, race, gender, age gaps), job creation, competitiveness, balancing economic growth with social equity

6. SMME strategies • Supporting sectors that create low-skilled jobs: tourism, agriculture, mining, construction; • Reviewing the structure of production in existing and new opportunities, e.g. energy: i) coal dependency (90% for electricity) – create opportunities for SMME participation in coal , as well as ii) renewable energy; • Design support strategies/incentives for raising productivity and creating jobs in manufacturing; • Review SMME strategies ito transformation legislation/strategies e.g. BBBEE Act, preferential procurement, etc. • Explore possibility of SMMEs as platform for school to work transition.

7. Targeted Strategies • Leveraging new and existing technologies • New green technologies and the emerging convergence of the NBIC (Nanotechnology, Biotechnology, Information Technology and Cognitive Science).

8. Investment in Enabling Frameworks • A Strategy for Economic Infrastructure investment • Rural rejuvenation and the rural-urban interface • Responsive Institutions and enabling legislation with competent drivers