Analysis

Western Cape economic development support agencies lack the capacity to halve unemployment

Whythawk Ratings (white-hawk), the South African NGO rating firm, has just released their review of the performance of enterprise and small business development consultants in the Western Cape, South Africa.

Rated organisations collectively managed to create approximately 8 200 jobs in the past 12 months. The average level of unemployment in the Western Cape is about 26% and, according to research conducted by the Human Sciences Research Council, this would equate to a requirement of creating a minimum of 67 000 jobs a year in the Western Cape in order to halve unemployment by 2014.  

"Western Cape small business support is falling far short of this requirement meeting only 12.2% of this target," says Hermann Jeuschenak, Director of Ratings at Whythawk.  "Of concern is that businesses created are extremely small, generating 2.15 jobs per business at an average salary of R 1 300 per month. That said, businesses who received support and then entered the market have an 83% chance of still being in business 12 months after the completion of the consultant's intervention."

The average business plan produced by an enterprise development consultant calls for loans of R 165 000, while banks prefer to finance an average of R 233 000 per business.  "Development organisations are not equipping their clients with business plans likely to secure finance," says Jeuschenak.  "Only 15% of individuals who apply for business finance actually receive any.  Banks are also extremely slow at reviewing business plans.  It can take two to three months just to find out whether or not the bank will support a loan."

Whythawk Ratings defines an Enterprise Development Consulting Agency as an organisation providing or arranging to provide for the skills development of a person wishing to, or already operating, a business. Such skills development may encompass a wide range of services: from personal skills assessment, to training, business plan development or assessment, business process / systems / product development, introduction to finance, and implementation care and support.

To provide such designated business support services the organisation: i) accepts a fee from the client for the work so produced; ii) works via a government or private institution through a voucher program; or iii) works on project-based work as part of government or private institutions’ involved in small business development.

The average rated score of Western Cape organisations is BB. On the Whythawk scale of ratings this qualifies as marginally sub-standard and of an inadequate quality to produce meaningful results.

This aggregated review encompasses work performed in the Western Cape in the evaluation of individual enterprise development consultants operating in the region. A total of 36 organisations operating throughout the Western Cape were analysed. The organisations have, between them, consulted to an estimated 5 200 individuals either wishing to start a business or improve their existing ones. Organisations were interviewed and then their clients (the beneficiaries) were sampled to ascertain their views on their experiences.

Consultants report a general dissatisfaction with the support they receive from government and an overall low level of confidence (at 4.63 out of a possible score of 10). Of major concern is that the Western Cape Provincial RED Door enterprise development initiative is actively recruiting the most capable staff from enterprise development agencies and, thereby, undermining the abilities of these organisations without adding in additional consulting capacity.

"By rating and reviewing the performance of enterprise development consultants we are able to determine the overall level of new business and job support, as well as the capacity of the development sector to realise government’s intention of halving unemployment by 2014," says Jeuschenak.

Overall the industry needs to focus more attention on improving their effectiveness to ensure that a greater number of businesses are started and that these are of a greater size.

View the full report  

The 'War Against Corruption' starts with ending the 'Culture of Entitlement'

“Everybody knows that any war on poverty would start with a successful war on corruption. The grotesque disparity between the rich and poor is maintained and exacerbated by uncontrolled greed at the very highest levels of government,” writes Patrick Guntensperger, in the Jakarta Post.  

The seminal difference between developed and developing nations appears to be the amount of trust they place in officials.  The vast bulk of people are fair-minded but a few seek to exploit opportunities to enrich themselves.  The more that corruption is overlooked, the more they will steal.  And the more they get away with it, the more what they do is seen to be a normal way to get ahead.

There are many things that developed nations do that developing nations don’t; one of these is an unsympathetic view towards government officials who help themselves to the public purse.

Corruption, though, is a close relative of entitlement.  Any society that feels that some historical slight gives the current people in power a manifest right to give themselves things they have not worked for will also encourage corruption.  There is only a fragment of a shadow of a hair’s difference between mandating a legal right that goes against standard market practice and stealing something directly.

Consider the land “reform” process in Zimbabwe.  The government identified that poverty was associated with landlessness and that peasants were unable to engage in subsistence farming without land.  This lead directly to legislative initiatives to expropriate land from large-scale farmers and redistribute this to peasants.  This created an entitlement in which peasants felt that they were entitled to land, whether they could do anything with it or not, whether it was theirs or not.  Soon vast swathes of land was being reclaimed, often violently, and settled by unskilled peasants.  Government officials took advantage of the confusion to snatch the most prized farms for themselves and use the army to protect that land.  

Once fecund land fell into disuse since the new farmers had no idea how to farm.  And Zimbabwe starves.

To fight corruption requires that governments in developing countries do something that is entirely counter-intuitive: stop ruling by popular decree.  A populist government will appease the masses sense of poverty and despair by giving them entitlements to redistribute wealth.  Redistributive policies will lead some people into thinking that, since they’re going to get it anyway, they may as well take it right now and not wait.  Large-scale corruption follows and soon there isn’t anything left to take.

Tackling corruption requires investigation and incorrupt police and judiciary.  This can be in short supply.  Rather, nip the whole thing before it becomes rife by getting rid of any law that declares an entitlement; that anyone is entitled to something simply because of who they are rather than in earning it for themselves.

We're from Mars and we want to help: four lessons in development

Imagine the happy day that an alien culture brings the light of their superior technology to Earth.  Imagine for a moment that the Martians, resplendent in their latest fashions, meet with our leaders and indicate their willingness to trade with us.

We have minerals and resources they need; they make shiny things with buttons that go "bloop" that we love.  They have dramatically different forms of governance than us; philosophies that have enabled their astonishing level of sophistication and development.  There is nothing in our Earthling history that allows us to relate.

Overnight we are exposed to their galactic culture and popular fears.  They feel sorry for us.  "Our exploitative culture and pursuit for interstellar novelty is awful.  Hyperspace drives are ruining the galactic environment.  Intergalactic warming is pushing the planets out of alignment.  But you must talk to us - we want to hear your opinions," the environmentally-conscious Martians from GalaxyF1rst tell us.

We express the desire to learn their technology and follow them out to the stars.  "Oh, no, the simplicity of your existence is far preferable to our own.  You really don’t want this."  And they go on to teach us how to be self-sufficient, propping up our unsustainable habits with donations and largesse.  Young Martians come to Earth as volunteers and work in schools and factories, not teaching, just doing what we used to do far better than we can ourselves.

It sounds patronising and protectionist.  Patronising because they are maintaining a relationship of superiority over us by not sharing their knowledge about how to develop to their level; and protectionist because, by their actions, they limit our development and keep us away from their world.  They are allowed to visit us, but they don’t want us near them.

And this is the way that many international development organisations treat the world’s poor.  Amongst the demands by ActionAid, in a report entitled "Power Hungry: six reasons to regulate global food corporations" are these:  i) that massive aid go into supporting small-scale subsistence agriculture; ii) that the small-scale producers themselves set their product standards; iii)that aid should go to governments irrespective of their poor governance or state-led control of their economies; iv) and that prices be "stabilised" by price fixing.
In other words they are denying developing nations the very reforms that enabled economic growth and development in the most sophisticated countries; and they doom the poorest to perennial dependence on unpredictable subsistence farming. 

If development organisations are really serious about ending poverty then we recommend the following approach:

1. Infrastructure development: ensure that local skills exist to build the necessary infrastructure so that they can move their manufactures to market - this would also include the telecommunications infrastructure necessary to move intangible products (such as stories, services and ideas).
2. Education: set up universities and colleges and academic programs to develop local school syllabi - create bursary programs for the most desirable skills; bursary recipients will be required to work their fees off at two years for every one of study in an industry that develops their country
3. Know-how and experience: share the stories of how wealthy nations developed and what was important for that development so that they may learn; don’t keep these stories just to the elite but work with media organisations to disseminate that information; asymmetrical control of information creates problems
4. Governance: ensure total disclosure of everything that the state does; any donations and the recipients must be easily available to anyone; work hard to develop civil society movements that act to counterbalance the power of the state (from newspapers, to NGOs, to independent judiciary, corruption investigators, and police).
   

Everything else must be bought and sold otherwise the shear advancement, sophistication and financial might of the donor will mean that every gift - no matter how relatively small on their part - will act as a colossal dumping of goods and services, distorting the local economy and putting local organisations out of business.

Development is the responsibility of the beneficiary.  The donor’s responsibility is in communicating a path to development and allowing the beneficiary to build that path on their own.

World Cup 2010 asks for big sacrifices from the poor

The South African government has staked its reputation on a successful World Cup in 2010.  “Success” equates with expensive stadiums the likes of which the world has never seen.

The BBC reports that two hospitals in the Northern Cape have been delayed as the money required has been transferred to building stadiums.  With the costs already running exponentially over budget, the question arises:  how much is too much?

Numerous studies have been conducted looking at the value of the World Cup to our economy.  A Pretoria University study puts it at R 5 billion, 0.28% to GDP and the creation of 20 000 short-term jobs.

Grant Thornton, in a report issued as part of the official government application to host the cup declares that the event will: lead to direct expenditure of R12.7 billion; contribute R 21.3 billion to the GDP of South Africa; generate the equivalent of 159 000 annual jobs; and an additional R7.2 billion will be paid to Government in taxes.

Since then the cost has ballooned to R 410 billion. And that was before the stadium tenders were awarded.  These have been some 30% higher than expected.  For instance, the Cape Town stadium, which was to have cost R 2.6 billion, will now cost R 3.6 billion.

In other words, the total cost of the setting up stadiums and infrastructure could be over R 500 billion.  We will be spending about R 100 for every R 1 we make - that is some serious wealth destruction.

The economy has seen tremendous increases in property values as investors price in potential gains from tourism.  The future value to the economy has already been priced in and, by 2010, there will be little result for all our investment.

Cape Town will become the proud owner of a stadium so large, and so carefully situated, that it will block out views of Table Mountain from the harbour.  And the poor will have been shown that state spending on inappropriate infrastructure is known as a “boondoggle”.