On Tuesday 150 top South African business, political and civil society leaders gathered at the Oppenheimer home in Johannesburg for the launch of the Brenthurst Initiative.
It was a uniquely South African event for three reasons:
One, it proposed a local solution to a South African problem: how to achieve growth and ensure transformation of the economy from largely white to predominantly black skills and ownership while improving global competitiveness.
Two, it offered a glimpse into the future of a transfer of the baton from one generation of South African business leadership to another and of a shared awareness not only between these generations but within business generally, black and white, richer and poorer, of what exactly the principal South African ”problem” is.
Three, it provided insights into how business can interact with the government in the transformation process, building a consensus about possible solutions.
The Brenthurst Initiative recognises that South Africa faces a compounding problem of low growth and a relatively slow pace of economic transformation. As Nicky Oppenheimer observes: ”Growth without transformation is unacceptable. Transformation without growth severely reduces our capacity as a country to deliver against our fundamental goals — the creation of jobs and the alleviation of poverty. South Africa’s challenge is to transform and grow.”
The economy has grown on average by 2,7% over the past decade. At this rate unemployment will remain pegged at 29% by 2014. Yet if 5% growth can be achieved unemployment will be halved. If the economy grows at 6%, by 2020 South Africa will increase its per capita gross domestic product (GDP) (in purchasing power terms) from $8 100 today to $17 200. To achieve this, however, perceptions of risk have to be altered to increase investment from 15% of GDP to upwards of 25%. This will also have to include improving the ratio of foreign direct investment to GDP from its current level of only 1%.
How can the economy be expanded at a pace that satisfies the expectations of the majority of South Africans? The initiative offers a way forward: use transformation as an opportunity to address a South African challenge.
At its core, the initiative proposes setting up a transformation ”scorecard” against which companies are measured.
Those that adhere to the scorecard will receive performance-based tax breaks. Not only, the initiative argues, will this empower people within the economy, it will also make adherents more competitive. In a virtuous circle, policy clarity and commitment will also reduce the perception of the risk of doing business in South Africa, thus generating increased investment. South Africa ranks 70th out of 140 nations in terms of investment risk, a rating that rankles President Thabo Mbeki given its stress on political uncertainty. Mbeki has welcomed the initiative ”to stimulate wider discussion and debate on a subject so crucial to our future as a nation” and ”so help to shape a winning future for all of us”.
In essence, the initiative proposes that business accept the bill for transformation and the government the bill for growth — in the short term.
No doubt South Africans will seek to criticise the initiative on a number of grounds: from the general, in that it does not present and scrutinise the other options (such as increased public spending, for example) that may help to address unemployment and create the conditions for social stability and investor confidence; to the specific, that it offers a solution in differentiated tax rates that the Treasury is likely to be set against given the regulatory problems they might pose. Others have questioned how the initiative fits in with black economic empowerment policy and the extent of the lag between reduced fiscal income through lower tax and the moment that the tax base widens and increases through economic growth.
But on paper there appears to be little in the way of downsides. Assuming that 10% of firms have a ”good” level of transformation and that an additional 6% of firms achieve this level each year for the next 15 years, thus benefiting from a 10% reduction in corporate tax rate, the initiative calculates that the average reduction in fiscal take of 3,5% to 4% would be offset by an additional growth rate in GDP of only 0,5% a year.
While the drafters are reluctant to identify a bottom line to the initiative, it is estimated that it alone could double South Africa’s growth to around the 6% margin within the space of two years.
The public response at the initiative’s launch was overwhelmingly positive. One senior minister commented privately that this is what the government has been trying to achieve all along, yet only when business and a family such as the Oppenheimers champion the concept of transformation do people sit up and take notice. Form is important but it is not the critical issue, however. The importance of the initiative resides in its focus on the substance of transformation and the positive perception generated by such public, government and business brainstorming and partnership. Moreover the initiative could prove to be one of those paradigm-shifting ”big ideas”, effective because of its origins and its conceptual simplicity.
Indeed, over the past 100 years the world has been shaped by such ideas. These include the articulation of the United Nations concept, the Bretton Woods system and the Marshall Plan at the end of World War II. Locally, the conceptual seed for the domestic political talks of the early 1990s was sown, arguably, in the high- and low-road scenarios of the late 1980s.
Many have sought South African leadership and advice since 1994 because of the nation’s success at conflict resolution. That success is ultimately dependent, however, on the ability of the country, the exemplar of political transformation, to replicate this in the domain of economic ownership — not just in ownership equity terms, but also with regard to skills, training and employment, the very stuff of empowerment.
South Africans may have discovered an equivalent to the slogan ”Just do it”. It reads, ”Go for it”. Like the 1994 negotiation success, the Brenthurst Initiative is positioned to offer a new way forward, a quantum leap ahead that others may seek to emulate.
Dr Greg Mills, National Director of the South African Institute of International Affairs in Johannesburg, attended the launch of the Brenthurst Initiative.