BLSA CEO's weekly - 3 May

BLSA CEO’s weekly – 6 July 2020

POSTED ON: July 6, 2020 IN , , , by Admin
BLSA CEO's weekly - 3 May BLSA CEO's weekly - 3 May

By Busi Mavuso

An important background issue to get right as we face the Covid-19 crisis is that business and government must work together, while understanding our different functions.

What is the right relationship between business and government? As we grapple with the measures needed to kick start the economy in the face of this crisis, we need a clearer view of roles and responsibilities. We must work together, but also understand our different functions. In the many engagements that are and must happen between business and government to develop the crisis response, this is an important background issue we must get right.

At one level, we obviously have common interests. Both government and business want a thriving economy that can generate the revenue needed for government to deliver on its political mandate. Without taxes and other revenue, government cannot do its job of eliminating poverty and reducing inequality. The astounding R300bn fall in revenue (21% less than originally budgeted) that government is now expecting this year is a major constraint on government programmes. This is even more problematic because government finances were in bad shape before the crisis anyway, so it cannot borrow as much as needed to make up the difference. South Africa does not have the luxury of other countries which either had minimum debt levels going into the crisis or can raise debt at negligible interest rates. We were already on the back foot.

Our only option for getting out of this financial hole is economic growth. And this hole is an extremely deep one – deeper certainly than any we have been in since democracy and probably not seen since the Great Depression. Escaping it is a common goal for business and government.

There are, however, deep differences in the nature of the two parties. Government is a single entity, with a head in the president. Business is not analogous. Business is many entities with many diverging interests. Businesses are suppliers and customers of each other as well as competitors. And so, when it comes to policy, there can be winners and losers on the business side that make it difficult if not impossible to find consensus. Some examples to illustrate the point: even obvious policy goals like for energy security do not fit every company (some are in the business of selling alternatives like generators). Business also inevitably represents incumbents, whereas we need to think of the thousands of new businesses that don’t yet exist and what sort of environment would catalyse them to become competitors to incumbents.

But there is also a genuine social responsibility reflected in South African business. We don’t often realise this, but compared with other countries, South African business is remarkably willing to lean in to deal with crises we face. The Solidarity Fund was an obvious example in the face of the current crisis, with government and business jointly overseeing a vast philanthropic effort, with over R3bn pledged. Many of our members have contributed with their staff adding more through salary cuts. They’ve been joined by charitable foundations and thousands of individuals. I think the Solidarity Fund is unique in the world. Business in many other countries thinks it is solely the responsibility of government to deal with social problems, but not here.

This demonstrates that business thinks beyond its narrow interests. I see this all the time in our membership, a diverse group of South Africa’s biggest companies. In our discussions about growing the economy, we are focused on how we build a thriving small business sector, among which our future large companies may be seeded. We are seized by how to deal with the spatial legacy of Apartheid that places a high burden on both employees and businesses to overcome the irrational positioning of economic activity and people’s communities. We are focused on how to drive greater standards of ethical leadership within business as well as outside of it.

Business, however, is good at only some things. We can be efficient – the systems and processes that businesses develop mean we deliver things to market fast at low cost. We can innovate and develop technologies to do that. We can mobilise capital to invest in infrastructure and intangibles like skills and systems. However, government has a responsibility beyond that of business, to protect the vulnerable, care for the sick, deliver justice and ensure an even playing field for business. It also can support innovation through its universities and research institutes, creating knowledge that supports all of us.

Government must always put the public interest first. Business must understand that. Our responsibilities should be different – we must advocate for the environment that would allow companies to invest, develop the economy and deliver high quality products and services to our customers, including to the government. We know the policy environment that would allow that. We need to be clear and advocate for these to government. We need to show how they align with the public interest. Government has the responsibility to hear us out and to embrace those policies that align with its public interest objectives, while pushing business into finding solutions through good policy design. Of course, some policy will constrain business in the public interest – government must be unambiguous in drawing those lines. But we understand this. The time has come to forge ahead and rebuild the economy.

On the more immediate challenges of the Covid-19 crisis, I wrote in Business Report that a strong social compact is needed, and business and government have to work closely together to ensure that the least amount of lives are lost and that the economy holds a promise of a better tomorrow. With a limited fiscus, private sector participation is the only way we’ll get proposals off the pages and into the real nuts and bolts of the economy. The private sector stands willing to invest in growth-enhancing projects alongside the state.

We need to give hope

Not all government debt is bad. The key is to ensure that government funds are geared towards growth-enhancing measures that will benefit the vast majority, I wrote in my Business Day column. As a nation we need to understand that debt comes with much responsibility. It will have to be managed well if the state is to exploit that debt to reduce poverty and inequality.

Government debt

A reminder of the briefing we hosted between Eskom CEO André de Ruyter and business leaders on 24 June. The Eskom CEO outlined much progress he has been making in managing Eskom out of its challenges. You can read a write-up of the briefing on the BLSA Hub.

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