Sep 15

Business Partnership With Government: Reasons For Cautious Optimism

An Article By Ian Kilbride, published in the Business Report.

The entire edifice of the financial services sector is built on trust and confidence. Given the size, sophistication and importance of the financial services to the South African economy, a constructive working relationship between business and government is vital to the sector’s growth and sustainability. Yet, trust and confidence at the highest level between business and government was decimated during President Zuma’s lost nine years and continues to suffer from the unfulfilled expectations of the new dawn promised 2019. The manner in which a phalanx of government imposed national lockdowns in 2020 were imposed during the Covid-19 pandemic damaged relations further.

But there are tentative indications that the operating relationship between organised business and government is being repaired, albeit at a frustratingly slow and uneven pace.

Leading this evolution is the Business for South Africa (B4SA) pledge by some 130 major South African companies, employing 1,3 million and a combined market capitalisation of R11 trillion, to work with government to help address the three national challenges of energy security, broken infrastructure and logistics and rampant crime. No less than 25 companies in the financial services sector have joined the initiative. Indeed, the ambitious programme is being driven and co-ordinated by two leading figures from the industry. On one view, that business feels compelled to ‘come to the rescue’ of government in these three areas is the clearest indication of state failure, with concerns being expressed that business is being duped into a false sense of partnership with government. Yet, this time it’s different.

While government may persist in its mantra of building a ‘capable state’, the achievement of which would be widely applauded, this is far from realisable in the short to medium term. In fact, the energy crisis, rail and port failures and persistently high crime rates point to the opposite. By contrast, the private sector has shown itself to be remarkably adept and successful in delivering services that the state has proved incapable of providing, ranging from quality secondary education to professional healthcare and reliable private security.

Indeed, the B4SA initiative suggests that the power relationship between business and government has shifted somewhat. Firstly, the agenda for this new partnership was not set unilaterally by government. During the process of crafting the ground-breaking agreement, business informed government that treating it as a pliant supplicant at best, and a threatening capitalist enemy at worst, is mischievous and counterproductive. More specifically, the convenient populist trope that the South African economy is controlled and run by white monopoly capital is factually incorrect and miscast. As a ground rule for its engagement and pledge, organised business made it clear that the days of the private sector coming to the party purely on government’s terms and conditions are over.

Secondly, corporate leaders emphasised to government that to commit its scarce resources, talent, time and capital to the new partnership, business had to be regarded as an authentic and trusted co-author of the economic reconstruction agenda. Business then identified the areas that were in critical need of attention, key to economic growth and by extension, in the government’s national interest. For example, the World Bank estimates that South Africa lost out on a staggering R432 billions of growth in 2022 alone due to power shortages. Tackling the electricity crisis is the country’s cardinal economic challenge.

Relatedly, business identified sectors not only requiring urgent remediation, but also those in which it had the specific skills and resources to bring about improvement. The B4SA initiative estimates that, if implemented effectively, the new partnership has the potential to boost economic growth by some three percent.

Yet, while encouraging, the B4SA initiative faces significant hurdles that only government intervention can overcome. Government leadership must drop its ideological resistance to partnering with the private sector and rather focus pragmatically on the national interest. Indeed, government and business interests are reconcilable. Take for example the list of government priorities enshrined in the 2023 state of the nation address, namely: restoring energy security, growing the economy and jobs, building better lives, fighting corruption, making communities safer and making government work. It’s a list of national importance which organised business endorses, has put its name to and its efforts behind.

But the real test is to be found in government’s commitment to create the policy, legislative and regulatory environment for the private sector to meet its pledges and the early signs are not encouraging. In the case of energy for example, the first requirement is for the expeditious passage of the Electricity Regulation Amendment Bill through parliament. The Bill is regarded as, “Crucial to ending load shedding, expediting energy development, expanding transmission infrastructure, establishing a competitive electricity market and attracting investment in the energy sector.” Yet, despite the urgency and centrality of the Bill to bringing relief to consumers and the economy, the Bill will be out for public hearings until December, with the Chair of Parliament’s Portfolio Committee on Mineral Resources and Energy acknowledging that it will not be passed by year end. More alarmingly, if not passed before Parliament rises for the national elections in 2024, the Bill itself will lapse.

So, the message is clear, South Africa’s economic recovery can be found in pragmatic partnership between business and the state, but this has to be underpinned by steely political will and determination.