Harness, support the ingenuity of our people

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Encouraging entrepreneurship is not just the best option for South Africa in addressing income inequality, but the only viable one, writes Paresh Soni.

While the South African economy has grown since 1994, poverty remains relatively high and the country has the highest income inequality in the world.

ADDRESSING widespread poverty is the single most important policy challenge facing South Africa.

Not only is poverty high when benchmarked against other emerging economies of the world, but also the rate of poverty reduction has been slow.

While the South African economy has grown since 1994, albeit at a snail’s pace, poverty incidence remains relatively high. On a parallel plane, another critical development parameter indicates that South Africa has the highest income inequality of the world.

According to a recent Oxfam report, South Africa’s Gini coefficient consistently ranges from about 0.660 to 0.696. The Gini co-efficient is the measure of income inequality, ranging from 0 to 1.0 is a perfectly equal society, and a value of 1 represents a perfectly unequal society. This would make South Africa one of the most consistently unequal countries in the world.

In terms of overall development, inclusive development has been seriously lacking in South Africa. The critical challenge is to spread the payback of economic growth among the people, especially the poorest.

As much as this sad state of affairs has been politically dressed up in all sorts of radical narratives and memes, the crux of the ANC’s recent Policy Conference has been about the urgency for transformation to a society with a more equitable distribution of wealth.

Indeed, poverty and rising income inequalities are critical challenges for South Africa.

They adversely impact inclusive economic development and socio-political stability, and simultaneously impede progress in health and education. With rising unemployment rates, South Africa will continue to have the highest income inequality in the world in 2020, measured by the Gini Co-efficient. There is an imperative to transform or face the wrath of the down-trodden masses.

This unequal development, though, is not unique to South Africa. Governments in both developed and emerging economies have been under pressure to cut fiscal expenditures and reduce unemployment. Equally, there has also been an increased focus on the need for governments to pursue inclusive growth, rather than merely focusing on macro-economic indicators, like gross domestic product.

Governments have been increasingly concerned with the need to provide decent and productive work, especially for their burgeoning youth populations, which are likely to be unemployed or underemployed at higher rates.

Conversely, many emerging economies, including South Africa, continue using the public sector to achieve employment goals, resulting in relatively bloated public service sectors that do not contribute in any meaningful way to the prosperity of a country.

Deriving from this negative experience, many developing economies of the world have begun to explore entrepreneurial initiatives as a means to facilitate job creation and inclusive economic growth.

Even the cornerstone of South Africa’s National Development Plan espouses entrepreneurship as a means of dealing with a flagging economy and the perennial question of unemployment.

However, while South Africa has embraced rhetoric extolling the benefits of entrepreneurship, entrenched political, economic and socio-cultural interests limit these efforts. The country has yet to create the economic ecosystem necessary for entrepreneurship to thrive – that is, an integrated policy environment that encourages start-ups and enables entrepreneurial ventures to take hold and succeed.

Instead, many challenges continue to impede South African entrepreneurs from reaching their full potential.

Entrepreneurship is more than just an economic term – it is a way of thinking. Creating jobs, empowering people, and giving individuals access to better lives for themselves and their children is certainly a development goal which all countries aspire to.

It is no wonder, therefore, that entrepreneurship has become a dynamic, emergent part of global economies promoting inclusive growth. It can provide the solution by creating wealth, jobs and social empowerment, especially if South Africa is to address the issue of poverty with some degree of success.

History and empirical evidence inform us we have no choice but to actively encourage entrepreneurial ventures.

Unquestionably, entrepreneurship offers the opportunity to South Africa’s poor to earn a sustainable livelihood. It represents a sizeable engine of decent employment generation and can make an important contribution to sustainable development by creating jobs and driving economic growth and innovation, fostering “radical economic transformation”, reducing poverty, improving the quality of life and promoting the equitable distribution of wealth.

Notwithstanding the fact that entrepreneurship can contribute significantly in achieving inclusive growth, South Africa has existing political, economic, and socio-cultural challenges, especially in areas such as regulation, finance and education.

The public sector, likewise, remains a major challenge.

This sector remains the largest employer in South Africa and has historically absorbed excess labour, accounting for more than 60% of total formal employment. It is a major problem, increasingly burdening public finances, especially through the wage bill.

At another level, while South Africa invests vast amounts of money in small business development, the outcomes are dismal. As a result, the sector is not able to generate jobs to assist in offsetting unemployment. Youth labour markets here are also in a state of disarray.

According to Stanlib, the labour market participation rate for young people is a mere 26%, compared with 46% in the rest of the world. Troublingly, this unemployment and labour force participation figures are combined with high rates of underemployment, as many youths are only employed because they have accepted jobs below their qualifications in order to earn money.

Recent statistical information indicates that the country’s unemployment rate has increased to 27.3% in 2017.

Given the above-mentioned poor record of small business development, the recent down grading of the economy and the fact that South Africa is in a technical recession, it behoves all sectors of our society to promote an ecosystem.

Paresh Soni is the Associate Director for Research at the Management College of Southern Africa (MANCOSA) and writes in his personal capacity