5 trends entrepreneurs can capitalise on this year in South Africa

In the year 2018, a change of guard in the ruling party promises renewal after the past few years of weak economic growth, poor governance and low confidence.

On the back of such, starting a business from the ground is a major milestone that many people are thinking about in 2018. As a result, there is little faith that ordinary people and business alike can have a big impact on the robustness of the economy.

Their prospects to start a business will among others, close the unemployment gap, boost investment levels to the National Development Plan target of 30% of GDP.

Trudi Makhaya, consulting economist for Mercantile Bank highlights several main themes for entrepreneurs to look out for in 2018:

The Second Coming of the National Development Plan

In a speech outlining his vision of the economy last December (a New Deal for Jobs, Growth and Transformation), Cyril Ramaphosa outlined a policy package focused on the creation of decent
jobs, boosting investment levels to the NDP target of 30% of GDP, localisation, land reform coupled with agricultural productivity, fiscal discipline, black economic participation, ‘de-concentration’ of the economy, infrastructure development and SOE reform.

This will be underpinned by quality education (including free higher education for the poor) and measures to root out corruption.

Ramaphosa’s ‘New Deal’, and his general stance on the economy, is in line with the pragmatic and market-based NDP. There are some points of divergence between the New Deal and the NDP, for example, Ramaphosa’s focus on ‘decent’ jobs, mostly in manufacturing. The sector is to be stimulated by ‘special economic zones, tax and other reforms, incentives and SME development’.

Whereas the NDP pinned its hopes on ‘mass entrepreneurship’ and had relatively little to say about manufacturing. Ramaphosa’s economic vision is more interventionist than some of his business supporters realise.

For example, it promotes the judicious use of ‘import substitution’ to support local production. Import substitution has been a dirty word since the 1990s with its suggestions of
restricting free trade. But in a post-Trump/Brexit era, it sounds mild and if indeed it is ‘judiciously’ applied, it may bring jobs and narrow the trade deficit.

But it’s important to note that research by Professor Neil Rankin and others has shown that the most competitive exporters in South Africa are also intensive importers – they need sophisticated inputs, and there are important learning effects from importing technology and know-how from overseas.

Imports, in and of themselves, are not a bad thing. Nonetheless, wrinkles such as this aside, Ramaphosa’s economic platform could boost confidence and revitalise the economy.

With so much on his plate in the political sphere, breathing new life into the NDP, with some updates and modifications, seems to be the most efficient way forward. It poses low risk, given general consensus and business buy-in into the plan. The organisational infrastructure for its implementation and monitoring is already in place though it could use a kick.

It would be prudent to follow up on the recommendation by the Motlanthe-led High Level Panel on the Assessment of Legislation for Parliament to legislate the NDP. This will elevate it into a law to be enforced and monitored, and not just a special project of the Presidency.

The resurrection of the NDP will also need to be accompanied by a ruthless focus on execution and there are better prospects for this in a Ramaphosa-led ANC.

Governance reboot in corporate South Africa

After the corporate scandals of 2017 – the ‘state capture’ axis involving McKinsey, KPMG, SAP as notable participants; then the ongoing Steinhoff saga playing out in global markets – the reputation of corporate SA in tatters. Reputation gurus, public relations companies and lawyers will cash in.

Equity analysts will take a closer look at company statements and more skeletons might come tumbling out of closets. Was it all lip service to the King Codes on corporate governance and groupthink that propelled South Africa’s accounting standards to the top of the World Economic Forum competitiveness reports? Or is it just a case of a few bad apples?

It remains to be seen if there will be deep soul searching in corporate SA. But at the very least, the pointless debate about whether corruption is a public sector or private sector phenomenon, with all its shaky premises and questionable assumptions, will take a back seat. This may help to repair relations between business and government.

This year – business ties with tainted companies will continue to be severed, investigations will yield outcomes, and prosecutions (which until recently seemed more probable in Steinhoff than in the state capture axis) may commence.

A change of guard at the ruling party may see more vigorous local action. Multinational will pay greater scrutiny to their local practices. Some may pull back.

The casualty will be genuine efforts at transformation and empowerment. ‘Local partners’ will have to go through the most just to get a foot in the door on major contracts. But the fall-out will also benefit ‘second-tier’ local firms – auditors, consulting companies and other service providers – that take on work vacated, involuntarily or voluntarily, by the likes of KPMG and McKinsey.

Regulatory institutions and industry bodies – the Financial Services Board, Johannesburg Stock Exchange, Independent Regulatory Board for Auditors and others – will have their hands full and will have to take decisive actions that restore faith in South Africa’s corporate integrity.

This highlights the importance of getting governance right, and being consistent about it, a key lesson for entrepreneurs.

Land reform debate rages on

The rights to equitable access to land, restitution and security of tenure are enshrined in the South African Constitution. The subject of land reform has always been heated in post-apartheid South Africa, with the need for redress and transformation pitted against the need to provide certainty in property rights and agricultural productivity.

There has also been much contention about whether the Constitution constrains the government from implementing significant land reform.

In 2017, the High Level Panel on the Assessment of Legislation issued a slew of recommendations on land reform. These include untangling the various aspects of the land question to clarify the goals and scope of redistribution, restitution and security of tenure respectively.

Over time, the panel found that the programmes and resources for land reform have drifted from its initial pro-poor focus and even shows signs of elite capture. Thus, the recommendation for the legislature to pass framework legislation to set out the goals, beneficiaries and modalities of the three pillars of land reform.

There is also the need for the overhaul of the land records system, which has failed to formalise the property rights of millions of mostly poor people in rural areas and in townships.

Security of tenure has also been undermined by top-down interpretations of customary law instead of the more historic consensus-based approach based on consultation and community consent, and not the power of leaders.

The panel also made recommendations on the more general topic of spatial inequality to break down the persistent remnants of ‘apartheid geography’.

These recommendations provide a legislative package for a group of motivated legislators to run with.

At its 54 th national conference, it was “resolved that the ANC should, as a matter of policy, pursue expropriation of land without compensation. This should be pursued without destabilising the agricultural sector, without endangering food security in our country and without undermining economic growth and job creation.”

A clear and pragmatic programme on land reform could set the stage for a wave of entrepreneurship across the agro-processing value chain: getting new farmers to scale, energising export initiatives, building infrastructure and support services.

Formalising property rights may also prove to be a productive use-case for blockchain technology to enable consensus-based, tamper-proof records that recognise diverse forms of property rights (especially customary rights).

The people versus platforms

Over the past decade, platform-based business models (or to use a technical term, two-sided markets) have risen to prominence. These businesses, which make money by building platforms to bring two (or more) parties to a transaction together, have disrupted various markets.

They have taken the friction out of transactions, lowered costs and have deepened connections across the globe.

But the main platforms – Uber, Airbnb, Amazon, Google, Facebook, have come under fire over concerns about their power. These businesses boast size, influence and market dominance.

This has raised questions about how they exert that power over their users, creators, partners and across their respective value chains. There is also growing disquiet over privacy and the commercial exploitation of personal data.

The US election campaign in 2016 brought to light the ways in which social media can fuel false news, propaganda and polarisation. At a personal level, social media also distorts human relationships and has effects on mental health. In 2013, Randi Zuckerberg (Mark’s sister and one-time employee) wrote Dot Complicated, giving advice on ‘how to make it through life online in one piece’. We should have listened.

Though these platforms have enabled new kinds of working arrangements (uber drivers, freelancers, independent content creators), they have not established norms and rights for ‘workers’. There is also backlash against the competitive dynamics they have unleashed, especially perceptions of market power and undercutting rivals (uber) or inflating prices (Airbnb) in property markets.

The main platform businesses will continue to attract intensified regulatory scrutiny, but also the rise of people power.

Users are reclaiming ownership over their data and information. The rise in popular consciousness about some of the negative or unintended consequences of these business models has not undermined them to as significant degree, at least not yet.

Though Uber suffered a major setback by losing its license in a major global city (London, and also in Sheffield), it has largely contained waves of protest by drivers and also its traditional cab rivals.

Yet interesting expressions of people power are gaining ground in the platform economy. Drivers are forming co-operatives to offer ride-hailing alternatives, people are switching away from Google search, users are blocking ads.

A digital consumer (and co-creator) movement is afoot.

Bitcoin meets bureaucracy

The Financial Times called it ‘an investment mania for the fake news era’. Bitcoin means different things to different people. Some people are happy to use the crypto-currency purely as a means of exchange.

Yet many others have climbed aboard the bitcoin train on the prospect of making speculative profits. And these are not only professional investors but taxi drivers, ensioners and everyone in between. In fact, very few established professional investors have fully embraced bitcoin and other crypto-currencies.

Some of what drives the runaway value of bitcoin is its usefulness in countries facing fiat currency meltdowns, like Zimbabwe and Venezuela, or where trust in the official management of the currency is low, as in Nigeria.

It has also been argued that the heavily sanctioned North Korean regime uses the currency to conduct illicit trade with the rest of the world.

With its value surging from US$998/bitcoin on 01 January 2017 to peak at US$19 087/bitcoin on 17 December and back to US$13 860 by the end of December (as quoted on CoinDesk), comparisons to other episodes of financial bubbles and technological exuberance are
unavoidable.

In 2018, national governments will try to protect their citizens from the inevitable bust that will visit bitcoin. They will weed out the unscrupulous exchanges and the scams. They will make it more difficult for ordinary people to acquire personally meaningful stakes in cryptocurrencies.

The conduct of initial coin offerings will fall under the spotlight. All this is largely in the public interest as the casualties of a crash will be vulnerable, recent entrants into cryptocurrency trade.

But no bureaucrat can put the genie back in the box. Moreover, there are productive uses for cryptocurrencies and the blockchain technology that underpins them. Corporates are coming on board, with their own bureaucratic filters, to adopt some uses of blockchain in functions ranging from asset tracking to smart contracts.

However, the temptation is for entrepreneurs looking for the next big idea (and attention) to gratuitously incorporate cryptocurrency and blockchain in their business model.

It is important to sense-check any inclination to adopt the blockchain with questions such as: can this not be done using real money? can we just as easily run this operation on an open Google spreadsheet?

Read: Here’s how entrepreneurs and businesses can score in 2018